Analysis of Insurance

Industry
1
2
Table of Contents
Life Insurance
Market Overview
Market Data
Segmentation
Outlook
Five Forces Analysis
Leading Companies
Non-Life Insurance
Market Overview
Market Data
Segmentation
Outlook
Five Forces Analysis
Leading Companies
LIFE INSURANCE
3
MARKET OVERVIEW
4
Market definition
5
The value of the life insurance market is shown in terms
of gross premium incomes from mortality protection and
retirement savings plans.
All currency conversions have been calculated using
constant 2011 annual average exchange rates.
The insurance market depends on a variety of economic
and non-economic factors and future performance is
difficult to predict.
The forecast given in this report is not based on a
complex economic model, but is intended as a rough
guide to the direction in which the market is likely to
move.
Market definition
6
For the purposes of this report, Asia-Pacific comprises
Australia, China, India, Indonesia, Japan, New Zealand,
Singapore, South Korea, Taiwan, and Thailand.
Market analysis
7
The Indian life insurance market has seen dynamic
growth in recent years, although a decline was seen in
2011.
The market is, however, expected to return to very strong
growth over the forecast period to 2016.
The Indian life insurance market had total gross written
premiums of $61.8 billion in 2011, representing a
compound annual growth rate (CAGR) of 9.5% between
2007 and 2011.
In comparison, the Chinese and Japanese markets grew
with CAGRs of 18.1% and 4.9% respectively, over the
same period, to reach respective values of $134.7 billion
and $519.4 billion in 2011.
Market analysis
8
The life insurance segment was the market's most
lucrative in 2011, with total gross written premiums of
$56 billion, equivalent to 90.6% of the market's overall
value.
The pension/annuity segment contributed gross written
premiums of $5.8 billion in 2011, equating to 9.4% of the
market's aggregate value.
The performance of the market is forecast to accelerate,
with an anticipated CAGR of 16% for the five-year period
2011 - 2016, which is expected to drive the market to a
value of $129.9 billion by the end of 2016.
Market analysis
9
Comparatively, the Chinese and Japanese markets will
grow with CAGRs of 10.9% and 2.9% respectively, over
the same period, to reach respective values of $225.5
billion and $598 billion in 2016.
MARKET DATA
10
Market value
11
The Indian life insurance market shrank by 0.8% in 2011
to reach a value of $61.8 million.
The compound annual growth rate of the market in the
period 200711 was 9.5%.
Market value
12
India life insurance market value: $ million, 200711
Market value
13
India life insurance market value: $ million, 200711
MARKET
SEGMENTATION
14
Category segmentation
15
Life insurance is the largest segment of the life insurance
market in India, accounting for 90.6% of the market's
total value.
The Pension/annuity segment accounts for the
remaining 9.4% of the market.
Category segmentation
16
India life insurance market category segmentation: $
million, 2011
Category segmentation
17
India life insurance market category segmentation: %
share, by value, 2011
Geography segmentation
18
India accounts for 6.6% of the Asia-Pacific life insurance
market value.
Japan accounts for a further 55.4% of the Asia-Pacific
market.
Geography segmentation
19
India life insurance market geography segmentation: $
million, 2011
Geography segmentation
20
India life insurance market geography segmentation: %
share, by value, 2011
Market share
21
Life Insurance Corporation of India is the leading player
in the Indian life insurance market, generating a 68.5%
share of the market's value.
ICICI-Prudential Life Insurance Co. Ltd. accounts for a
further 4.8% of the market.
Market share
22
India life insurance market share: % share, by value,
2011
Market share
23
India life insurance market share: % share, by value,
2011
MARKET OUTLOOK
24
Market value forecast
25
In 2016, the Indian life insurance market is forecast to
have a value of $129.9 million, an increase of 110.2% since
2011.
The compound annual growth rate of the market in the
period 201116 is predicted to be 16%.
Market value forecast
26
India life insurance market value forecast: $ million,
201116
Market value forecast
27
India life insurance market value forecast: $ million,
201116
FIVE FORCES
ANALYSIS
28
FIVE FORCES ANALYSIS
29
The life insurance market will be analyzed taking
insurance companies as players.
The key buyers will be taken as consumers (both
individual as well as corporate), and ict manufacturers,
software houses and reinsurance companies as the key
suppliers.
Summary
30
Forces driving competition in the life insurance market
in India, 2011
Summary
31
Robust growth within the Indian life insurance market
alleviates rivalry to an extent, reducing it to a moderate
level.
Buyer power is moderate overall, as is the ability of new
players in entering the market place with supplier power
remaining strong.
Despite savings and investments being among the
alternative methods of insuring ones self, substitutes
possess a weak force in the market, due to the expertise
and capital required for investment.
The demand for life insurance is determined by various
factors: i.e. gross domestic product, average length of life
expectancy, inflation and interest rates.
