Recent Development In Insurance Company 4r602h

RECENT DEVELOPMENT IN INSURANCE COMPANY INDIAN INSURANCE SECTOR A well developed and evolved insurance sector is a boon for economic development of a country. It provides long-term funds for infrastructure development and concurrently strengthens the risk-taking ability of the country. India’s rapid rate of economic growth over the past decade has been one of the most significant developments in the global economy. The

Indian

insurance

industry:

At

the

crossroads

of

development

The industry is on its way to development and a number of factors govern that growth. Some of them are:  Significantly untapped latent potential: India’s insurance industry has witnessed rapid growth during the last decade. Consequently, many foreign companies have expressed their interest in investing in domestic insurance companies, despite the Government of India’s regulation, which mandates that the foreign shareholding limit is fixed at 26% for the life as well as non-life insurance sectors. How can this potential be tapped efficiently? This report analyzes the issues of the industry and suggests methods to overcome them.  Recent regulatory developments that govern the current market state: The development of the insurance industry in India is likely to be critically dependent on the nature and quality of regulation. Overall, the regulatory environment is favorable and takes care that players maintain prudent underwriting standards, and reserve valuation and investment practices. The primary objective for the current regulations is to promote stability and fair play in the market place. Our report details some major regulations by the IRDA as well as those concerning ULIPS, IPOs, among others.

What will drive market development in the Indian insurance industry? There are certain factors that need to be considered by the Indian insurance industry to ensure a seamless growth in business. Our report analyzes these factors in detail. Some of these include:  Distribution channels: The effectiveness and cost of diverse distribution strategies of different players is crucial in ensuring the success of players in the insurance business, particularly in the retail lines of business.  Focus on financial inclusion: The approach to insurance must be in sync with the evolving times. The mission of the insurance sector in India should be to extend the insurance coverage over a larger section of the population and a wider segment of activities.  Consumer needs and preferences: The growth in insurance industry has been spurred by product innovation, vibrant distribution channels, coupled with targeted publicity and promotional campaigns by the insurers. Innovation has come not only in the form of benefits attached to the products, but also in the delivery mechanism through various marketing tie-ups. All these efforts have brought insurance closer to the customer as well as made it more relevant. The un-insured customer Given the lack of social security in India, in the event of disability, meager financial savings and reliance on borrowings from unorganised lenders are the only options available to a majority of the poor. While the developed countries provide social security network to their citizens, India’s large population and low per capita income implies that provision for any sort of social security system is bound to be a significant drain on the country’s limited resources. Most customers in the target segment have low financial literacy and are unable to view insurance as a risk mitigation tool. Low awareness levels and lack of understanding of underlying benefits creates a barrier to purchase of intangible assets. Further, the insurance companies have been focussing on reducing

losses and improving profitability rather than increasing cost effective distribution reach to the lower strata. Poorly designed policies, lack of education, mis-selling through inadequately trained agents and rejections during claims settlement has led to lack of trust with this customer segment. Distribution intermediary It is imperative to use an effective distribution channel mix to reach out to the target customer segment. Poor households live for the present rather than the future. Given their fatalistic attitude, the concept of insurance is linked to expenditure, rather than risk cover. Lack of adequate training to the distribution intermediary coupled with lack of motivation, makes it difficult to explain the products to largely uneducated customers. The feasibility of various products is also dependent on the availability of infrastructure, which is often lacking or low in quality. Limited incentive on a low product makes it difficult to cover operational costs of reaching out to the customers. Further, delays in claim settlement and complicated formalities by the insurance companies also pose as a road block. It is important for the intermediaries to be able to build personal credibility with the client. Poor governance structure of the intermediaries also poses a significant challenge in building a sustainable model between the intermediary and the insurance companies. Insurance company Insurance companies are faced with challenges like high cost of customer acquisition given the high operating and istrative cost involved in reaching remote areas vs. value of s and unpredictable payment capacity of the segment. Moreover, given some of the operating models of the insurance companies the cost of customer service is also high. Regulatory compliance in of statutory requirements for customer acquisition, documentation also forces a cost build up for the companies. The companies do not have enough data on various subsegments and associated risks for analysis and pricing. As a result, the claims ratio in the microinsurance segment is unpredictable.

Potential solutions to further increase penetration and scaling-up microinsurance business In this section, we have attempted to examine a range of regulatory, technological and industry led change catalysts to address the challenges. The collected effect of these change catalysts should the industry in meeting the objective of scaling up the micro insurance business. The combined impact of these drivers is far greater than by themselves – changes in the regulatory structure must be accompanied by industry led innovation, which in turn must be enabled through the effective use of evolving technology. Industry led change/innovation Ultimately, the mantle of increasing the penetration of microinsurance in India will fall on the insurance industry. Enabled by favourable regulatory structures, the industry will be empowered to innovate – in low-cost customer acquisition, product designs and pricing, customer service and in claims handling. While each insurance company will develop its own strategies and capabilities, it will also have the opportunity to create path-breaking collaborative models. The combination of internal and collaborative models will be the catalyst for increased microinsurance penetration.