1273604 - Pritpal chaudhary - F2 - Q 11 Comment on Growth of life and non-life industry

Ques. 2 :                            
                                         Introduction

The Indian insurance industry has undergone transformational changes since 2000 when the industry was liberalised. With a one-player market to 24 in 13 years, the industry has witnessed phases of rapid growth along with extent of growth moderation and intensifying competition.

There have also been a number of product and operational innovations necessitated by consumer need and increased competition among the players. Changes in the regulatory environment also had a path-breaking impact on the development of the industry. While the insurance industry still struggles to move out of the shadows cast by the challenges posed by economic uncertainties of the last few years, the strong fundamentals of the industry augur well for a roadmap to be drawn for sustainable long-term growth.

Discussion

Growth life of insurance company:- The decade 2001-10 was characterised by a period of high growth (compound annual growth rate of 31 percent in new business premium) and a flat growth (CAGR of around two percent in new business premium between 2010-12), according to KPMG.

There was exponential growth in the first decade of insurance industry liberalization. Backed by innovative products and aggressive expansion of distribution, the life insurance industry grew at jet speed. However, this frenzied growth also brought in its wake issues related to product design, market conduct, complaints of management and the necessity to make course correction for the long term health of the industry.

New Product guidelines

The new guidelines for both linked and non-linked products will now come into force from the beginning of year 2014, an extension of three months from earlier specified date. These product guidelines are in line with the IRDA’s regulatory theme of customer orientation and long-term nature of the life insurance business. The guidelines follow two overarching themes of providing Guarantee and enhancing Transparency.

Non-life of insurance company:-

General insurance companies have willingly catered to these increasing demands and have offered a plethora of insurance covers that almost cover anything under the sun. 

Any insurance other than ‘Life Insurance’ falls under the classification of General Insurance. It comprises of :-

• insurance of property against fire, theft, burglary, terrorism, natural disasters etc

• personal insurance such as Accident Policy, Health Insurance and liability insurance which covers legal liabilities. 

• Errors and Omissions Insurance for professionals, credit insurance etc. 

• Policies that provide marine insurance covering goods in transit by sea, air, railways, waterways and road and cover the hull of ships.

All these above mentioned form a major chunk of non-life insurance business.

Conclusion

·         Solvency of a life insurer is heavily dependent on the returns received from total investible funds and the interest rate

·         The need for efficient investment decision and strictness from the part of the regulator with the insurers’ investment guidelines

·         The non-life insurers’ solvency is affected by the interest rate ... Are they more into short term investments?

·         One of the investment performance predictor, investment yield have the expected expected sign and strongly strongly suggests suggests that returns available from total investments or investment decisions contributes to overall non-life insurer solvency status.

·         Size of firms is significant and it contributes to higher income and hence contribute towards solvency for non-life insurers

·         Increase Increase in the number of non-life insurers insurers may help spreading spreading of risks.