Summary
32
Additionally, in developing countries, factors such as
market structure, the presence of foreign investors and
financial development of economies should be taken into
consideration.
There are also various reasons for getting a life insurance
policy.
Such a policy guarantees a replacement income for ones
dependents in case of death or major illness.
Some types of life insurance create a cash value that, if
not paid out as a death benefit, can be borrowed or
withdrawn on the owners request, which makes it an
important element of sound financial planning and
investment.
Summary
33
Since most people consider paying their life insurance
policy premiums a high priority, buying a cash-value
type policy can create a kind of forced savings plan.
Various companies can also use group life insurance to
cover their employees or corporate-owned life insurance
(COLI).
COLI was originally purchased by companies to hedge
against the financial cost of losing key employees to
unexpected death, the risk of recruiting and training
replacements of necessary or highly-trained personnel, or
to fund corporate obligations to redeem stock upon the
death of an owner.
Summary
34
A point to consider in the current economic climate is the
drop in real income during 2009.
Such an event, coupled with a slow economic recovery
and the uncertainty regarding the Eurozone Sovereign
Debt crisis, may limit the demand for insurance
products, which are unlikely to be considered a priority
by households at present.
Buyer power
35
Drivers of buyer power in the life insurance market in
India, 2011
Buyer power
36
Due to the nature of the market and importance of the
product offered, there are many individual consumers,
diminishing buyer power, as the impact of losing an
individual customer is rather marginal.
Large corporate clients have a lot more bargaining power
with insurance companies as they usually pay millions of
dollars a year in premiums and losing such high-margin
corporate clients can negatively affect a player's
revenues.
This increases buyer power to some extent.
Customers in this market are not particularly loyal to one
specific company and are willing to shop around for the
best deal.
Buyer power
37
Online comparison sites allow customers to choose policies
that meet their individual insurance needs, further boosting
buyer power.
However buyer power is weakened by the existence of
switching costs, as for individuals, switching from one player
to another will often involve surrendering a policy early (an
exception is where a term policy reaches its end and the buyer
chooses a different company for their next policy).
The payout on a surrendered policy may be taxable, whereas
the payout on the death of the insured person is tax-free; also
early surrender of an index-linked plan may mean that the
policyholder misses out on some interest payments.
Buyer power is assessed as moderate overall.
Supplier power
38
Drivers of supplier power in the life insurance market
in India, 2011
Supplier power
39
Suppliers in the life insurance market include ICT
manufacturers and software houses.
Certain insurance companies require specialized
computer systems, tailored towards their unique range of
products or services.
Underwriters, for instance, use computer applications
known as "smart systems" to manage risks.
These types of systems are complex and are often linked
up to an internet databases.
A secure and reliable ICT infrastructure is essential and
companies are often reliant on one supplier.
This is normally a large and reputable company, such as
IBM.
Supplier power
40
Such suppliers may have their own unique and patented
systems.
This creates a disincentive for insurance companies to
switch suppliers as many employers are reluctant to
spend the money training staff on new systems, which
increases supplier power.
Despite many insurance companies maintaining their
own IT departments, there is little likelihood of
significant backward integration, which further
strengthens suppliers (although it is equally unlikely that
suppliers would attempt to integrate forwards into
insurance services).
Supplier power
41
Life insurers also require the services of reinsurance
companies, in order to reduce their own exposure to
insured risks.
Overall supplier power is strong in the life insurance
market.
New entrants
42
Factors influencing the likelihood of new entrants in
the life insurance market in India, 2011
New entrants
43
It is believed that increasing affluence, aging population and
low penetration of insurance coverage at a time when the
market in industrialized countries is relatively saturated, will
help transform the country's largely untapped life insurance
market into one of the world's fastest growing over the next
five years, creating business opportunities for newcomers.
There are public and private firms operating within India's
insurance market with state-owned Life Insurance Corp of
India (LIC) still having a stranglehold with a market share of
over 68%.
However, private players have moved aggressively, chasing
for business, after being allowed to compete with LIC in 2000.
New entrants
44
Overseas insurers where allowed to operate with the
passing of the Insurance Regulatory and Development
Authority (IRDA) Act in 1999.
However, foreign direct investment in private insurance
companies is limited to 26% in India.
Barriers to entry into life insurance market are often
described as low; however, new players entering the
market must decide whether to initially enter on a large
or small scale, with each holding varying benefits and
risks.
The opportunity to enter the market on a small scale
boosts the threat of new entrants.
New entrants
45
Entry into the market for well developed insurance
companies is capital intensive and players need to ensure
some level of integration if market entry is to be a
success.
Leading incumbents have strong reputations and
consumer recognition and they usually offer a vast range
of services with which new entrants must compete.
