The quality of growth in India's non-life insurance market remains a concern, says A.M. Best which has a negative market segment outlook on the sector.
In its latest report, the international rating agency notes that the Indian non-life market has experienced robust growth over the past years. The growth momentum was not limited to business lines that benefited from government initiatives or tariff adjustments, but was also robust in other lines of business. However, technical profitability remains poor and in many cases weaker than five years ago.
In addition, the volume of motor third party reserves held for past policies remains large relative to earned premium and capital. Unfavourable reserve adjustments have the potential to significantly impact current performance and capital, especially given the lack of earnings buffer from other business lines, says A.M.Best.
Legislative initiatives aimed at motorists and the motor insurance market also may be a future benefit to India’s insurers. Market participants are hopeful, although some have expressed concern about how effective enforcement of any new regulations will be, given the lack of enforcement on existing motor vehicle rules.
Notwithstanding the negative market segment outlook, A.M. Best recognises that some non-life insurers may experience positive momentum. These companies may not be the largest in terms of premium market share, but they have the demonstrated capability to control the quality of their growth by using a comprehensive and methodical approach across their operations to generate risk-adjusted returns.
New entrants to the market seem to aim at heavily leveraging technology and alternative distribution to compete on the basis of analytics, risk-segmentation and risk-adjusted pricing. The current size of these companies is indeed still very small compared to incumbents, but it will be interesting to see whether they will be part of a changing approach to growth in the Indian non-life market, notes A.M. Best.