India's Growing Insurance Market: Technology's Role

Boston — Experts will agree that India is emerging as an important player in the world economy. Today, it is the globe's twelfth-largest economy, and on the back of this economic growth is the burgeoning insurance industry, according to research from Boston-based Celent LLC. The research report, "Insurance in India: Market and IT Overview," goes on to state that with a 2006 premium income of $31.6 billion, India took in a 1% share of world insurance premiums, and a 5% share of those in Asia. These numbers marked a 25% increase in premium income over 2005.

Competition among Indian insurers is toughening due to a host of private competitors that have entered the market. Many of these new firms are joint ventures with foreign insurers, according to Celent.

RNCOS, a Delhi, India-based market research consulting services company, named-in its report, "Indian Insurance Industry Forecast (2007-2009)"-some of India's key insurance players, including: Bajaj Allianz, ING Vysya, AMP Sanmar Assurance Limited, SBI Life, Tata AIG Life, HDFC Standard, ICICI Prudential Life Insurance, Birla Sunlife, Aviva Life Insurance, Kotak Mahindra Old Mutual, Max New York Life, Met Life, Sahara Life, LIC, Royal Sundaram, Tata-AIG General, Reliance General, IFFCO-Tokio, ICICI-Lombard, HDFC Chubb, New India Assurance Company Ltd., National Insurance Co. Ltd., United India Insurance Co. Ltd. and Oriental Insurance Ltd.

Insurers are increasingly reviewing their IT infrastructures to ensure that they are future-proofed in terms of flexibility and scalability, according to Celent, estimating IT spending for 2008 to tip $3 billion. Growth in IT spending will match the increase in premium growth expected in the coming years, and Celent estimates IT spending to be over $9 billion by 2012.

Celent attributes the growth to rapid industrialization, population expansion, greater disposable incomes and more personal assets. India is a developing economy—access to the Internet is extremely limited, as is the prevalence of mobile phones and landlines. Insurers are reliant on traditional ways of selling to the end customer through the broker and branch network.

One insurer branching outside the standard distribution channels is Aviva Life Insurance Company India Pvt. Ltd. Aviva Life Insurance and Apex Bank, Madhya Pradesh, India, INN reported in July 2007, became bancassurance partners. Aviva will have access to a potential customer base of 5.7 million in Madhya Pradesh with this tie-up. Aviva has now extended its leadership position in the Bancassurance channel with more than 30 tie-ups, the largest number of bank partnerships by any private insurer in India. Aviva has increased its presence to close to 500 locations in the country.

"Madhya Pradesh is amongst the largest states in the country, and has huge potential in the insurance sector," says Bert Paterson, managing director, Aviva Life Insurance. "With this strategic tie-up, Aviva has found a partner with an extensive distribution reach thus strengthening our position in Madhya Pradesh. We are India's leading bancassurer with a leading number of partnerships and a first-class reputation for implementation."

The evolving landscape of the Indian insurance industry provides a number of business drivers for change, according to the Celent report, which also describes some of the technology trends seen in the Indian insurance market:

• Growth: A challenge is building an IT infrastructure that will be able to support users and policy counts not yet even benchmarked elsewhere in the world. With a population of 1.2 billion, and an expected middle class of almost half, insurers in India will have to cope with volumes of data and transactions in core systems that have never been seen before.

• Staffing for scale: The explosive growth in insurance has highlighted a real shortage in experienced IT insurance professionals in India. This shortage is likely to be medium term as higher salaries attract more people to the industry.

• Flexibility: Insurers must be able to design, develop and implement products in weeks and not the current reality of months.

• Distribution: The dominant distribution channel is the agent market, and it is likely to remain so for some time. This channel can impose significant costs, and it's important that insurers introduce standardized processes and automate where possible.

• Product innovation: The removal of tariffs will see a significant increase in competition on price. Insurers may well choose to move away from bitter price wars and instead lead the market through product innovation.

• Disciplined underwriting: There is a view that rates in the past have not met actuarial experience. The convergence of four technologies-business rules engines, predictive scores/analytics, data management, and optimization—now provides insurers with a significant opportunity to improve how they do underwriting.

Sources: Celent LLC, RNCOS, Aviva Life Insurance

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