Most of the threat from new entrants lies within the
insurance industry itself.
Repeat business is difficult to attain in this market, since
consumers will typically replace their life insurance
policies at infrequent intervals only.
New entrants
46
This means that finding new custom is vital, and access
to distribution networks is a key criterion for successful
market entry.
In India, the former state monopoly, Life Insurance
Corporation has a network of more than 2,000 branches,
constituting a distribution network that newcomers may
find hard to match.
Some companies have carved out niche areas in which
they underwrite insurance.
These insurance companies are fearful of being squeezed
out by the big players.
Another threat for many insurance companies is other
financial services companies entering the market.
New entrants
47
Indeed some banks and investment banks have started to
offer insurance products, while certain financial
commitments, such as mortgages, have life policies
attached to them.
In some countries however, regulations are in place to
prevent banks and other financial firms from entering the
market.
Government regulation is generally stringent, with
Insurance Regulatory and Development Authority
(IRDA) imposing capital requirements of INR 1,000
million ($15.3 million) minimum for new entrants,
although, this could rise to between INR 2,000 million
($30.7 million) and INR 2,500 million ($38.4 million).
New entrants
48
The likelihood of new entrants is assessed as moderate
overall.
Threat of substitutes
49
Factors influencing the threat of substitutes in the life
insurance market in India, 2011
Threat of substitutes
50
There are a number of alternatives to taking out an insurance
policy, i.e. in the form of other financial products, such as
savings and investments.
Savings and investments include deposits, mutual funds and
direct investments in equities and bonds.
Wills are also a way of accounting for risk and protecting
family members after death.
These options could be a cheaper alternative to life insurance,
but savings do not guarantee protection in the same way as
life insurance, which reduces the benefit of this option.
Consumers can adopt risk management strategies, such as
'Self-Insurance', whereby an eligible risk is retained, but a
calculated amount of money is set aside.
Threat of substitutes
51
An organization could choose to operate its own 'captive'
structure and form its own insurance company
subsidiary.
Although these are viable substitutes they require a
certain amount of expertise and capital.
The threat of substitutes with respect to the life insurance
market is therefore assessed as weak.
Degree of rivalry
52
Drivers of degree of rivalry in the life insurance market
in India, 2011
Degree of rivalry
53
The life insurance market in India is rather concentrated
when compared to other countries in region.
Although there are around 15 companies active in this
market, the state-owned Life Insurance Corporation of
India is by far the largest, and the top four players account
for 81.4% of the markets total value.
Players within the life insurance market offer similar
services but some are diversified, and pursue a number of
non-life insurance lines, which tends to ease the rivalry to
some extent.
The leading players are large companies offering similar life
products, although there are a number of different plans
including temporary, permanent and various subclasses.
Degree of rivalry
54
Because of the homogenous nature of the leading players
insurance has become more like a commodity - an area in
which an insurance company with a low cost structure, greater
efficiency and better customer service will beat out
competitors.
Entry barriers, though not insignificant, are lower than exit
barriers.
For example, the regulatory system, through the imposition of
such measures as capital adequacy, is designed to prevent
insurers from going out of business, as this would be to the
detriment of policyholders.
When exit barriers in a market are high, players may weather
poor market conditions where necessary - but this tends to
boost rivalry.
Degree of rivalry
55
Insurance companies also use higher investment returns
and a variety of insurance investment products to try to
lure in customers.
This leads to greater consolidation within the market.
Larger companies prefer to take over or merge with other
companies rather than spend the money to market and
advertise to people.
Overall, there is moderate rivalry in the market.
LEADING COMPANIES
56
HDFC Standard Life Insurance
Company Limited
57
HDFC Standard Life Insurance Company Limited (HDFC
Life), a private Indian life insurance company, is the result
of a joint venture between Housing Development
Corporation Limited (HDFC Ltd) and Standard Life plc.
HDFC Ltd holds 72.37% equity in the company, with
Standard Life plc holding 26%.
HDFC life offers protection, pension, savings, investment
and health products.
At present, the companys product portfolio consists of 25
retail, and nine group products, as well as 10 optional rider
benefits.
HDFC Standard Life Insurance
Company Limited
58
The company operates around 500 branches in India,
covering over 900 cities and towns.
Key Metrics
59
The company recorded revenues of INR 104,272.8 million
(USD 2,225.8 million) in FY 2012, a decrease of 7.1%
when compared to the previous year.
The companys net profit was INR 3,729.2 million (USD
79.6 million) in FY 2012, compared to a net profit of INR
669.8 million (USD 14.3 million) in the preceding year.
ICICI Bank Limited
60
ICICI is diversified financial services company that
provides a range of banking and financial services to
corporate and retail customers through a variety of
delivery channels.
Apart from banking products and services, it offers life
and general insurance, asset management, securities
brokering and private equity through specialized
subsidiaries.
