India’s Private Insurance Market Keeps Growing – Slowly but Surely

Even though China gets most of the headlines, there’s been slow, but steady, progress for private insurers in Asia’s other billion plus people country – India. Although its rate of growth has slowed recently, mirroring the slowdown in the global economy generally, it has nonetheless posted average growth of around seven percent per annum since 1997.

“Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment began in the early 1990s and has served to accelerate the country’s growth,” notes the CIA Fact Book. “India’s diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for more than half of India’s output.” The country’s GDP was $1.538 trillion at current exchange rates in 2010, and the insurance market is estimated at around $41 billion.

Those service providers, industrial conglomerates as well as India’s growing middle class, need insurance coverage. Starting at independence and culminating in 1972, the only coverage provider was the government, as private companies were nationalized. However, as the industrial base expanded, government were loosened, and more private sector companies went into business. They have led India’s transformation, and will continue to do so.

It was only a matter of time, until private insurers were readmitted to the Indian market, albeit it on a restricted basis. The first one given permission to enter the Indian market was Royal & SunAlliance [now known simply as RSA]. It concluded a joint venture to offer non-life products to both commercial and personal customers with India’s Sundaram Finance Limited in December, 2001.

“The [Indian] government wanted to develop a more open economy, but they also wanted to do it gradually,” said Philip M. Bulgin, RSA’s head of Mergers & Acquisition in emerging markets. He explained that one of the major concerns in opening the market was a fear that foreign companies would exercise too much control over it, before Indian companies could gain the necessary expertise, and raise the amounts of capital needed to compete with them.

As a result foreign equity participation has historically been limited to 26 percent of capital investment. At the time he spoke with the IJ, Bulgin was optimistic that the amount would soon be raised to 49 percent, a move that RSA and other insurers have been seeking for ten years. However, as is often the case in the world’s largest democracy [as well as in others, it should be noted] political infighting scuttled the proposal, at least for the time being.

The impasse between the ruling Congress Party and its bitter rival, the Hindu nationalist Bharatiya Janata Party (BJP), comes at a very inopportune moment. A number of insurers were considering either further expansion in India, or seeking to enter the market. Lloyd’s, which has long been barred from direct participation in the Indian market, has even scheduled a visit to the country in February.

Nonetheless, Bulgin, who is quite familiar with the intricacies inherent in emerging markets, remains confident that RSA’s presence in India is solid and will grow. It is concentrated wholly on the non-life sector, which he described as an “excellent market.” Whereas many companies are focused mainly on corporate and large commercial business, RSA also sees opportunities in personal lines.

“We’re in both corporate and personal lines,” Bulgin said. “The personal lines are principally motor (auto) and household, but we also have a growing agricultural sector as well.” More than half of India’s population remains dependent on agriculture, but there are fewer oxen and water buffaloes pulling the plows and more and more tractors and harvesting vehicles. “They are a growth market for insurance,” said Bulgin.

He explained that RSA’s main goals in India are to keep improving its distribution networks, both in terms of size and in the competence of the people whom RSA works with. “Distribution is critical; we’re constantly working with our branch networks, brokers and agents in helping them to develop their expertise and improve their competence.”

Asked about the problem of corruption in India, as in many emerging markets, Bulgin stressed that RSA has stringent rules – worldwide. “We have a clear policy to be honest and transparent.” He said the biggest problem in India isn’t with corruption, but with the “slowness” of getting things done.

In conclusion Bulgin said the Indian market is developing very fast. 43 percent of the insurance market is private [which includes life insurance] and 57 percent remains public. It is absolutely necessary to, work with local partners, who know their market, and carriers like RSA know the business of insurance. “That’s how you continue to grow.”

Unlike China, India is a real democracy, not a one party state. The British influence is still present in the form of India’s laws and legal system, as well as the fact English is widely spoken. “It makes it much easier to do business there,” Bulgin said.

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