Indian Insurance Industry: An Outlook

Insurance industry in India - Brief Introduction

The Indian insurance sector has witnessed significant growth - the number of life policies in force has increased nearly 12-fold over 2000-2010, and health insurance policies nearly 25-fold. Factors like better terms, availability of a wide variety of products (like unit-linked insurance products, whole life, maximum net asset value (NAV) guarantee etc), and government incentives have boosted the growth of the industry.

Data released by the Insurance Regulatory and Development Authority (IRDA) indicates that 23 life insurers registered Rs 18,282.86 crore (US$ 4.1 billion) by writing new policies during April-June 2011. State-owned Life Insurance Corporation (LIC) of India, collected premiums worth about Rs 13,341.97 crore (US$ 3 billion), while its private peers collected 4,940.89 crore (US$ 1.1 billion) as new first-year premium during the period.

In June 2011, industry collection stood at Rs 6,022.98 crore (US$ 1.35 billion). Revenue earned by selling new policies increased by 15.13 per cent in FY11, amounting to Rs 1,25,826.03 crore (US$ 28.24 billion) against 1,09,290.38 crore (US$ 24.53 billion) in FY10.

Insurance in India - Market Dynamics

Currently, the insurance industry, including life and non-life companies, has deployed a capital of about Rs 35,000 crore (US$ 7.8 billion) out of which Rs 26,000 crore (US$ 5.8 billion) comes from the life insurance segment. Foreign players have contributed about Rs 9,000 crore (US$ 2 billion).

General Insurance

The General insurance industry registered 22.35 per cent growth during the first quarter (April-June) of FY12 in terms of gross written premium.

Public sector player New India Assurance Ltd. grew 15.97 per cent during the first quarter of FY12 by collecting US$ 520 million through new policies.

Health Insurance

The second largest vertical under non-life insurance umbrella, health insurance is witnessing significant growth from the last two fiscals. The growth in premium is expected to continue at a compound annual growth rate (CAGR) of around 28.5 per cent during FY12-FY14. Rising healthcare costs and awareness, along with government support and incentives have attracted many private players in the sector. The huge demand supply gap in the industry provides large scope of growth and progress in the coming years.

Private and public players witnessed an increase of 33 per cent in terms of gross health insurance premium collected for FY11. Increase of insurance premium rates (in both retail and group insurance segments) by almost 30 per cent in last couple of years has boosted the industry growth, according to Sanjay Datta, Head of customer service for health and accidents, ICICI Lombard. Further, government-endorsed insurance schemes like Rashtriya Swasthya Bima Yojana and support from state governments have strengthened premium collections in the sector, as per Virendra Kumar, General Manager, health insurance, New India Assurance.

Indian Insurance Sector - Key Investments

• Hewlett-Packard (HP) owned IT services company Mphasis has acquired US-based software vendor Wyde Corporation. With this acquisition, Mphasis intends to align its applications and business process outsourcing (BPO) operations with Wyde’s insurance software platform Wynsure. The acquisition is the second one in insurance segment by Mphasis, which bought AIG’s captive unit in India in 2009.
• The Competition Commission of India (CCI) has given its nod to Reliance Industries Ltd. (RIL) to buy Bharti Group’s 74 per cent stake in each of Bharti AXA life and general insurance companies. Bharti Enterprises and French insurer AXA Group were in 74:26 joint venture (JV). While RIL will acquire 57 per cent of the pie, Reliance Industrial Infrastructure Ltd (RIIL) will buy the remaining 17 per cent held by Bharti in the two companies.
• India’s second largest public sector lender Punjab National Bank (PNB) is set to form a strategic alliance with insurance firm Metlife for its proposed life insurance business, wherein the bank would buy 30 per cent stake for an undisclosed amount. PNB also agreed to enter into a 10-year distribution tie-up with Metlife India. The deal is expected to close by the end of 2011.
• Cigna Corporation, American health insurance major, is planning to form a Joint Venture (JV) with an Indian company by August 2011 to mark its presence in the country's fast-growing health insurance sector.

Government Initiatives

IRDA has recently hinted at mandatory listing of insurance companies. Though the insurance Act doesn’t stipulate companies to go public, the regulator might make amendments to it to facilitate capital raising by the players. Initial Public Offer (IPO) guidelines for the insurance sector are also being worked upon. According to the draft guidelines released, only those players that have 10 years of operational experience and strong financial performance would be allowed access to the capital markets.

IRDA has also announced the release of much-awaited health insurance portability scheme across non-life insurance companies to be done on October 1, 2011. The proposed scheme would give policyholders discretion of moving to other insurer of their choice, whom they think is providing better product and service, while continuing with their policies. The launch of the scheme has been postponed from July 1 to October 1 so that the insurers are completely prepared to adopt the new concept.

