The juggernaut of insurance reform has slowed to a crawl, the victim of a political stalemate. Companies operating in India must adapt themselves rather than wait for change, writes David Banks.

Insurers hoping for a more open Indian market could be in for a long haul.

Contrary to all expectations, neither foreign ownership nor reinsurance has become any more liberalised in 2008. Indeed, as the year has progressed, the prospect of liberalisation under the current government has seemed ever more unlikely.

Insurance and reinsurance in India has become a political waiting game. Lloyd’s decision to withdraw its senior representative from India was seen as a U-turn after Lloyd’s had extolled the opportunities of the country just a few months before. Some saw the withdrawal as a political gesture by Lloyd’s, which still retains an office in Mumbai. Lloyd’s is reported to have written $400m of business from India in 2007.

However, the sighs of frustration from both within India’s insurance market and abroad are barely audible in the war of words that is Indian politics. The ruling left-wing coalition, the United Progressive Alliance, has become increasingly embattled, attacked by both the right-wing BJP and its former allies on the left, who departed the coalition in August - triggering an unsuccessful no-confidence vote. The reform agenda has been slowed further by a UPA decision to cut parliamentary time in the Winter session to just 30 days – to the fury of their political opponents.

Interestingly enough, the UPA is led by a party – the Congress party – which is fully behind insurance reform. However, the political battles and loss of support has mired it in difficulties. In the runup to the May 2009 elections, the thought of allowing billions of rupees to leave India and go into the hands of foreign reinsurers has become even more sensitive, despite the way insurers in India and around the world market the benefits.

At present, the level of reinsurance flowing out of India is greater than the combined retention of direct insurers and General Insurance Corporation of India (GIC), according to the Insurance Regulatory and Development Authority (IRDA) of India.

Increasing foreign ownership of Indian insurance companies to the 49% proposed by the IRDA, above the current maximum of 26%, could increase retention and aid growth of the insurance market in general. The increase awaits ratification by Parliament. Here starts the waiting game. No decision is likely until after the elections in May 2009.

Aon’s India desk director, Kavita Pandey, believes that the regulatory situation might improve after the election. “Investors need a long term view because the current government is likely to lose next year’s election,” Pandey says. Despite the reform policies of the leading Congress party, its coalition partners “had presented road-blocks and barriers” to insurance reform. However, she believes that a reformist backlash next year may reward Munich Re’s and Swiss Re’s resolute commitment to Indian markets, particularly because local players could collectively absorb just $650m of large utility project risks, such as coal, oil and gas projects. But there are no guarantees that the government emerging from next year’s general elections will look favourably on insurance and reinsurance reform.


The Indian stock market has lost half of its value between the start of the credit crisis and mid October. However, on the up side, economic commentators believe that India is not as exposed to toxic debt as Western economies. However, India relies heavily on foreign trade. Commercial and infrastructure projects worth billions of dollars depend on a robust economy and continued foreign investment.

The influx of private insurers has already changed business practices, particularly in health insurance, where insureds were accustomed to paying their own bills and often waited months for their claims to be processed. Income generation and job creation are also seen as benefits of foreign participation in the market, which grew by 95% in 2006-2007. Such growth rates led Aon to implore companies not to ignore India’s opportunities early in 2008. According to a 2007 report from Lloyd’s, India’s insurance sector is expected to collect $11.6bn in insurance premiums in 2010.

Jump forward ten years and what do we see? A liberalised market and an increasingly prosperous middle class, which the IRDA estimated at 300m people. Yet insurance penetration in personal lines remains at just 4%.

India is believed to have suffered losses of at least$1 billion per year for the last four years from catastrophes including devastating flooding around Maharashtra and Mumbai in 2005. A Munich Re report on the rising need for catastrophe cover in India said: “The rapid development of India’s economy… has driven up insured losses ... While annual loss reached no more than $5m between 1980 and 2004, the figure for 2006 alone exceeded $400m.”

David Banks is deputy editor of Global Reinsurance.

Indian Market - the key facts

- Total premium (2007) $10.5bn
- Annual growth rate: 95% (2006-7)
- In 1999, the state monopoly ended; foreign companies were permitted to do business in India by investing a minimum of $40m for a maximum 26% stake in a partnership with an Indian company.
- A proposal to allow foreign companies to own 49% has been described as 'imminent' since 2006.
- Restrictions still exist on foreign reinsurance business.
- IRDA requires insurers to source reinsurance from Indian capacity first. There is also a 10% compulsory cession of reinsurance to GIC. This has reduced gradually in the last three years from 30%.
- De-tariffing - two years ago, about 70% of the market was controlled by fixed rates for motor, fire, hull, worker compensation and engineering but many such stipulated rates have since been de-tariffed or opened up.