India’s rates of insurance in the non-life sector – such as ones that insure against natural catastrophes like earthquakes and floods – have not kept pace with its economic growth rate, leaving many urban centres vulnerable, according to John Nelson, chairman of UK-based specialist insurance and reinsurance market, Lloyd's.
While optimistic about India’s economy and ongoing reforms, Nelson noted that India’s rapid growth is creating more and more business-related risks. These risks multiply as economic activity remains concentrated in the major urban centres, which continue to be vulnerable.
Earlier this year, the Insurance Regulatory and Development Authority (IRDA) indicated it will allow the 325-plus years old Lloyd’s to operate in India via its marketplace model, which operates like a mutual of several member syndicates. Lloyd's expects to open its reinsurance branch in India early next year.
“The risk that India has been building up -- which is a high class problem -- is enormous,” said Nelson, adding that India’s rate of non-life insurance currently stands at 0.7 per cent of GDP, which is less than half of China’s two per cent and substantially low compared to most advanced economies, where insurance penetration is typically six per cent of the annual GDP.
Lloyd’s, which primarily focuses on non-life and specialty reinsurance, hopes to grow in India at a rate “well ahead” of the country’s GDP growth rate, said Nelson. It will begin by opening an office in Mumbai and expects to make “a modest start” with two or three managing agents and grow gradually, said Nelson. Lloyd’s currently sees $200 million in annual premiums in India through cross border insurance.
Offshore reinsurance has wide acceptance among advanced and growing economies as a way to diversify against domestic risks, noted Nelson. The US, for instance, has roughly 60 per cent of its liability offshore; in India the reverse is true, with about 65 per cent of reinsured risks staying on-shore.
Lloyd’s plans to grow in India by supporting domestic insurers, providing them additional capital and breadth to underwrite non-life risks, particularly specialty risks, said Nelson, adding that in the short-term, it will focus on liabilities related to infrastructure, construction, trade credit, professional indemnity, among others. It may expand into cyber risks in the long-term.
Reinsurance has been a highly-regulated sector in India dominated by state-owned General Insurance Corp and was until recently closed off to foreign players. Other foreign reinsurers expected to play in the Indian market now include Munich Re and Hannover Re.
Through its members, Lloyd's will ultimately rely on the distribution network of local non-life brokers who make up about 80 per cent of the non-life insurance landscape in India, he said.
Asked if Google and Apple pose a threat to the broker-led insurance model, Nelson said that’s unlikely in specialist lines of insurance because of the complexity of the risks involved. He expects that technology will play an important role to make insurance businesses more efficient, and India with its vibrant technology base could play a key role.
“[Technological innovation] may well help India become an insurance hub,” he said.
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