India’s ICICI is investing heavily in its insurance business as
it looks to boost its market share in India’s fast-developing life
and general insurance markets. Over the past two years, ICICI Life
– ICICI’s insurance joint venture with UK insurer Prudential – has
grown the number of its advisers from 57,000 to 243,000 and the
number of its branches sevenfold to 735.
ICICI Life recorded annual premium equivalent growth of 44.7
percent in the first half of fiscal year 2008, with new business
profit up to INR4.32 billion ($110 million) from INR3.47 billion in
the first half of fiscal year 2007.
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Tie-ups between local conglomerates and foreign insurers have
chipped away at the stranglehold that state-owned Life Insurance
Corporation of India has on the market. While state-owned insurers
still dominate the country, the market share of the private
insurance sector now equals 25.4 percent, or around INR50 billion,
of the total INR206 billion value of the Indian life insurance
market, according to ICICI’s figures.
ICICI recently announced that it will transfer its 74 percent stake
in the insurance business for both life and general to a separate
wholly owned subsidiary called ICICI Holdings in an effort to
unlock the value of these high-growth companies and create a
self-funding insurance entity. Although still at the conceptual
stage – and the Reserve Bank of India has not regarded this move
favourably – foreign investors such as Swiss Re, Goldman Sachs,
Nomura and Sequoia have already committed $650 million for a 5.9
percent stake in the holding company.
The optimism stems from the buoyant growth in insurance premiums,
both life and general, in India. The launch of unit-linked products
and an aggressive expansion strategy from insurers have attracted a
greater share of household savings to life insurance premiums. Life
insurance took up 13 percent of investments as a percentage of
household savings in 2000 but attracted 21.3 percent of household
savings in 2007.
India’s premium per capita (adjusted for purchasing power parity)
stands at $156, compared with $1,759 in Singapore and $3,452 in
Hong Kong. Analysts are expecting the market to grow by 60 percent
to 70 percent over the next two years. Tabassum Inamdar, senior
analyst at Kotak Research, which is part of Kotak Mahindra Bank,
said: “An expanding agency network and buoyant capital markets
drove fiscal year 2007 premium income up by 95 percent.
Year-to-date growth moderated to around 40 percent and we expect 60
percent to 70 percent for the rest of the year, given aggressive
expansion plans. Most players are looking at investing between 85
percent and 140 percent of FY2007’s outstanding capital over the
next two years and doubling their agency and branch networks in the
next year.”
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By GlobalDataThe smaller players should not be dismissed. Reliance Life says it
plans to grow its insurance agent force threefold from the current
150,000 over the next two to three years. Kotak Om Life Insurance,
a relatively recent entrant, has around 93 branches and 26,654
agents but it has grown at a CAGR of 57 percent since it started in
2001. For fiscal year 2007, it has a 3.2 percent market share among
private sector insurers and collects 93 percent of its premium
income from unit-linked products.
Inamdar concluded: “Over the past six years, life insurance premium
income growth has been close to 40 percent. A high GDP growth rate
of over 8 percent, increasing penetration levels and likely
expansion of networks by private players is reflected in this
strong growth. Premium collections are now relatively high.
However, the higher nominal GDP growth trend and understated GDP
numbers suggest that growth could remain high for the next three to
five years.”