It also offers agricultural and rural banking products.
ICICI delivers its products and services through a variety
of channels, including bank branches, ATMs, call centers,
the internet and mobile phones.
ICICI Bank Limited
61
Its international banking operations are primarily
focused on persons of Indian origin and Indian
businesses.
ICICI's international branches and banking subsidiaries
take deposits, raise borrowings and make loans primarily
to Indian companies for their overseas operations as well
as for their foreign currency requirements in India.
They also engage in advisory and syndication activities
for fund-raising by Indian companies and their overseas
operations.
ICICI Bank Limited
62
It currently has banking subsidiaries in the UK, Canada and
Russia, branches in Singapore, Dubai, Sri Lanka, Hong
Kong, Qatar, the US and Bahrain and representative offices
in China, the United Arab Emirates, Bangladesh, South
Africa, Malaysia, Thailand and Indonesia.
ICICI conducts its operations through eight segments:
treasury, wholesale banking, life insurance, retail banking,
other banking business, general insurance, venture fund
management and others.
Treasury includes the entire investment portfolio of the
bank, ICICI eco-net internet and technology fund, ICICI
equity fund, ICICI emerging sectors fund, ICICI strategic
investments fund and ICICI venture value fund.
ICICI Bank Limited
63
Additionally, treasury operations include the maintenance
and management of regulatory reserves, proprietary
trading in equity and fixed income and a range of foreign
exchange and derivatives products and services for
corporate customers, such as forward contracts and interest
rate and currency swaps.
Wholesale banking includes all advances to trusts,
partnership firms, companies and statutory bodies which
are not included under retail banking.
Life insurance is provided through subsidiary, ICICI
Prudential Life Insurance Company.
Life insurance business primarily comprises unit-linked life
insurance and pension products.
ICICI Bank Limited
64
Retail banking comprises the retail liabilities, retail assets and
small enterprises businesses.
Consumer banking provides deposit and loan products to
retail customers, credit cards, private banking, distribution of
third party investment products and other fee-based products
and services, as well as issuance of unsecured redeemable
bonds.
ICICI offers different types of loans including home loans,
automobile loans, commercial business loans (including
primarily commercial vehicle loans), and personal loans, loans
against time deposits and loans against securities to its retail
customers.
ICICI had a network of 2,501 branches and 5,665 ATMs in
India (August 2010).
ICICI Bank Limited
65
The other banking business includes hire purchase and
leasing operations, and other items not attributable to
any particular business segment.
Furthermore, it also includes the bank's banking
subsidiaries i.e. ICICI Bank UK PLC, ICICI Bank Canada,
and ICICI Bank Eurasia LLC.
General insurance is provided through ICICI Lombard
General Insurance Company range of non-life insurance
products, including health, overseas travel, student
medical, motor, and home insurance.
The venture fund management segment represents
results of ICICI Venture Funds Management Company
Limited (ICICI Venture).
ICICI Bank Limited
66
ICICI Venture is one of the largest private equity firms in
India with funds under management of $2 billion.
The other segment includes the following: ICICI Home
Finance Company Limited, ICICI International Limited,
ICICI Securities Primary Dealership Limited, ICICI
Securities Limited, ICICI Securities Holdings Inc., ICICI
Securities Inc., ICICI Prudential Asset Management
Company Limited, ICICI Prudential Trust Limited, ICICI
Investment Management Company Limited, ICICI
Trusteeship Services Limited, TCW/ICICI Investment
Partners LLC., ICICI Kinfra Limited, ICICI West Bengal
Infrastructure Development Corporation Limited,
Loyalty Solutions & Research Limited,
ICICI Bank Limited
67
(CONTD) I-Ven Biotech Limited and ICICI Prudential
Pension Funds Management Company Limited (with
effect from June 2009). ICICI Prudential Asset
Management Company manages the ICICI Prudential
Mutual Fund, which was among the top three mutual
funds in India in terms of average funds under
management in March 2010, with a market share of
10.8%.
ICICI Securities Limited and ICICI Securities Primary
Dealership Limited are engaged in equity underwriting
and brokerage and primary dealership in government
securities, respectively.
ICICI Bank Limited
68
ICICI Securities owns icicidirect.com, a leading online
brokerage platform.
ICICI Securities Limited has a subsidiary in the US, ICICI
Securities Holdings Inc., which has an operating
subsidiary in the US, ICICI Securities Inc., engaged in
brokerage services.
69
The company recorded revenues of $6,964 million in the
fiscal year ending March 2011, a decrease of 1.7%
compared to fiscal 2010.
Its net income was $1,100 million in fiscal 2011, compared
to a net income of $859 million in the preceding year.
70
ICICI Bank Limited: key financials ($)
71
ICICI Bank Limited: key financials (Rs.)
