Slowing Indian economy will weight on insurance premium growth over the next two-three years, Moody’s Investor Service said on Tuesday. However, supportive measure taken by the regulator Insurance Regulatory and Development Authority of India (IRDAI) will help counterbalance the deteriorating economic environment.
“India’s GDP (gross domestic product) growth weakened to its slowest rate in five years in the fiscal year ended March 2019, and the resultant financial pressure on rural households amid weaker job creation is in turn also weighing on premium growth," said Moody's Senior Vice President Benjamin Serra.
According to the latest estimates by Indian statistics department, the economy will grow at 5% in the current fiscal ending in March, slower than the 6.8% growth recorded in 2018-19. GDP growth fell to a six-and-a-half-year low in the quarter ended September.
However, low insurance penetration rates in India also suggest there is still ample room for growth. According to Moody’s health premiums are likely to increase due to the government’s Ayushman Bharat scheme that was launched in September 2018. Billed as the world’s largest health assurance scheme, Ayushman Bharat aims to provide free health insurance of ₹5 lakh per family to nearly 40% of the population--more than 100 million poor and vulnerable families each year.
“Nevertheless, the country's low insurance penetration rate suggests ample room for further growth, while supportive government and regulatory initiatives are also helping mitigate the currently challenging environment for Indian insurance and reinsurance companies," Serra said.
Moody’s further said that the insurance regulator has taken series of measures, which includes removing the limit on foreign ownership stakes in Indian insurance intermediaries. The step was announced in the Union Budget in July, 2019 aimed at bringing in global products, practices, and sales strategies to India’s insurance “IRDAI also plans to introduce a new risk-based capital (RBC) regime with similar principles to Solvency II in Europe. This is likely to improve Indian insurers' risk management, a credit positive. While many of the large private insurers have already adopted a risk-based approach to managing capital, we expect the new system will pose some implementation hurdles, particularly for smaller insurers," Moody’s said.
This could encourage market consolidation, further enhancing the competitive advantage of larger players, it said.