Paving way for consolidation in general insurance sector, IRDA has notified merger & acquisition (M&A) guidelines for the players. The IRDA Scheme of Amalgamation and Transfer of General Insurance Business Regulations-2011 would apply with immediate effect to all private general insurance companies. Along with IRDA, the buyer would be mandated to receive nods from the Reserve Bank of India (RBI) and finance ministry, in case foreign direct investment (FDI) is involved. It would also require having approvals from the Securities and Exchange Board of India (SEBI) and CCI.

To improve the level of penetration in Indian markets, the sector regulator is contemplating allowing banks to sell products of two insurance companies each in life and non-life categories. The recommendation over bancassurance for such a move was made by a committee set up by IRDA itself. As per the current practice, a bank is allowed to sell products of one each in a life insurance company, a general and a health insurance firm.

Insurance in India - Road Ahead

India’s insurance industry is anticipated to reach US$ 350-400 billion in terms of premium income by 2020, making it among the top three life insurance markets, according to a report by a leading industry body and US-based Boston Consulting Group (BCG). India is expected to be one of the top 15 non-life insurance markets by 2020. The report further stated that penetration of the insurance industry, premium as percentage of the country's gross domestic product (GDP), has improved from 2.3 per cent in 2001 to 5.2 per cent in 2011.

(Exchange Rate Used: INR 1 = US$ 0.02244165 as on August 4, 2011)

References: IRDA publications, IBEF,press reports, media releases

Retailing

Retailing for Infants

Kids retailing in India has seen enormous growth, not just in urban areas but in rural areas also

The Indian retail industry is undergoing major revolutions. Retailing in India is gradually becoming the next boom industry. The consumer buying pattern and behavior are changing steadily. The growth of India's retail sector is not only limited to urban areas but also growing in rural areas. In the next five years, it is expected that, India's retail industry will expand more than 80 percent.

Organised retailing is slowly and steadily making its presence conspicuous in India and increasing its share as opposed to the unorganised retailing. With the coming of organised retail, various retail formats such as departmental stores, hypermarkets, supermarkets, malls, gaming zones, etc, have taken their market share. This segment is expected to touch an annual growth of around 35 percent. Hence, there is definitely considerable opportunity in this sector.

Understanding kids needs & demand

The trend for specialised retail is also growing in India. Today, there are many specialised retail stores taking care of specific needs of men, women, kids & infants exclusively. Kids’ retailing in India has seen enormous growth during the last decade. The scope of kids’ retailing is increasing as the industry expands phenomenally. Now it covers the entire gamut of apparel, sportswear, toys, eyewear, watches, stationery, footwear, perfumes and other accessories.

A close study of the evolution of the kids’ market shows that retailers dealing in juvenile products have an edge over their competitors, which eventually leads to a sustainable competitive advantage. Today, retailers are keener towards understanding the needs of kids than their parents.  Kids now have a wide range of branded merchandise. This allows them to add a wide range of flexibility to kids’ products in this market.

Players in the category

The kids wear retail market caters to kids aged up to 12 years. There is also a specialised market space for infants wear retail market segment that includes sales of garments for children between the ages of 0-2 years. Leading the kids' retail revolution is the apparel business, which accounts for almost 80 percent of revenue, with kids clothing in India following international trends. Some of the leading brands in kids apparel segment includes - Gini and Jony, Zapp!, Cinderella, Lilliput Kidswear, Raymond Apparel and Trent.

The recent entrant is PB Retail Ltd., a company in infant retail promoted by Pawan Agarwal. The company has opened their store in the brand name – My Mart, the first store of the company in the country which has an area size of 2000 sq.ft. My Mart caters to the children aged between newly born to five year olds. My Mart brings all the necessary goods for kids including apparel, footwear, accessories (bath and fashion), stationery, gifts and toys, Kids furniture etc.


Future growth

The kids retail industry is growing at a rate of 35 percent, which is a fairly good indicator of the promising prospect of this segment. As the market is still untapped, there is growth potential for new players to enter this segment. A more focused nature in understanding the changing demands, trends and growing needs of the kids segment and constant effort to better product will help retailer to become category leader.

Media and Entertainment

Media and Entertainment

Media and Entertainment (M&E) is one of the fastest growing sectors in India. The sector consists of creation, aggregation and distribution of content, products and services, news and information, advertising and entertainment through various channels and platforms.

The industry is taking initiatives like regional content and distribution platforms (digital, non-digital and mobile) to enhance customer experience as well as monetize content. New technologies such as 3G, broadband and mobile infrastructure are also helping in propelling the growth rate.