72
ICICI Bank Limited: key financial ratios
73
ICICI Bank Limited: revenues & profitability
74
ICICI Bank Limited: assets & liabilities
LIC of India
75
The Life Insurance Corporation of India (LIC or the
group) is primarily a life insurance service provider.
LIC operates through five business segments: individual
assurance, general annuities, pensions, unit linked
business, and group insurance business.
However, the group presents results under four business
segments: individual assurance, unit linked business,
group schemes, and individual pension.
The group's products can be classified into insurance
plans, pension plans, unit plans, special plans, and group
plans.
Insurance plans cater to different needs of individuals.
LIC of India
76
The Life Insurance Corporation of India (LIC or the
group) is primarily a life insurance service provider.
LIC operates through five business segments: individual
assurance, general annuities, pensions, unit linked
business, and group insurance business.
However, the group presents results under four business
segments: individual assurance, unit linked business,
group schemes, and individual pension.
The group's products can be classified into insurance
plans, pension plans, unit plans, special plans, and group
plans.
Insurance plans cater to different needs of individuals.
LIC of India
77
These plans include children plans, plans for
handicapped, endowment plans, plans for high net
worth individuals (HNIs), money back plans, whole life,
term assurance, and joint plans.
The group also offers unit linked insurance plans (ULIP),
which act like a savings vehicle, but also have the
benefits of an insurance contract.
Furthermore, the group also offers special plans, which
are not regular plans but are launched during special
events.
These plans are a blend of insurance and investment.
LIC of India
78
The group also offers group insurance schemes, which
serve as life insurance protection for groups of people.
Such schemes cater for the needs of employers,
associations, societies.
79
The group recorded revenues of INR2,992,726.3 million
(approximately $63,883.5 million) during the financial
year (FY) ended March 2011, an increase of 0.2% over
FY2010.
The net profit was INR 2,640,295.1 million
(approximately $56,360.4 million) in FY2011, a decrease
of 2.3% over FY2010.
State Bank of India
80
State Bank of India (SBI) is the largest commercial bank
in India, offering services such as traditional banking,
trading services, international banking and treasury
operations.
The company is the main banking arm of State Bank
Group, which includes seven other banks and offers
additional services such as mutual funds, gilts and
insurance.
The Reserve Bank of India (central bank of India) holds
more than half of SBI's equity capital.
The company primarily operates through three business
units, retail banking, wholesale banking, and treasury.
State Bank of India
81
The retail banking comprises the bank's national banking
group (NBG), which consists of business groups,
personal banking, small & medium enterprise (SME),
government banking.
Through the personal banking division, SBI offers
savings deposits, current deposits, term deposits,
recurring deposits, home loans, auto loans and education
loans.
SME unit serves the financial needs of small & medium
enterprises across the country.
State Bank of India
82
Government banking unit introduced schemes such as
electronic accounting system in excise and service tax
(EASIEST) for indirect taxes, E payment of central excise,
service tax, customs duty, rail freight and centralized
pension processing centers were established to serve the
needs of various public offices.
The bank's wholesale banking group consists of strategic
business units, corporate accounts group (CAG), project
finance & leasing SBU, stressed assets management group
and mid corporate group.
CAG offers commercial and institutional non food credit,
cash management facilities and other services such as auto
sweep facility, customized MIS and reconciliation support,
State Bank of India
83
(CONTD) automated bulk NEFT, ECS and RTGS payments
with reconciliation support etc.
Project finance & leasing SBU focuses on funding core
projects like power, telecom, roads, ports, airports, SEZ and
others.
It also handles non-infrastructure projects with certain
ceilings on minimum project costs.
Stressed assets management group (SAMG) was initially set
up to take over all non performing assets' (NPAs) to resolve
NPAs.
100 stressed assets resolution centers (SARCs) has been
opened across the country without standings up to INR10
million in small and medium (SME) and personal segments.
State Bank of India
84
The mid corporate group (MCG) has been serving the
needs of mid corporate units through relationship
management and quicker credit processing.
695 new mid corporate clients were added to the MCG
during the year 2007.
Substantial business in the form of initial public
offerings, private equity, debt syndication, foreign
currency loans, overseas acquisitions, external
commercial borrowings has been arranged for MCG
clients through SBICAPS and foreign offices.
A separate department, precious metals department, has
been created at the bank's corporate center for the
purpose of boosting the gold banking business.
State Bank of India
85
The bank launched retail sale of gold coins which is now
available at 250 branches across the country.
Treasury segment is a part of global markets.
In keeping with its integrated approach to all treasury
activities in various markets in different time zones i.e.,
forex, interest rates, bullion, equity and alternative assets,
the bank redesignated its treasury operations into 'global
markets'.
