Indian regulation will open the way for foreign direct investment by the end of the year, predicted Prabodh Thakker, Indian Merchants Chamber and chairman president, at the Indian Insurance Summit, at the London India event hosted recently by GIC RE, New India Assurance, Indian Merchants’ Chamber, Reactions and Asia Insurance Post.
This December the India government will decide whether to pass proposals to raise the foreign direct investment limit for insurers to 49%. “If somebody asked me to bet on what would happen next, I would put my money on it that by December we shall have the next step of reforms in place,” said Thakker at the Indian Insurance International Summit, who is also chairman of Aon Global Brokers, India.
India is perfectly poised to become an Asian (re)insurance hub, Thakker argued at the summit. “We believe India is in an absolutely great position today with a democracy, with its demographic, and there is the demand also in place,” said Thakker. He said he was pleasantly surprised by the state-owned General Insurance Corporation of India (GIC) who welcomed the idea of other insurers and reinsurers joining the market. “There are two things we need now: we need fairer legislation and we need an international infrastructure,” said Thakker.
Alice Vaidyan, general manager of the GIC Re also argued that India could be a regional insurance hub. “The Indian markets have been the top performers in all of the Asia Pacific region,” said Vaidyan. Indian CEOs are optimistic about India’s economic recovery, said Vaidyan. She then proceeded to describe signs of green shoots in the economy, with the revival of service activities and Indian economic growth. She cited several reasons for this, one being that, “the new government is expected to fast-track reforms in sector such as infrastructure and power,” . "The Indian Prime Minsiter has promised to provide bank accounts to households and to make banking and insurance products accessible to all Indians by January 1, 2016. Pension sector reforms and microinsurance are also on the agenda."
Vaidyan also cited India’s rapid urbanisation. “India is the third largest economy in the world based on purchasing power parity (PPP) and there is a rapid rate of urbanisation. India is urbanising at such a rapid rate that nearly 600 million Indians will live in cities by 2030 up from 290 million from a 2001 census,” said Vaidyan.
“India is the third largest economy in the world based on purchasing power parity (PPP) and there is a rapid rate of urbanisation. India is urbanising at such a rapid rate that nearly 600 million Indians will live in cities by 2030 up from 290 million from a 2001 census.” Alice Vaidyan, General Manager, GIC Re.
Sanath Kumar, director and general manager of the New India Assurance Company, said that although India had huge potential with huge amounts of data they could access, it could benefit from the expertise of the London insurance industry.
Lloyd's Chairman John Nelson, the last speaker before the break, agreed. He also noted that India’s entire economy could be improved simply by having a local Lloyd’s presence. Lloyd's could not only boost the Indian (re)insurance industries with a local presence, but could also help India build a stronger economy and generate faster growth in gross domestic product (GDP). "Lloyd's has always been a crucible of innovation in its long history and we are well-placed to lead in the innovation of Indian products," he said. Lloyd's Asian presence has caused facultative reinsurance to go from "strength to strength" in Asia and it could similarly boost India's insurance industry, Nelson argued.
To demonstrate how insurance makes whole economies more resilient, Nelson compared the earthquakes that hit Haiti and Christchurch, New Zealand, in 2010. New Zealand's insured losses were $4bn and economic losses were $6.5bn from the quake, but by 2012 New Zealand's GDP had recovered. Comparatively, Haiti's insured losses were only $200m, while economic losses were estimated at around $7.8bn. "One of the reasons they
He observed that this could be worrying for India, considering its insurance penetration is still just 0.8%. Nelson went on to say that the US was one of the most sophisticated insurance markets in the world, with high penetration levels while China has one of the lowest, but both have very high levels of risk."But both economies have diversified their cover into the international capital markets precisely so they can retain their GDP if and when a disaster strikes," said Nelson. "If you look at the US, 67% of 9/11 losses were insured. The US is still the world's largest economy, just," he added.
Lloyd's would be able to provide an intellectual power, pricing metrics, product development, risk management and claims management, Nelson argued at the summit." The reinsurance services which Lloyd's provides can reduce the capital costs for any insurer as well as the volatility of loss that they may be exposed to. Thus allowing them the freedom and certainty to invest more in developing their businesses," he added. Not only does a strong insurance and reinsurance cushion losses financially it also creates a commercial force pushing to improve planning and resilience. “Insurance provides the discipline and incentive to raise building standards and make communities more resilient,” said Nelson.