The Indian economy grew at a faster pace in 2010 compared to 2009, which translated into more advertising as well consumer spending. This high growth rate will continue to remain in 2011 as well. The Indian advertising industry will grow by 17 per cent in calendar year 2011 and is expected to add about US$ 889 million to the existing ad pie worth US$ 5248 million, according to Pitch Madison Media Advertising Outlook 2011. This robust growth in advertising industry will benefit the M&E industry in 2011 as well.

The entertainment industry in India is estimated at about US$ 9.4 billion in revenues in year 2010, which is expected to grow at a rate of 14.1 per cent to reach revenues of US$ 10.7 billion in 2011.

Television

The television industry is expected to grow by 12.9 per cent cumulatively over 2009-14. The maximum growth is slated to occur in 2010 (15.6 per cent), followed by 2012 (13 per cent), according to a report by PricewaterhouseCoopers (PwC).

The television industry is expected to grow above 20 per cent in 2011. Two important cricket events - World Cup and the Indian Premier League (IPL) - are expected to boost the television advertising revenue. Cricket is expected to earn advertising revenue of US$ 405 million from its television telecast this year, up from US$ 337 million in 2010.

The direct-to-home (DTH) market in India had 23.1 million active subscribers by the end of 2010, as per Media Partners Asia. This amounts to 16 per cent penetration of television homes in India.

With advertisement revenues strengthening, M&E players are aggressively entering the television (TV) broadcasting space. Broadcasters have added 444 television channels in the last five years with over 100 channels getting added in 2010 alone. Last year saw the second highest additions of television channels in the decade after 2008 which saw a record permission for 152 channels.

The Ministry of Information and Broadcasting has granted permission to 39 channels including nine high definition (HD) channels from Star India, ESPN and Sun TV network in December 2010 and January 2011.

In the next twelve months, television's ad revenue is slated to grow by 20 per cent to add. The TV ad revenues will touch a total of US$ 2804.3 million) in 2011, according to Pitch Madison Media Advertising Outlook 2011. (as on March 2011).

The report also projects that TV will remain the highest grosser of revenues in 2011 too. It is expected to corner 45.7 per cent of the total ad pie this year, a further rise from 44.5 per cent in 2010.

Times Network, Sahara Group, Colors and newspaper company Matrubhumi are planning the launch of their new TV channels. AETN18 also received Foreign Investment Promotion Board (FIPB) approval for the launch of specialized channels in India. Reliance Broadcast has initiated a buyout of Turner-controlled Bollywood music channel Imagine Showbiz.

Music

The music industry in India has always been dominated by film music, which contributes to 15 per cent of a film’s earning. The industry is expected to grow at a CAGR of 28.6 per cent over 2010-14, reaching US$ 567.6 million in 2014, reports PwC.

With the advent of new technologies such as 2G and 3G, and incresing mobile penetration India’s music industry is scaling on a high note. Handset major Nokia launched its music store in India; Hungama announced the launch of two portals - Hungama.com and Artistaloud and Saregama too launched its music portal.

Radio

The Radio industry is now in the Phase III licensing stage which will take its station numbers to 700 from the current 250.

In 2011, the radio industry is expected clock revenues of US$ 226 million, as per the Pitch Madison Media Advertising Outlook 2011.

The radio advertising industry is projected to grow at a CAGR of 12.2 per cent over 2010-14, reaching US$ 342.7 million in 2014 from the present US$ 192.8 million in 2009, as per PwC.

Cinema

India is the largest film producing market in the world with over 1,000 films released every year and 3.7 billion tickets sold annually.

The Indian film industry is set to top revenues of US$ 3.3 billion by 2010 as it rides new technologies and a booming economy set to expand at the rate of 18 percent per year. It is also one of the largest employment sectors in the country. The government of India gave the motion picture industry the status of an industry in 2001, making it easier for film producers to obtain institutional financing.

According to PwC, the industry is projected to grow at a CAGR of 12.4 per cent, reaching US$ 3.65 billion in 2014 from US$ 2.03 billion in 2009.

Advertising

The Indian advertising industry will grow at 17 per cent to clock US$ 6136.2 million in 2011, reported by Pitch Madison Media Advertising Outlook 2011.

The print media generated advertising revenue of US$ 2.2 billion, growing at 28 per cent compared to 2010; while television advertising generated US$ 2.34 billion, grabbing the biggest share of 44.5 per cent of the entire advertising pie. The Out Of Home (OOH) advertising medium grew by 27 per cent in 2010, commanding US$ 320 million of the total ad spends. Radio advertising too has grown by 30 per cent to become a US$ 199 million industry.