The bank diversified its trading activity to equity and
mutual fund portfolio to en cash the opportunities
available through the buoyant capital markets during the
year 2007.
State Bank of India
86
International banking has a network of 84 overseas
offices spread over 32 countries.
The international banking services include corporate
lending, loan syndications, merchant banking, handling
letters of credit and guarantees, short-term financing,
collection of clean and documentary credits and
remittances.
The bank caters to non-resident Indians through facilities
such as NRI accounts, deposit accounts, India
millennium deposits, remittances to India, home loans
and miscellaneous.
State Bank of India
87
The bank offers a range of services such as SBI foreign
travel cards, broking services, ATM services, internet
banking, bill payments, gift checks, safe deposit lockers
and foreign inward remittances.
The bank has a factoring services arm under the name
SBI Factors and Commercial Services and Global Trade
Finance.
Through its subsidiary, SBI Capital Markets, it offers
merchant banking services throughout the country.
SBI offers life insurance in association with BNP Paribas
through its subsidiary, SBI Life Insurance Company.
State Bank of India
88
The company follows a multi-distribution model
comprising banc assurance, retail agency and
institutional alliances and group corporate channels for
distribution of Insurance products.
89
The company recorded revenues of $20,753 million in the
fiscal year ending March 2011, an increase of 13.1%
compared to fiscal 2010.
Its net income was $1,764 million in fiscal 2011, compared
to a net income of $1,957 million in the preceding year.
90
State Bank of India: key financials ($)
91
State Bank of India: key financials (Rs.)
92
State Bank of India: key financial ratios
93
State Bank of India: revenues & profitability
94
State Bank of India: assets & liabilities
NON-LIFE INSURANCE
IN INDIA
95
MARKET OVERVIEW
96
Market definition
97
The non-life insurance market consists of the general insurance
market segmented into motor, property, liability and other
insurance.
The other segment is made up of non-life insurance products
including health, travel, and accident cover amongst others.
The value of the non-life insurance market is shown in terms
of gross premium incomes.
Any currency conversions used in the report have been
calculated using constant 2011 annual average exchange rates.
The non-life insurance market depends on a variety of
economic and non-economic factors and future performance is
difficult to predict.
Market definition
98
The forecast given in this report is intended as a rough
guide to the direction in which the market is likely to
move.
This forecast is based on a correlation between past
market growth and the growth of base drivers, such as
population numbers, GDP growth, and long-term
interest rates.
For the purposes of this report, Asia-Pacific comprises
Australia, China, India, Indonesia, Japan, New Zealand,
Singapore, South Korea, Taiwan, and Thailand.
Market analysis
99
After experiencing strong double digit growth throughout
the 2007-2011 period, the Indian non-life insurance market
is forecast to continue its strong growth, albeit at a
marginally accelerated rate, during 2011-2016.
The Indian non-life insurance market had total gross
written premiums of $12.5 billion in 2011, representing a
compound annual growth rate (CAGR) of 17.6% between
2007 and 2011.
In comparison, the Chinese market increased with a CAGR
of 21.7%, and the Japanese market declined with a
compound annual rate of change (CARC) of -0.7%, over the
same period, to reach respective values of $87.4 billion and
$129.4 billion in 2011.
Market analysis
100
The other insurance segment was the market's most
lucrative in 2011, with total gross written premiums of
$5.8 billion, equivalent to 46.6% of the market's overall
value.
The motor segment contributed gross written premiums
of $5.8 billion in 2011, equating to 46.4% of the market's
aggregate value.
The performance of the market is forecast to accelerate,
with an anticipated CAGR of 17.9% for the five-year
period 2011 - 2016, which is expected to drive the market
to a value of $28.3 billion by the end of 2016.
Market analysis
101
Comparatively, the Chinese and Japanese markets will
grow with CAGRs of 14.4% and 0.7% respectively, over
the same period, to reach respective values of $171.3
billion and $134.1 billion in 2016.
MARKET DATA
102
Market value
103
The Indian non-life insurance market grew by 23.2% in
2011 to reach a value of $12.5 billion.
The compound annual growth rate of the market in the
period 200711 was 17.6%.
Market value
104
India non-life insurance market value: $ billion, 2007
11
Market value
105
India non-life insurance market value: $ billion, 2007
11
MARKET
SEGMENTATION
106
Category segmentation
107
Other insurance is the largest segment of the non-life
insurance market in India, accounting for 46.6% of the
market's total value.
The Motor segment accounts for a further 46.4% of the
market.
Category segmentation
108
India nonlife insurance market category segmentation:
$ billion, 2011
Category segmentation
109
India nonlife insurance market category segmentation:
% share, by value, 2011
Geography segmentation
110
India accounts for 3.4% of the Asia-Pacific non-life
insurance market value.
Japan accounts for a further 35.3% of the Asia-Pacific
market.
