S&P Sees High Growth Potential for India’s P&C Market

Standard & Poor’s Ratings Services has published a report, which concludes that the Indian non-life insurance sector has “substantial growth potential because market penetration remained low–leaving significant room for further growth.”

S&P’s article – “The Indian Non-Life Insurance Sector Is A Goldmine Of Growth Potential” – concludes that the country’s insurance industry has emerged as one of the fastest developing markets of the global insurance industry. Credit analyst Damien Magarelli explained that India’s “non-life sector, which includes property/casualty and health insurance, has one of the lowest penetration rates in Asia.”

S&P noted that from 1994 through 2008, “Indian regulators phased out price controls for the major insurance segments, shifting the industry’s dynamics and creating both opportunities and challenges for the non-life insurers. Private insurers took advantage of the opportunities and consistently improved their market share and emerged as serious competitors to the public insurers. And, during the past 10 years, the non-life sector maintained–on absolute levels–an impressive growth momentum.

“But despite these improvements, the non-life sector continues to face significant challenges relating to underwriting discipline, growth policies, and risk management. In addition, the sector continues to operate an unsustainable business model of relying on investment income–which is vulnerable to market volatility–to offset underwriting losses.”

“We view the insurers’ persistently poor underwriting performance as a negative factor that could potentially stunt the industry’s growth if it remains unchanged,” Magarelli added. “The sector can overcome some of these hurdles in the years to come,” he continued; “provided that the insurers focus more on key factors to determine performance and sustainability of profitability.” These factors include efficient claims management, cost control, superior customer service, product innovation, and timely regulatory reforms.

S&P added that it “expects that some upcoming developments will change the Indian insurance industry’s dynamics within the next five years. These include the potential increase in foreign direct investment, which would provide long-awaited infusion of capital, and favorable policy changes such as initiatives for public awareness and increasing transparency, and infrastructure and operations development.” Magarelli indicated that S&P believes “these factors would facilitate further growth of the non-life insurance sector.

In addition to the regulatory actions and progressive policies, S&P also said it believes that favorable macroeconomic factors “will also facilitate the sector’s growth in the long run. The population demographics in India create a favorable environment for the insurance industry’s growth. This and other factors such as raising income levels, increased demand for vehicles, increasing health awareness, a shift towards an industrial and service-oriented economy, and a demand for more customized and sophisticated risk solutions enhance the non-life sector’s long-term growth prospects with increase in penetration levels.”

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site by using the Ratings search box located in the left column at www.standardandpoors.com.

Source: Standard & Poor’s

Topics Trends Market Property Casualty