The combined market share of state-owned general insurers in India continues to witness a declining trend, falling from 51.3% in 2017 to 40.8% in 2021* as the insurers see significant losses in the motor and personal accident and health (PA&H) insurance lines, says GlobalData, a leading data, and analytics company.
GlobalData’s Insurance Database reveals that gross written premiums (GWP) of private insurers grew by 15.7% during 2017-21, whereas those of state-owned insurers grew at a CAGR of 4.1%. Along with lower growth in GWP, the state-owned general insurers have also reported higher losses as compared to private insurers. The loss ratio (incurred loss to net earned premiums) of state-owned insurers stood at 108% in 2021 against 78% for private insurers.
Swarup Kumar Sahoo, Senior Insurance Analyst at GlobalData, comments: “Motor and PA&H insurance are the two largest lines for state-owned general insurers in India. Major losses in these lines led to a higher loss ratio for state-owned general insurers in 2021, which stood at 115.4% for motor insurance and 125.1% for PA&H insurance.”
Within the health insurance space, higher claims in group policies during the last few years negatively impacted the profitability of state-owned general insurers. Also, the lack of appropriate validations due to outdated IT infrastructure led to poor claims management and a lack of prudent underwriting, which resulted in state-owned insurers even paying multiple settlements of claims and making excess payments above sum insured.
The Indian general insurance industry grew at a CAGR of 10.1% during 2017-21 and was valued at INR2.3 trillion ($31.1 billion) in 2021.
Swarup adds: “However, state-owned insurers have faced challenges related to new business generation and underwriting capability. The performance of state-owned insurers was further impacted by the government’s focus on increasing privatization of services, which has led to lower investments in human resources, infrastructure, and technology.”
As per the Insurance Regulatory Development Authority of India (IRDAI), general insurers in India are required to maintain a solvency margin of 150%. However, in 2021*, the solvency ratio for three of the six state-owned general insurers declined to less than 100%. Due to such low solvency ratio, state-owned companies are not able to compete with private insurers without government support.
Sahoo continues: “Government initiatives to boost insurance reach and penetration will benefit private general insurers more than state-owned general insurers. The initiatives include video-based know your customer (KYC), the introduction of standardized insurance products for lower income groups, and providing discounts and rewards to customers with low-risk behaviour.”
Private insurers are much ahead in understanding and utilizing customer data than state-owned insurers. Further, an increase in the FDI limit from 49% to 74% in 2021 enabled private insurers to increase their spending on technology and strengthen distribution channels.
Sahoo concludes: “Without further investment in human resources, technology, and infrastructure, the market share of state-owned insurers is expected to continue to decline over the coming years.”
* 2021 represents data for the financial year April 2021 to March 2022
