Search the Internet          Tips  Sites: Finance, Investment

Foreign life insurers to face big challenges in India

Foreign insurers are lining up to enter India's life insurance industry, lured by a population of more than one billion people.

But while the market may be rich in potential, newcomers face formidable challenges.

"India ranks very high as a country with enormous potential and one for which Sun Life is prepared to expend considerable resources of time, people and money," said Douglas C Henck, executive vice president of Asian operations at Sun Life.

But Sun Life and other new arrivals have to battle for turf with Life Insurance Corporation (LIC), an entrenched state-run giant which dominated the industry for decades until India opened the sector to private and foreign insurers in 1999.

To complicate things further, many Indians are impoverished and ignorant of insurance -- making product awareness a problem.

There are no official estimates of India's insurable population but industry estimates put it at about 400 million, more than three times the 115 million people insured by LIC.

A few foreign firms have set up shop through joint ventures with Indian firms and the number is expected to grow sharply.

Foreign insurers already in the country include Standard Life Plc, Prudential Plc, American Insurance Group (AIG) and Sun Life Financial Services of Canada.

Allianz AG is another big name poised to enter the market.

ASIA THE EMERGING MARKET

N Rangachary, chairman of India's Insurance Regulatory and Development Authority (IRDA), sees a 20-25 per cent annual compounded growth in the number of policies issued in the next five years.

Insurers such as Sun Life and AIG see Asia as the emerging market for financial services. They see India and China as attractive destinations for insurance, with the promise of up to triple digit growth against single digit growth in mature markets.

China is probably a bigger market, but its policies are more restrictive with licences being given on a city-by-city basis, insurance industry officials say.

"In India, we have a nationwide licence. So we can grow as fast as we want to, provided we can manage the growth," said Edmund Tse, vice chairman of life insurance at AIG which has an Indian venture with the Tata group.

"We will put in a lot of resources to accelerate the building up of our operations here," Tse said, adding it was difficult to expand operations in China because of its restrictive stance.

India's urban market, already exposed to financial services and wealth accumulation products, is also more sophisticated than its Chinese counterpart, Henck said.

In terms of premiums, LIC sees a growth of 30-40 per cent in the next few years -- implying collections of Rs 500-550 billion by the financial year ending March 2002.

"Just a quarter of the market has been tapped. With new competition, we will have an expansion in the market as a whole," said N C Sharma, LIC's managing director.

Companies such as ICICI Prudential Life Insurance Co, Prudential's joint venture with financial services major ICICI Ltd, will also tap the market.

"Insurance is partly a protection product and partly a savings product. So it is not that if you have invested with one company, you will not invest with another," ICICI's managing director Shikha Sharma said.

AWARENESS KEY TO EXPANSION

Events such as January's devastating earthquake in Gujarat highlight the need for insurance. The quake killed some 30,000 people and injured and left homeless many more.

Based on historical data, normally only about 10 per cent of those hit by disasters are covered by insurance.

The relentless media coverage of the quake and its aftermath has helped to create awareness of insurance.

"Events like this are rare, but they do affect people's psyche. Overall, it does create some insecurity and different people may react to this differently, including taking more insurance cover," an industry official said.

Consumer awareness is the key for the market to realise its potential, said HDFC Standard Life's marketing head, Pankaj Seth.

Standard Life has partnered with Indian mortgage major Housing Development Finance Corp for its life venture.

Advertisements on billboards and in newspapers, colourful websites and kiosks explaining the need for insurance and products, have become common in recent months.

LIC GEARING UP

LIC, whose monopoly was once blamed for bland product fare and service quality, has been priming up for competition.

It is marketing its products more aggressively and identifying new markets, which it plans to tap with specially trained agents. It is eyeing wealthy individuals, industry bigwigs, overseas Indians and the pension market.

A name associated with life insurance in India for nearly half a century, combined with a 2048-strong computerised branch network and some 819,000 agents make LIC a formidable competitor.

There is, however, room for more and new players see the market gaining in depth and sophistication with competition.

"In market after market, one can see very clear signs of an overall improvement in the industry when foreign players come in and provide their expertise to the local market," Henck said.

Tell us what you think of this report