The Insurance Act, 2015 had been keenly awaited by the insurance industry for about five years. It was expected that once it is in place, the industry will bounce back to its full potential, will attract huge foreign direct investment and contribute to GDP growth by improving penetration and generating employment apart from providing stability to various businesses by managing risk in a significant manner.
But even after three quarters of the year since the presidential assent to the Bill, nothing exciting seems to be happening in the sector. So far, there has been no flow of foreign capital, no merger or acquisition and not even a single IPO is in sight. This is a phenomenon that needs to be tackled and the shackles, if any, need to be unfastened.
There is no problem with the generics of this business. Globally, it is flourishing and its growth is directly proportionate to growth in population and business of any kind that adds to economic activity nationally or even internationally.
Any manufacturing, storage and transportation has an inevitable component of risk built into it. Similarly, all assets are exposed to some potential risk. On the other hand, people face risk of health, early death, incapacitation or of living longer than their ability to fund their own long term care. We also face risk of climate changes and even of weather sometime playing truant or dealing a harsh blow to habitations and farms. Hence slowing down or incapacitation of the risk management mechanism in any market or society is a dangerous situation. Because we have a very weak risk management mechanism or insurance coverage in our society, the government announces financial relief to victims of various adversities even though there is no budget provision for such largesse. In fact, this is the most unscientific way of indemnifying loss, which is not altogether unexpected.
On the other hand we find that countries where insurance is well developed continue to focus on strengthening their risk management capability. The UK regulator has recently highlighted risks to the society and ultimately to the insurers due to global warming. The report indicates that the insurance industry could be hard hit by climate change in ‘diverse, complex and uncertain ways’. This poses a serious challenge to the general insurers. The recent UN resolution and the PM’s statement at the UNGA is significant for the insurers, too.
I would like to discuss yet another serious risk that the society is going to face on a scale that may be more frightening than the nuclear risk that we all are aware of since the Chernobyl days. But unfortunately in India we seem to be waiting for a disaster to happen to learn a lesson. Today all businesses are hugely dependent on IT for storing data, managing operations with customers and for making financial transactions. The dependency is so high that cyber crime cannot only force a business to a grinding halt but can also ruin the business and the wealth of the investors.
Deactivating data base or pirating data base of one company may interrupt the business function of so many dependent or networked entities, national or even globally. Hence cyber risk insurance is now the fastest growing portfolio in developed insurance markets. Here one major concern is how well prepared we are in India, product wise and regulation wise. There is an opportunity for insurers and the reinsurer to build competence and capacity to handle the cyber risk portfolio. Some experts believe that cyber risk premium may soon equal to the property and casualty insurance premium. Developed countries assess the losses due to cyber crime. In Digital India, cyber crime risk, specially from terror angle, is going to be a real challenge for industries as well as for the risk managers.
Reinsurance is another big opportunity for the insurance industry to grow in terms of premium income and capacity enhancement. But in India unfortunately the only reinsurer GIC Re is waiting for couple of years for regulatory guidelines on compulsory cession by local life insurance companies. GIC Re’s $2.34 bn income is far below even of some Asian reinsurers. In a recent survey report the Federal Insurance Office of the United States highlighted the critical role played by the reinsurers in supporting the US economy. In the US, 28 US-based reinsurers are operating while in India GIC Re is the only Indian entity which prides in getting 50% of its premium from the overseas market. India being a very large geographical entity provides a favourable reinsurance opportunity within the country itself.
In view of the growing senior citizen segment in the Indian demography there is a huge need of introducing and managing the annuity market. Till now not even the tip of the iceberg has been capitalised.
The writer is former MD & CEO, SUD Life