Post-Mid term Evaluation<br />Project Appraisal and Finance<br />“Recent Trends<br />Of<br />Insurance Industry”<br />Name: Udit Chawla<br />Enrollment No. : 09BS000<br />Date of Submission: 1st September 2010<br />Signature:<br />TRENDS IN INSURANCE INDUSTRY<br />It is due to globalization, deregulation and also terrorist attacks; that the insurance industry is undergoing a massive change and the metamorphosis has been noteworthy in the last few decades. <br />Insurance is a form of risk-management which spreads risk of many people in exchange for small payments from each. Specifically, insurance transfers some type of risk (accident, theft, natural disaster, illness, etc) from one person or group to a more financially-sound entity in exchange for a payment (also known as an insurance premium). Premiums are often annual or monthly, but depending on the type of insurance they can be at other intervals.<br />Challenges facing Insurance Industry<br />Threat of New Entrants: The insurance industry has been budding with new entrants every other day. Therefore the companies should carve out niche areas such that the threat of new entrants might not be a hindrance. There is also a chance that the big players might squeeze the small new entrants. <br />Power of Suppliers: Those who are supplying the capital are not that big a threat. For instance, if someone as a very talented insurance underwriter is presently working for a small insurance company, there exists a chance that any big player willing to enter the insurance industry might entice that person off. <br />Power of Buyers: No individual is a big threat to the insurance industry and big corporate houses have a lot more negotiating capability with the insurance companies. Big corporate clients like airlines and pharmaceutical companies pay millions of dollars every year in premiums. <br />
Availability of Substitutes: There exist a lot of substitutes in the insurance industry. Majorly, the large insurance companies provide similar kinds of services – be it auto, home, commercial, health or life insurance.
INDIA is the 5th largest market in Asia by premium following Japan, Korea, China and Taiwan. The US$ 30 billion insurance business in India is expected to grow 17 per cent in fiscal 2008-09* if the country’s economy clocks 7.6 percent GDP. In fiscal 2007-08 life insurers grew their business by 23.3 percent to Rs.930 billion while general insurers posted growth of about 14 percent in premium income to Rs 298 billion. Presently the total no. of insurers registered with the Insurance Regulatory and Development Authority (IRDA) stands at 42 : 21 in life insurance and 21 in general insurance segments. Some joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, SBI Life, HDFC Standard Life, Birla Sunlife, Max New York Life and Bharti AXA Life. <br />India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent. <br />The Indian insurance sector has a turnover of around Rs 26,287 crore. The current FDI in this sector stands at around Rs 2500 crore and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.<br />The terror Pool, set up after 9/11 attacks, and being funded by the insurers currently has a corpus of Rs 1000 crore. The settlement of the claims for Taj, trindent and Oberoi amounting to Rs 500 crore could be well taken care of. The urrent coverage is till March 31, 2009. It is expected with renewals for next fiscal year, the Terror Pool fund will increase substantially. General Insurance Corporation (GIC), the Indian reinsurer, is planning to rise terrorism insurance cover to Rs 1000 crore from Rs 750 crore. Currently any claim beyond Rs 750 crore is covered by international insurers.<br />Source:-IRDA<br />Source:- IRDA<br />Source:-IRDA<br />Structural Changes Ahead<br />Thanks to deregulation, industry barriers are tumbling down. This encompasses trends involving growing emphasis on federal, rather than state regulation. As national regulatory standards predominate, the opportunity will open up for industry consolidation. Mergers and acquisitions, already well underway in the insurance and financial sectors, will only accelerate. This is being spurred on by the eroding of regulatory barriers between the banking, finance, and securities<br />industries. Survivors will thrive, not only because of their basic competitive prowess, but on their ability to consummate acquisitions. The ability to forge alliances will become another core competency for insurers.<br />The alliances are borne out of necessity, thanks to incursions by banks that are skimming traditionally high-margin markets, such as small business property and casualty coverage. In the long run, insurers that fail to establish effective partnerships with financial services giants will find themselves marginalized in a field increasingly dominated by financial services “supermarkets.”<br />The same deregulatory forces are also ratcheting up pricing pressures for commodity products such as auto insurance. On one hand, the Internet is making it possible to streamline the costs of selling new policies, but it makes it easier than ever for consumers to comparison shop.<br />Technology will also have a huge impact on the 21st century insurance industry.<br />For instance, the Internet will become more than just another new way of reaching customers. For insurers, it may become a vital tool in staff management, as the industry faces growing challenges in attracting and retaining the right talent. <br />Technology will also play a growing role in risk management and service delivery. For instance, in the automotive field, telematics is gradually becoming standard equipment in most cars. For instance, General Motors is extending its pioneering OnStar program from luxury models to the rest of its product line. Consumers are clearly enthusiastic about telematics, with some automakers showing renewal rates over 80% levels for telematics services. The key is the<br />sense of safety and security that is provided by telematics; consumers have eagerly embraced the notion of having direct communications links that call for emergency roadside assistance based on GPS positioning data. For insurers, telematics opens the doors to a wide array of new services—and for opportunities to manage or reduce risk (and premiums)—through features such<br />as:<br />
Remote control of emergency vehicle movement;
Remote control of vehicle speed and spacing on major highways;