The non-life insurance sector in India will continue to grow this year, but at a slower pace due to Russia-Ukraine war and high inflation, says Swiss Re Institute (SRI).
In its report, titled “India’s insurance market: poised for rapid growth”, SRI said, “We see further slowdown in 2023 ahead of a recovery to 6.7% average annual growth in 2024 and 2025.”
The non-life sector grew strongly in the 2010s, with premiums (including health) up an annual average of 9.6%. The sector contracted slightly in 2020 due to COVID-19 lockdown measures, which also brought economic activity to a standstill.
However, strong growth in health premiums provided support and the non-life sector overall returned to 5.9% growth in 2021. Excluding health, sector premiums were down 0.9% last year.
Health insurance is the fastest-growing line of business
Health premiums in India grew by 22.5% in real terms in 2021, the segment becoming the largest non-life line of business, mainly driven by pandemic-induced increased risk awareness.
SRI estimates that health premium growth will moderate slightly to 7.6% in real terms in 2022, mainly due to a higher base effect from strong double-digit growth in 2021 and high inflation. The latter may lead to rising lapse rates. Health insurance growth will likely remain robust as the factors driving strong growth over the past decade remain in place.
Moreover, the heightened risk awareness post-COVID-19 will also support growth in the medium term. SRI believes insurers have an opportunity to meet evolving customer needs through innovative product offerings.
Motor insurance set to recover
Motor is the second largest non-life insurance line of business in India. SRI estimates that motor premiums will grow by 2.9% in real terms in 2022, based mainly on stronger economic activity and higher levels of mobility post-pandemic. High fuel prices and rising interest rates may limit demand for passenger vehicles this year and next.
However, SRI estimates premiums will grow in line with its forecast of 7% average annual GDP growth over the next 10 years, supported by an expanding middle class and rising usage of cab services. Moreover, InsurTech and digitisation, and partnerships between auto makers and financial service firms should extend insurance reach.
Motor premium volumes shrank by 7.4% and 1.6% in 2020 and 2021, respectively, mainly due to lockdowns, travel restrictions and social distancing. New car sales slumped during the pandemic as showrooms or dealerships were closed. According to the Federation of Automobile Dealers Associations, there was a 30% year-on-year drop in vehicle sales in the financial year 2020–2021.
A majority of personal auto insurance policies in India are sold through agents (38%) and corporate tie-ups and brokers (37%). The nationwide lockdown forced people to remain indoors and minimise physical contact with the outside world and consequently, the number of motor insurance policies sold and renewed plunged during the same period.
Subsidy cuts lead to decline in agriculture insurance premiums
SRI estimates that the agriculture insurance segment, the third largest line of non-life business in India, will continue to contract in 2022, although at a slower pace than in prior years.
Agriculture premiums declined by 9% and 13% in real terms in 2020 and 2021, respectively, after the central government cut the premium subsidy in crop insurance schemes from 50% to 30% for non-irrigated crops, and to 25% for irrigated crops.
SRI expects premium growth to pick up gradually from 2023 as the impact of regulatory changes is absorbed. The government also made the enrolment of farmers in the state-sponsored crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS) voluntary from 2020. These factors led to a decline in farmer enrolment in the plans.
Agriculture insurance premiums grew very rapidly after the inception of the PMFBY in 2016. Premiums rose by 245% in that year and remained strong until 2019. The agriculture business has remained underpriced and unprofitable for most insurers due to the nature and intent of the scheme. The loss ratio fluctuated between 93% and 120% from 2017 to 2021, averaging an annual 106%.
