Insuring future: The golden age of India’s General Insurance sector

India’s general insurance sector, the very lifeblood of our nation’s economy, has blossomed into a powerhouse in recent years. Backed by a strong regulatory framework, this flourishing sector presents a wealth of growth opportunities.

In this article, Samir H. Shah, Executive Director & CFO, HDFC ERGO General Insurance, reflects on the sector’s remarkable journey, its current landscape, and its promising future.

Strong sectoral growth, yet untapped potential remain

Since its inception, the Indian general insurance sector has seen phenomenal growth, driven by a robust compound annual growth rate (CAGR) of 16-17 per cent that considerably outpaces the country’s nominal GDP growth of 12-13 per cent. Yet, much potential remains untapped amidst this impressive trajectory. 

In 2006, when I first entered this industry, its size was valued at a modest 250 billion rupees. Today it stands tall at a staggering 2.9 trillion rupees-marking a twelvefold increase over the past two decades. 

However, despite this progress, general insurance penetration remains relatively low, hovering around 1% of GDP. This figure pales in comparison to the global average of 4% and the 1.7-2% seen in comparable Asian markets. This gap presents a significant opportunity to expand insurance coverage across the country.

Several factors can contribute to increased penetration, not least the regulatory reforms championed by the IRDAI chairman over the past two years. These transformative measures have set the industry on the right course, aligning with the regulator’s ambitious vision of “insurance for all” by 2047. 

A triad of awareness, affordability and accessibility for maximizing growth and penetration

To fully realise the potential inherent in this sector, it is imperative to focus on three key pillars: awareness, affordability, and accessibility.

Affordability lies at the heart of financial inclusion. To extend the reach of this sector beyond tier one cities, insurance must become more accessible and affordable to individuals in tier two, three and four cities. This can be achieved through standardised, simplified products that require minimal financial literacy.

Accessibility, enabled by digitisation and automation, is the final piece of the puzzle, allowing intermediaries to reach customers in remote areas through user-friendly apps and innovative distribution models.

This dovetails with the third pillar, awareness. Complex products with numerous inclusions and exclusions often deter potential customers, who may perceive insurance as a complicated scheme. Simple, transparent products, coupled with educational initiatives, can encourage greater participation by nurturing trust and promoting understanding of insurance’s value.

In a welcome move, the IRDAI is spearheading an initiative called Bima Sugam, a platform for selling simple products through Bima Vahaks, a women-led distribution channel in rural areas. This insurance trinity-comprising Bima Sugam, Bima Vahaks, and the simple Bima Vistaar product-is a concerted effort to enhance insurance penetration in underserved regions.

Adapting to the emerging consumer sentiments

Interestingly, customers’ expectations for service are evolving. They now compare experiences across industries, placing greater emphasis on convenience, transparency and personalization. For instance, just as they track food deliveries, they want to know the status of their insurance claims: Has the surveyor been assigned? When will the claim be approved? When can they expect payment? We’ve addressed this need by enabling customers to track their claim’s progress online. Another noteworthy expectation is instant policy issuance, a feature we now offer through our online portal and agent apps.

Balancing profitability, customer-centricity, and strategic cost management for business success

A successful business model prioritizes three key elements. First and foremost is return on equity, the primary benchmark for financial performance, which must be balanced with a deep understanding of customer preferences, ensuring that products and services are tailored to meet their evolving needs.

Thirdly, cost rationalization is crucial.  It’s not simply about cutting costs indiscriminately, but rather a thorough evaluation of every expenditure to determine its necessity and value. This process should be undertaken with a “zero-based” approach, starting from a clean slate to assess what is truly essential. It’s vital to overlay this cost analysis with customer service considerations. 

In today’s fiercely competitive market, with rising prices posing a significant challenge, businesses cannot increase prices at will. This makes cost management even more critical, ensuring that every penny spent contributes to both profitability and customer satisfaction. This is why cost rationalisation should be a priority across the entire organisation. Every employee must understand the rationale behind any cost-related decision, fostering a culture of awareness and accountability.