Geography segmentation
111
India nonlife insurance market geography
segmentation: $ billion, 2011
Geography segmentation
112
India nonlife insurance market geography
segmentation: % share, by value, 2011
Market share
113
New India Assurance Co. Ltd. is the leading player in the
Indian non-life insurance market, generating a 14.3%
share of the market's value.
United India Insurance Co. Ltd. accounts for a further
10.9% of the market.
Market share
114
India non-life insurance market share: % share, by
value, 2011
Market share
115
India non-life insurance market share: % share, by
value, 2011
MARKET OUTLOOK
116
Market value forecast
117
In 2016, the Indian non-life insurance market is forecast
to have a value of $28.3 billion, an increase of 126.4%
since 2011.
The compound annual growth rate of the market in the
period 201116 is predicted to be 17.9%.
Market value forecast
118
India non-life insurance market value forecast: $
billion, 201116
Market value forecast
119
India non-life insurance market value forecast: $
billion, 201116
FIVE FORCES
ANALYSIS
120
FIVE FORCES ANALYSIS
121
The non-life insurance market will be analyzed taking
insurance firms as players.
The key buyers will be taken as individual and corporate
consumers, and information and communication
technology manufacturers as the key suppliers.
Summary
122
Forces driving competition in the non-life insurance
market in India, 2011
Summary
123
The non-life insurance market is dominated by larger
companies, which sell more or less the same products
leading to significant price sensitivity.
A high level of individual consumers in the insurance
sector diminishes buyer power, as the impact of losing
one customer is negligible.
Insurance is of high importance to customers and, in
many cases, a legal requirement.
Consumer loyalty in the sector is low with many willing
to shop around for the best deal, prices and cover.
Suppliers in this market include ICT manufacturers as
specialized computer systems are needed for certain
insurance companies.
Summary
124
Although insurance firms will maintain their own IT
departments, there is little likelihood of significant
backward integration.
New entrants must decide whether to initially enter on a
small or large scale, with each holding varying benefits
and risks.
Government regulation of the industry is fairly high
which can act as a deterrent to prospective new entrants.
There are no real substitutes for insurance products, as
certain policies are legal requirements in many countries.
There do exist, however, a number of alternatives to
taking out a policy, although they require a certain
degree of expertise and capital.
Buyer power
125
Drivers of buyer power in the non-life insurance
market in India, 2011
Buyer power
126
A high level of individual consumers in the insurance
sector diminishes buyer power as the impact of losing
one customer is negligible.
However, business insurance is essential for companies
to protect against risks, and the loss of core business
customers has a far more substantial impact on insurance
companies.
Insurance is of high importance to the customer,
particularly forms such as car insurance which often
constitute a legal requirement.
Where this is not the case, coverage is usually patchier.
Buyer power
127
Given the non-tangible nature of insurance coverage some
individuals are tempted to reject the safeguards it can offer,
enjoying the more immediate financial savings instead.
Indeed, this is sometimes even the case where there are
legal ramifications.
Consumer loyalty in the sector is low. Customers are
willing to shop around for the best deal, cover and prices
provided by insurance firms.
The advent of online technology such as comparison
websites and blogging has strengthened buyer power as
consumers with access to the internet are now able to
compare and contrast prices, services and experiences
amongst themselves.
Buyer power
128
Insurance brokers represent a further option, standing as
consultants in the sector who are able to apply their
expertise to secure the appropriate package for a
customer.
Whilst incurring extra costs initially, this can bring long
term savings, empowering a more fluid buyer base.
Overall, buyer power is assessed as moderate as it is
often constrained by legal frameworks.
Supplier power
129
Drivers of supplier power in the non-life insurance
market in India, 2011
Supplier power
130
Suppliers in this sector include ICT providers, as
specialized computer systems are often needed for
certain insurance companies.
Underwriters, for instance, use computer applications
known as "smart systems" to manage risks.
The systems are complex and are often linked up to
databases on the internet.
A secure and reliable ICT infrastructure is essential and
companies are often reliant on one supplier, frequently
large companies such as IBM.
A disincentive to switch lies in the fact that employers
are reluctant to spend the money training staff on new
systems.
Supplier power
131
Moreover, a complete overall of a companys IT systems
can severely disrupt business for an extended period of
time.
These combined factors strengthen supplier power.
Furthermore, although insurance companies will
maintain their own IT departments, there is little
likelihood of significant backward integration, which
further strengthens supplier power - although it is
equally unlikely that suppliers would attempt to
integrate forwards into insurance services.
Overall supplier power is assessed as strong in the non-
life insurance market.
New entrants
132
Factors influencing the likelihood of new entrants in
the non-life insurance market in India, 2011
New entrants
133
Sectors, such as non-life insurance, which are capital,
research and/or advertising intensive often require large
scale operations to sustain efficiency.
