General Insurance: The Next Sunrise Sector

Published by Sharekhan Education | July 16, 2022

General Insurance: The Next Sunrise Sector

Amit Pathak | Sharekhan Education

Introduction:

The Indian General Insurance sector offers products such as motor, health, crop, fire, marine, liability, travel, aviation, and home insurance. These products are targeted at meeting the different protection needs of retail customers, government customers, and corporate customers. The sector holds significant growth potential because of its under-penetration compared to other economies. General insurance penetration in India is at 0.9% v/s 8.5% for the US and 2% for China. We expect the industry to grow at a 12–14% CAGR over FY22–24 on the back of India’s large working population, rising affluence, rapid urbanization, and raising awareness of risk.

Health Insurance Segment:

Health insurance is the biggest component of the general insurance sector, with a 33% share. The COVID-19 pandemic has changed the landscape of the health insurance industry. It has raised awareness of health insurance and led to health insurance being a pull product rather than a push product. This is reflected in the 25% growth in health premiums in FY22 vs. an 11% growth for the overall general insurance industry. As per capita income improves, the affordability of buying health insurance will improve further. Healthcare expenses in India have been increasing at a rapid pace. This will continue to drive the demand for health insurance via an increase in the sum assured. CRISIL expects 18% CAGR growth over FY21–25 in this sector.

Motor Insurance:

Motor Insurance is the second-largest segment of General Insurance, with a 32% share. The auto sector has had muted growth over the past couple of years. We expect a revival led by vibrant digital distribution channels, the easing of supply-side issues like semiconductor shortages, infrastructure investments driving demand for commercial vehicles, and a new scrappage policy increasing replacement demand. Third-party insurance (TPI) has been made mandatory in India. Overall, 57% of vehicles are still uninsured in India. This is a huge opportunity for insurers, especially TPI.

Regulatory Environment:

IRDAI is trying its best to provide a favourable regulatory environment for the industry. It is in talks to relax the minimum entry capital requirement for setting up an insurance venture, along with tax sops and lower solvency margin. The industry has witnessed consolidation in recent years, with PSU players ceding market share to private players. The market share loss has been on the back of capital constraints and also aggressive pricing by the private players. Private players now account for 50% of the industry, v/s 41% in FY17

ICICIGI:

We have a positive view of ICICIGI in this space. ICICIGI is India’s largest private sector general insurance company post its merger with Bharti Axa. High float levels, scale-led cost/pricing edge, and high granularity are key moats for the company. We believe significant investments made to augment agency strength and digital channels will enable higher growth. We expect the company to deliver a gross premium/PAT CAGR of 19%/28% over FY22-24. RoE is expected to increase from 15.4% to 18% between FY22 and FY24.

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