There is a lot of action going on in the Indian Insurance market. There are around 29 general Insurance and 24 life insurance companies operating in India at this point in time. And a few more licenses are in the pipeline. Even in the reinsurance market, four more companies have received licenses to work in India namely Munich Re, Hannover from Germany, Swiss Re from Switzerland and French major SCOR. Insurance Regulatory and Development Authority (IRDA) is also contemplating on the removal of license requirements for individual agents and have long been granted formal licenses to sell insurance products to leading banks and NBFCs.
On the other hand, the market still remains to be soft and driven by customer. With the new companies coming in every year, it's surely going to remain so for another decade at least. If this was one side of the story which indicates the market is booming and also thriving with stiff competition, there are indications of a gloom as well with the trend of mergers and acquisition process being started. The trend started with the merger of Max Life Insurance with HDFC Life and very recently the L&T General Insurance being acquired by HDFC Ergo general Insurance. The news of Bharti Airtel's disinterest to keep investing in Bharti AXA venture and searching for a suitable partner to sell off its stake (the larger pie of 74%) is still going in rounds for quite some time.
Global players are coming to India looking at the 1.27 billion population and their insurance needs, however failing miserably in reaching to the mass. In the initial years, the industry growth percentage was inorganic and as high as 40% from 2001 to 2010. However, it slumped subsequently and though now it's still growing at a handsome rate, there have been no or very minimal value add which these new entrants have brought in. Neither did they focused on charting new territories nor did they try to reach the uninsured segment of the society/geography.
Each one of them started playing in the same market invoking severe competition in terms rate cuts/offering freebies. This has resulted in slower ROI, greater gestation period and more investment requirement from the parent organization than initially envisaged/calculated. The in evident result is that, the business does not seem so lucrative by the organization and eventually the mergers, selloffs are happening and further consolidation is on the cards.
This will eventually lead to:
- Hardening of the market and a carrier-driven market in the long run because of less competition
- Better reach in market leveraging each other's distributions
- Better retention limit and capacity
- Better control of business in terms of better visibility on the overall business profitability and justification
- Complex organization, business and IT structure because of the mergers
Opportunity for IT firms:
Traditionally the Indian IT companies have been more focused on overseas insurance market. While the US and UK economy is not growing significantly, the same slump is visible in the insurance industry as well. If we see the recent reports for the major players both in US and UK, the picture of the carrier struggling to make a decent bottom line is quite clear. The pressure is passed on to the IT budgets as well.
It's high time that we focus on the Indian insurance market where the market is still growing at a healthy rate of more than 15 percent YoY. With the consolidation happening simultaneously, the market is flooded with opportunity aplenty. The IT companies can do a real value add in the following areas:
- IT infra and architecture streamlining post M&A: This is one area which plagues even the biggest insurance carriers worldwide for not taking adequate timely action post their M&As - in terms of streamlining their business and IT architecture. The result is silo business processes and functions within the same organization which stops them now to achieve the organic growth. The leading insurers now realize this and slowly moving ahead to free themselves from the clutter. The experience of IT companies handling such M&A related IT and business structure rationalization can add real value to the Indian carriers, where it has just started.
- Business and domain consulting: With the knowledge and experience of worldwide best practices, IT companies can offer better risk control mechanism including fraud detection, anomaly indicator, state of art BI, MI capabilities to give a better view organization's performance.
- Offer better operational support and control: With the larger budget, retention capacity and limit, the insurance companies can now look forward to setting ambitious growth plans by moving forward from being reactive to being proactive by predicting and offering value added services in controlling the loss by leveraging the latest technology trends like usage of IOT in home/factories/large operational areas, connected cars, usage based insurance, satellite imaging and natural calamity prediction in agricultural business. Usage of analytics and Artificial Intelligence (AI) in fraud control, usage of robotic process automation (RPA) in providing better/quicker services which are repetitive and rudimentary in nature could be other areas which could be envisaged and leveraged to gain better control of business and also ensuring lower cost of operation.
- Traditional IT services: Traditional IT services like application development, maintenance and other IT services will also increase because of the new insurance carriers consistently entering the Indian insurance market.
It is really time to start focusing on the Indian insurance market and looking for opportunities like this. Not only will this help IT companies to increase their revenue, it will also help the Indian insurance market in maturing faster and offering innovative product/coverage and reach to people who need it the most - in an affordable price.