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Headwinds Emerge

India’s nonlife insurance market is challenged by an unhealthy reliance on unrealized and realized gains from investment holdings, poor pricing discipline and economic fallout from the pandemic.
  • John Weber
  • August 2020
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NIGHTTIME SHOT: An aerial view of central New Delhi, India reveals a city awash in lights.


Over the past several years, India has been one of the fastest growing economies in the world, and with that, the nation’s nonlife insurance market has significantly expanded across both personal and commercial lines. Despite that, AM Best’s outlook for the sector is negative.
Myles Gould, director of analytics, and Senior Financial Analyst Yuan Tian discussed the Best’s Market Segment Report on the nonlife India market with AMBestTV.
The following is an edited version of the transcript.

Following the recent release of India’s nonlife market segment outlook, what are the key factors that are driving the negative outlook?

Gould: Key factors underpinning the negative outlook on the India nonlife market include the competitive market conditions that we observed in core lines of business along with the poor pricing discipline. Furthermore, we observed there to be an unhealthy reliance on unrealized and realized gains from investment holdings, particularly emanating from typically high-risk investment strategies.
In addition, a more recent dynamic that we’ve observed in the Indian nonlife market is that of the global COVID-19 pandemic, which we expect to result in a level of volatility in both top-line and bottom-line results of Indian nonlife insurance.
Finally, over the medium-term we expect there to be a level of disruption formed by the planned restructuring of several state-owned insurers in this market.

What are the key drivers of the poor underwriting performance for core lines of business?

Tian: Motor, health and crop insurance are the largest lines of business in the nonlife India insurance market. They collectively accounted for over 80% of the total premium.
Let’s start with motor. Motor class is comprised of own damage and third-party liability. Third-party liability is a compulsory insurance product in India, and the price is set by the tariffs that are prescribed by the regulator.
There is a combination of key drivers for the poor performance in this line of business including inadequate pricing, unlimited liability provided by the product, and also an absence of a time bar for policyholders to make claims. The line is an extremely long-tailed product.
For the own damage, we have observed that the duration and the loss ratio over recent years are due to strong market competition.
Health insurance is the second-largest line of business. The line has been growing very fast over the last few years. The business has been dominated by the public-sector companies, however the market share has been cut by the private companies as well as the stand-alone companies.
Within the health segment, corporate health insurers compared to retail health insurance have not been performing very well. There’s a new health scheme introduced by the government in 2020, and it’s uncertain how this product is going to perform. However, we expect a strong growth in this line of business.
For the crop insurance, due to lack of experience and a lack of historical data since the new scheme was introduced in 2016, the loss ratio has been quite volatile in this line. It’s also driven by weather conditions, and we have observed severe weather conditions over the last few years in the India market, for example, the drought in 2018.
In 2020, several private insurers have dropped out from this business and ceased writing crop insurance.

What are the key observations on the investment earnings of nonlife insurers in India and why is there an imbalance in operating results?

Tian: The market has been experiencing losses on the underwriting side so the insurance companies in this market have been relying on the investment returns to generate overall positive operating earnings. The companies have been investing in high-risk asset classes such as equity, low-quality fixed income, and real estate assets.
Those asset classes have been generating quite good returns to the companies over the past many years. The stock market in India has been growing and generating annualized year-on-year return of around 15% over the last 15 years up to the end of 2019. However, we view this business model as extremely risky.
We’ve seen during the pandemic in 2020 that the stock market has been falling by over 20% in quarter one. This has impacted the capital position and overwrote earnings to nonlife insurers in the market.

How is the pandemic impacting nonlife insurers?

Gould: Aside from investment market volatility borne by the COVID-19 environment, we expect India nonlife insurers to face other challenges with their business related to the pandemic. Most recently we’ve observed mandatory periods of lockdown in the country, which has impacted the agency distribution, which is prevalent in this market.
As a result of this, whilst AM Best expects premium growth to still be positive and one with an upward trajectory over the medium term, at least over the near term we expect there to be a level of volatility with slow and lumpy premium growth as compared with previous years.
In addition, we expect the COVID-19 environment to result in underwriting performance, which is already pressured, to be further exacerbated by this dynamic. In particular we would expect pressures to arise on COVID-19 exposed lines of business such as that of health and medical.
Finally, we would expect premium receivables and day-to-days to be on the minds of insurance company management over the medium term as a result of the economic disruption in the country and people with the potential inability to settle their premium payments when due.

Can you summarize the prospective challenges for nonlife insurers in India over the medium term?

Tian: We expect nonlife India insurers to face many headwinds in the market over the medium term. Those include strong market competition, the change of market dynamics driven by potential mergers and acquisitions, volatility in investment earnings, and also the slowing down of domestic and global economic growth.
Some of those challenges and uncertainties have been exacerbated by the COVID-19 pandemic. We expect the underwriting investment and the financial conditions to remain challenging over the medium term in the market.


John Weber is a senior associate editor, AMBestTV. He can be reached at

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