New entrants must decide whether to initially enter on a
small or large scale, with each holding varying benefits and
risks.
The opportunity to enter the market on a small scale
deepens the threat of new entrants however these entrants
often require highly specialized expertise, systems and
knowledge.
Entry to the market as a well-developed insurance company
is capital intensive and players need to ensure some level of
integration if entry to the market is to be a success.
New entrants
134
Government regulation of the sector is fairly high,
although this has loosened since the industry was fully
deregulated in the 1990s.
As a result of this, foreign investment in the Indian
insurance industry was permitted.
The body responsible for regulating the industry in India
is the Insurance Regulation and Development Authority
(IRDA).
Overall the likelihood of new entrants is assessed as
moderate.
Threat of substitutes
135
Factors influencing the threat of substitutes in the non-
life insurance market in India, 2011
Threat of substitutes
136
There are no real substitutes for insurance products, with
certain policies often being a legal requirement in many
countries.
A number of alternatives to taking out a policy do exist.
Consumers can adopt risk management strategies such
as Self-Insurance whereby an eligible risk is retained,
but a calculated amount of money is set aside to
compensate for the potential future loss.
Alternatively, an organization could choose to operate its
own captive structure, and form its own insurance
subsidiary to finance its retained losses in a formal
structure.
Threat of substitutes
137
Although these are viable substitutes they require a
certain amount of expertise and capital.
Of course a consumer could choose not to take out a
policy at all, although in many cases this is illegal.
Equally, buying insurance is often a mandatory condition
of obtaining a mortgage and therefore essential to most
people.
The threat of substitutes with respect to the non-life
insurance market is therefore assessed as weak.
Degree of rivalry
138
Drivers of degree of rivalry in the non-life insurance
market in India, 2011
Degree of rivalry
139
After a period of nationalization, the Indian non-life
insurance sector was opened up following the creation of
the IRDA.
Players offer similar services with companies selling
more or less the same products leading to significant
price sensitivity and low margins.
This is countered to some degree, as many are involved
in banking and management services and often pursue a
number of insurance lines.
Nonetheless, some companies will not expand into
certain types of insurance.
Degree of rivalry
140
For example, big brand names are reluctant to set up
personal injury services because of the negative image
associated with such a service and the likelihood of poor
returns.
The volume of players increases rivalry and fosters price
wars.
Entry as a smaller player is a more accessible route to the
market and less capital intensive.
Rivalry in the market is assessed as strong overall.
LEADING COMPANIES
141
National Insurance Company
Limited
142
National Insurance Company (NIC) is a public sector
insurance company engaged in the provision of insurance
services.
The company offers insurance services including fire
insurance, marine insurance, miscellaneous insurance, rural
insurance, commercial risk insurance and industrial risk
insurance.
The company offers its services to the banking, telecom,
aviation, shipping, information technology, power, oil and
energy, agronomy, plantations, foreign trade, healthcare, tea,
automobile, education, environment and space research
sectors.
National Insurance Company
Limited
143
The company primarily operates in India, where it is
headquartered in Kolkata, and employs around 15,600
people.
144
As a private entity, National Insurance Company
Limited is not legally obliged to publish its financial
results.
New India Assurance Co. Ltd.
145
Established in 1919 and headquartered in Mumbai, the
New India Assurance Company provides insurance
products and services throughout India.
The company provides a range of personal insurance
products comprising health, life, motor, and property
cover.
New India also offers industrial insurance products,
including fire and marine cover, commercial insurance
(consisting of marine, aviation, and property), liability
insurance (covering public, third party, and product
liability).
Other services the company offers include social and
credit insurance, and reinsurance products.
146
As a private entity, New India Assurance is not legally
obliged to release its financial results.
The Oriental Insurance
Company Ltd.
147
Oriental Insurance, a wholly owned subsidiary of the
Oriental Government Security Life Assurance Company,
provides a range of general insurance services in the
urban and rural areas of India.
The company designs insurance coverage for large
projects including power plants, and petrochemical, steel
and chemical plants.
Oriental Insurance operates 30 regional offices and over
900 operating offices in cities of India.
It also has overseas operations in Nepal, Kuwait and
Dubai.
Key Metrics
148
As a private entity, the Oriental Insurance Company is
not legally obliged to release its financial results.
However, the company recorded revenues of
INR46,115.8 million (approximately $984.4 million) in the
fiscal year ended March 2011.
Its net profit was INR546.1 million (approximately $11.7
million) in fiscal 2011.
United India Insurance Co. Ltd.
149
Incorporated in 1938 and headquartered in Chennai,
United India Insurance Company Limited operates as a
general insurance company in India.
It offers a range of personal and commercial general
insurance products, including building and contents
insurance, motor insurance, accident cover, travel
insurance, and health insurance.