Slowing economy to drag on Indian insurers' premium growth

But the low rate of insurance penetration is an opportunity for continued expansion.

India’s insurers face sluggish insurance premium growth over the next 2-3 years as the country’s economic expansion slows, reports Moody’s Investors Service.

Insurance premiums grew 11.3% in FY2018 (ending March 2019), slightly lower than the 11.5% recorded in the previous year. General insurance slowed to a 12.5% expansion over the same period compared to the 17.6% reported in FY2017.

Meanwhile, India’s gross domestic product (GDP) is expected to decline to a 4.9% YoY growth in FY2019 (ending March 2020) before partly recovering to 6.3% in fiscal 2020. The slowdown, which has increased financial pressure on rural households amid weaker job creation, will weigh on premium growth, said Moody’s.

Despite this, India’s low rate of insurance penetration should be viewed as a supportive long term factor, indicating that there is ample scope for continued expansion, noted Moody’s. Insurance penetration rate in India stood at 3.7% in 2018, low compared to the UK and US at 10.6% and 7.1%, respectively.

Demand for insurance amongst the country’s middle class should expand as the industry continues to update its distribution channels and makes better use of technology, the report added.

In particular, the launch of Ayushman Bharat or the government-funded health insurance scheme should drive up health premiums. In FY2019, health premiums rose by 21%, according to Moody’s.

The Insurance Regulatory and Development Authority (IRDA) also recently put in place a series of measures that are supportive of the insurance industry, and these changes are expected to bolster the sector's growth.

The removal of limits on foreign ownership stakes in Indian insurance intermediaries, which permits 100% foreign equity investment will also benefit the insurance market as a whole by strengthening distribution channels.

“India's privately-owned insurers, where foreign shareholdings are concentrated, have cut their exposure to high risk assets and have been early adopters of actuarial-led reserve management and risk-based capital management. This has helped private insurers benefit from India's economic growth,” noted Moody’s.