2013年-世界发展银行全球_India___IAIS_Insurance_Core_Principles_87页_1mb

India Financial Sector Assessment Program Update: Insurance Core Principles Detailed Assessment (August 2013)

Core Content

This document is part of the Financial Sector Assessment Program (FSAP) update on India's compliance with the IAIS Insurance Core Principles (ICP). It provides a comprehensive overview of the structure, performance, and challenges of India's insurance sector, with a focus on life and nonlife insurance.

Key Findings

1. Institutional and Market Structure

• Regulatory Authority: The Insurance Regulatory and Development Authority (IRDA) is the principal regulator, though the central government retains some supervisory powers.
• Market Overview: The insurance sector is significant relative to other financial intermediation forms, with the Life Insurance Corporation of India (LIC) being the dominant player.
• Sector Composition:
  • Life Insurance: 23 life insurers, including LIC (state-owned), and 12 private life insurers.
  • Nonlife Insurance: 19 multi-line insurers, including 4 public sector undertakings (PSUs), 3 health insurers (all JVs), 1 agricultural insurer, and 1 credit insurer.
• Concentration Levels:
  • Life Sector: Highly concentrated, with LIC holding nearly 60% of annual equivalent first-year life premiums and 70% of actual premium flows.
  • Nonlife Sector: Less concentrated, with a Herfindhal-Hirschman Index (HHI) of 1,087, significantly below the indicative equilibrium of 1,500.
• Workforce: The sector employs over 200,000 people, with about 50% holding relevant vocational or academic qualifications and less than 10% having formal insurance credentials.

2. Insurance Penetration and Growth

• Life Insurance:
  • Real compound annual growth rate (CAGR) of 13.4% from 2005/6 to 2010/11.
  • Penetration has remained relatively static, growing only as fast as GDP, due to price competition after the removal of premium tariffs in 2007.
• Nonlife Insurance:
  • Real CAGR of 6.8%, but penetration has remained static due to price competition.
  • The nonlife sector experienced a period of no real growth in 2008–2010, with insurers improving pricing discipline in 2010–2011 to focus on profitability.

3. Product Trends

• Life Insurance Products:
  • Unit Linked Insurance Plans (ULIPs) were dominant in the early years but have declined in share due to regulatory changes.
  • The drop in ULIP/pension components in 2010/11 was driven by IRDA's consumer protection rules, including a longer locked-in period and minimum guaranteed returns.
• Nonlife Insurance Products:
  • Rapid growth in health insurance and increased price competition in property-related classes after premium tariffs were abolished in 2007.
  • Motor Third Party Liability (MTPL) remains the largest business line in nonlife insurance.

4. Underwriting and Profitability

• Profitability Trends:
  • Many private life insurers are still making accounting losses, while some are reporting profits due to cost-cutting and retrenchment.
  • The only way to assess true success is through embedded value, which is not publicly available.
• Time in Business and Profitability:
  • A clear correlation exists between time in business and profitability.
  • Newer entrants tend to report losses, while older insurers have more established business models.

5. Expense and Solvency

• Expense Ratios:
  • LIC has a significant cost advantage over private life insurers.
  • Expense ratios for private life insurers are higher, reflecting less efficient distribution structures.
• Solvency:
  • The nonlife sector's solvency ratios are relatively stable, though some PSUs may need capital injections.
  • The life sector's solvency is also stable, but the lack of a viable pension mechanism affects its long-term potential.

Main Recommendations

1. Regulatory and Policy Actions

• LIC's Government Guarantee: While the guarantee supports LIC, it should be properly priced and reflected in its product pricing. Alternatively, the government could charge a fee for this service.
• Product Pricing: Ensure that minimum guaranteed returns are realistic and do not lead to economic losses for insurers.
• Consumer Protection: Continue to enforce consumer protection rules, but ensure they are balanced with the need for sustainable business models.
• Market Structure: Encourage consolidation in the nonlife sector to reduce fragmentation and improve efficiency.

2. Industry Development

• Professional Development: Increase the number of insurance professionals due to rapid local growth and the need to support emerging markets.
• Distribution Channels: Review the current distribution model to ensure it is efficient and sustainable, especially for private insurers.
• Pension Sector: Develop a viable supplementary pension mechanism to complement the existing New Pension System (NPS) and reduce reliance on life insurance for retirement savings.

3. Market Access and Competition

• Foreign Ownership: Maintain the 26% cap on foreign shareholdings but consider reviewing it if it hinders market development.
• Banc-Assurance: Allow banks to act as agents for multiple insurers to enhance competition and distribution efficiency.

Key Authorities and Responses

• IRDA has been actively involved in the assessment, providing self-assessment reports and responding to recommendations.
• Government of India (GOI) is seen as playing a significant role in supporting the insurance sector, particularly through its guarantee to LIC.
• PSUs are encouraged to review their strategies and potentially merge or exit the market if necessary.

Conclusion

The Indian insurance sector, particularly the life insurance segment, has shown strong growth but faces challenges in terms of market concentration, product sustainability, and profitability. The nonlife sector is more competitive and less concentrated, though some PSUs require support. The assessment highlights the need for regulatory reforms, improved product pricing, and enhanced professional development to ensure long-term sustainability and efficiency.