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The country’s life insurance industry, with assets worth more than 51 trillion, has entered into its first era of consolidation about 22 years after its liberalization.

Promoters of private insurers are finding it increasingly tough to generate adequate income from their core businesses following the coronavirus outbreak last year. As such, their life insurance arms are not able to generate enough capital infusion, which is crucial to such a business.

The problem is more acute for life insurers driven by manufacturing companies and led by non-banking financial companies (NBFCs), according to five experts that Mint spoke to.

An internal study by a large private life insurer showed the weighted average market share of India’s top 10 private life insurers has increased from 84% in 2017 to 87% in 2021, indicating consolidation in the industry. This also highlights how mid-size and smaller players are unable to grow while big players are growing bigger.

Twenty-four life insurers in India collected new business premium of 34,388 crore between April and August this year, up from 27,946 crore in the year earlier. “During the pandemic, one clear image emerging is the increase of the overall market share of the top 10 private players. It now stands at 87%. Also, customers’ preference for simpler and value-packed products from larger brands is observed," said Tarun Chugh, managing director and chief executive of Bajaj Allianz Life Insurance Co. Ltd.

The Insurance Regulatory and Development Authority of India (IRDAI) is now regularly intimated about the financial weakness of the promoters of insurers and their inability to sustain following the coronavirus outbreak, said a person close to the insurance regulator. As a result, the regulator is giving licences and approving products of only cash-rich promoter-driven life insurers, said a person aware of the Irdai’s processes.

“Over the last 20 years, many players entered the life industry, expecting to make money, without thinking much about the ability to infuse continuous capital or adapt to the evolving market and advanced systems. Companies in the manufacturing sector are in deep stress because of covid-19 and cannot bring in capital. If the promoters do not see a return on investment even after 10-15 years, they will exit," the person said.

“New-generation entrepreneurs have the cash and the latest internet technology and do not have legacy issues. As such, their entry is good for the industry," the person said.

“Unfortunately, we do not have too many deep-pocketed business houses. Hence, many players will exit. The problem is more with life insurers. General insurers start making money in three to four years as they have easier solvency requirements and do not need so much capital infusion. Only 10 out of 24 life insurers may remain after 10-15 years," the person said.

The recent acquisition of Exide Life Insurance Co. Ltd by HDFC Life Insurance Co. Ltd last month is just the beginning of the consolidation caused by the fundamental shift brought about by the pandemic, according to four experts from the insurance industry.

“The consolidation will entail three types of events. Existing players or new cash-rich entrants will acquire the smaller or cash-hungry players. The mid-size or larger players in joint ventures with weak Indian promoters will sell their stake to existing foreign joint venture partners, which will shift control to foreign entities in the private life insurance space. Third, the large or mid-size insurers with non-banking promoters will forge joint ventures with large banks or bank-controlled insurers," said the head of a large private sector life insurer on condition of anonymity.

Navi Technologies Pvt. Ltd, which Flipkart co-founder Sachin Bansal leads, is in talks to buy Kishore Biyani’s life insurance venture, Future Generali India Life Insurance Co. Ltd, in a 1,400 crore- 1,500 crore deal, two people aware of the discussions said.

In April, Axis Bank Ltd said it had become a co-promoter of Max Life Insurance Co. Ltd after the acquisition of a 12.99% stake in the company.

Axis Bank announced its intent to buy a 30% stake in Max Life Insurance for around 1,530 crore in April last year.

On 11 August, Mint reported that the billionaire Burman family will pare its stake and cede majority control in Aviva Life Insurance Co. India Ltd to its foreign joint venture partner UK’s Aviva Plc as part of a plan to raise capital for its core consumer goods business.

Last year, the Burman family talked with Bansal about a potential stake sale of the family in Aviva. “Discussions and negotiations with Sachin Bansal were over in March, and we were not able to come to any conclusion. Aviva will increase the stake (in Aviva Life) by buying (stake) from the family. The valuation exercise is going on," Mohit Burman, vice chairman of Dabur India (the flagship of Burman family’s group of companies), said.

The deal will see the Burman family stake drop to 26% from the current 51% in Aviva Life, while Aviva’s holding will rise to 74%, giving the foreign partner control of the life insurer.

The government hiked foreign direct investment (FDI) in insurance from 49% to 74%, further accelerating the pace of consolidation. “We will have to wait and watch how the FDI guidelines play out with each entity. For most players, especially the smaller companies, it may well mean that some fresh capital may flow in and help them grow. It’s an opportunity for foreign players to strengthen their presence further here and bring about best practices in services and efficient processes," Chugh said.

“As we go ahead, maybe we will see some of these smaller companies develop strong niches and offer something exclusive and unique for customers. It will help them move ahead on their growth path," Chugh said.

Manufacturing firms are in deep stress because of covid and cannot bring in capital.mint
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Manufacturing firms are in deep stress because of covid and cannot bring in capital.mint
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