Digital Disruption in Insurance: Stock market discipline can drive innovation

Published: April 5, 2018 2:10:11 AM

India’s century-old insurance market, which had been relatively staid in terms of innovation for decades, is transforming to improve solvency standards and deliver new competitiveness and efficiencies.

Insurance, Stock market, money, IPOIndia’s century-old insurance market, which had been relatively staid in terms of innovation for decades, is transforming to improve solvency standards and deliver new competitiveness and efficiencies.

It was a milestone year (2017) for India’s insurance sector, as insurers continued to ride the wave of investor demand for insurance IPOs. India’s century-old insurance market, which had been relatively staid in terms of innovation for decades, is transforming to improve solvency standards and deliver new competitiveness and efficiencies. As the government seeks to liberalise the sector, improve efficiencies at state-owned insurance companies and grow the pool of insurance capital eligible for investment in other Indian assets, investors have been responding positively to the opportunities in the sector. Recent IPOs in domestic insurance closed multiple times oversubscribed, with pricing coming in at the top of pricing ranges, although stock market performance since listing has been mixed. The focus on growing the insurance sector is attracting interest of foreign investors. Following the government’s move to raise FDI ceiling in the sector in March 2016 to 49% through the automatic approval route, up from 26%, FDI inflows in the services sector (which includes banking, insurance and other financial services) accounted for the second largest share of FDI inflows to India in the July-September quarter of 2017 at $2.9 billion. This accounted for 19.2% of total FDI inflows over the period. The attractiveness of the insurance sector to investors has been driven in part by the potential for deeper market penetration and better performance as India has historically had relatively low penetration rates for insurance.

According to a report by Moody’s, in the fiscal year ended March 31, 2017, the Indian combined insurance industry’s total gross premiums grew by 17%, bringing the five-year CAGR to10% for the sector. Non-life premiums grew 32% in FY17 versus 13% for life insurance. India’s economic progress, too, is a driver of insurance demand and innovation. A burgeoning middle class is seeking to better manage risk and maximise investment returns as India’s economy makes strong strides. A thriving insurance sector benefits from and contributes to overall economic development. As India’s insurers get exposed to greater public scrutiny, the rigours of analyst assessment, and diligence and transparency required of public companies in reporting and managing businesses, shareholders will want to see these companies adopting the right technology systems and operating models to drive capital growth and yields. To deliver on this expectation, listed insurers will need to apply even greater rigour in the identification and selection of their technology partners, ensuring that technology at once drives stronger capabilities and lower costs. Consolidation of vendors, systems and processes will be necessary to ensure insurance companies are doing more and better with less.

They must work to achieve better performance while ensuring minimal disruption to services and maximum cost efficiencies. This will require optimisation of the time and resources insurers deploy to make informed investment decisions that drive growth for shareholders and returns for clients. It needs adoption of technology that can speed data capture and analysis and ultimately digitalisation of systems, processes, services and client interface. Firms that capture these opportunities for growth and competitiveness will be the ones that create the best potential to thrive as they invest in robust, scalable technology systems that can support long-term business growth, reduce costs, centralise compliance and oversight, and bolster operational efficiency. Those which fail to harness technology as a strategic asset risk being leapfrogged by more agile and innovative competitors, a trend seen globally in the insurance sector where better ways of tailoring, delivering and managing products for clients’ needs are causing traditional players to innovate to ward off new and nimble, technology-based competitors in the sector.

Sunny Chhabria

Head of South Asia, Bloomberg LP

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