Internet penetration in India reached an all time high with 50 million plus connections in 2010. As per Internet and Mobile Association of India (IAMAI), the total Online Advertising market of India is estimated at US$174 million for the year FY2009-10 and is expected to grow to US$220 million in year FY2010-11. The internet market is currently dominated by display ads and is expected to remain so for the next year. Total Display advertising market of India in year 2009-10 is estimated at US$ 92.5 million and is expected to grow by 28 per cent to reach US$ 118 million in year 2010-11. Total text advertising market of India in year 2009-10 is estimated at US$ 81 million and is expected to grow by 25 per cent to reach US$ 102 million in year 2010-11. Banking, Financial Services and Insurance (BFSI), Travel and Online Publishers - the top three text advertisers of FY 10 are expected to continue to lead text based advertisers in FY11 as well.

Theatre

Midvalley Entertainment Ltd., a media and entertainment company, recently raised US 13.4 million through an IPO. The company has plans to invest US$ 3.3 million of the amount in screening agreements with 300 cinema theaters in Tamil Nadu, Andhra Pradesh and Karnataka, while US$ 5.8 million will be invested in the renovation and upgrade of cinema infrastructure with digital equipment and other related assets for select 100 screens in South India.

Multiplex chain Cinemax plans to add 30 digital screens to its existing 105 screens across India in the next six to eight months, most of which will be located in western and southern states. The investments for the 30 screens will be in the tune of US$ 10 million.

PVR Cinemas presently runs about 142 screens at 32 locations across 18 cities in India and plans to open another 80-100 screens in FY 12 in at least 27 cities, at an investment of US$ 22-26 million.

Digital Media

The Information and Broadcasting (I&B) Ministry has accepted a proposal by Telecom Regulatory Authority of India (TRAI) to make broadcasting operations completely digital. The timeline decided for closing the analog cable distribution has been decided for March 2015. A report by ICRA states that the industry requires an investment of US$ 3.37 billion to go for the digital system.

India is the third biggest Internet market, with over 100 million internet user base and the amount of time spent on the Internet for an average user in the country is 16 hours a week. According to Google estimates, 40 million users access Internet through mobile phones and download 30 million applications.

Print and Publishing

The newspaper market in India has grown at 13 per cent compound annual growth rate (CAGR) over the last five years to US$ 3.9 billion in 2010 will continue on its growth trajectory at an estimated CAGR of around 12 per cent between 2010 and 2013 to reach US$ 5.9 billion in 2013, according to Ernst & Young India,.

As per the Indian Readership Survey (IRS) for the third quarter of 2010, conducted jointly by the Media Research Users Council (MRUC) along with research firm Hansa Research Group Pvt Ltd, Dainik Jagran, published by Jagran Prakashan, continues to be the most preferred newspaper in the country..

Amar Ujala, which launched an NCR edition in February 2011, is the No 4 newspaper according to IRS Q4, 2010. It has lost a marginal 125 thousand readers and its total readership is down from 29.7 million to 29.6 million. The No 1 Bengali daily, Anandabazar Patrika is at No 10. The Times of India, India's No 1 English daily, continues to be at No 11 with a total readership of 13.8 million. It had gained 114 thousand readers in Q3, 2010, while in the Q4, it has added 204 thousand readers.

In Mumbai, the average issue readership (AIR) has grown from 6,06,000 to 6,27,000. Total Readership (TR) across all Hindustran Times editions have risen from 63,33,000 to 64,57,000. In Mumbai, the TR figures have increased to 9,73,000 from 9,43,000 in Q3.

Foreign investment, including foreign direct investments (FDI) and investment by non-resident Indians (NRIs)/person of Indian origin (PIO)/foreign institutional investor (FII), up to 26 per cent, is permitted for publishing of newspapers and periodicals dealing with news and current affairs under the Government route.

FDI policy for publication of Indian editions of foreign magazines dealing with news and current affairs is:

• Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26 per cent, is permitted under the Government route.
• 'Magazine', for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news.
• Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information and Broadcasting (I&B) on Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals 100 per cent FDI is permitted under the Government route.

Publication of facsimile edition of foreign newspapers:

• FDI up to 100 per cent is permitted under Government route in publication of facsimile edition of foreign newspapers provided the FDI is by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India
• Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, 1956
• Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time.

Government Policies

The Ministry of Information and Broadcasting (MIB) has set up a committee to assess the current rating system for television rating points (TRP) of TV programs and has expressed concern over this current system of evaluation. The MIB has recommended increasing the sample size and switching to a more scientific approach for accurate data.

It has also proposed an increase in the sample size from 8,000 homes to 15,000 urban and rural households over a period of two years. It further recommends that this figure should increase to 30,000 over the next three years, covering urban areas, rural areas and small towns as well as Jammu and Kashmir and the North-Eastern States, to provide complete geographical coverage of the country.

Source: ibef