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There’s more to it than 49% A boost to insurance industry… A sunshine industry Operational efficiency will boost profit Promise of quantum growth Risk must cover the ‘burning cost’ LIC stays unaffected by competition UII tops in premium growth 3 year policies would do good The pioneer crosses another landmark GI premium income to cross Rs 100,000 crore... GI flourishes in high growth states
 
GI flourishes in high growth states
Tamil Nadu is ranked third in India, behind Maharashtra and NCR, in terms of Gross Written Premium.

Higher insurance consciousness...

“Insurance consciousness in Tamil Nadu is much higher than in other states, except Maharashtra and the NCR,” said S V Mony, former Chairman, General Insurance Corporation of India. 

The state has been in the vanguard of offering healthcare as an important social welfare measure. The chief minister’s health insurance scheme covers more than four crore of the state’s BPL population offering surgeries free for a wide range of ailments. Over 10 lakh surgeries have been performed under this scheme at both government and leading private hospitals.

Mony traced the evolution of the insurance sector in Tamil Nadu: “prior to nationalisation, United India Insurance, Hercules Insurance, Madras Motor and General Insurance Company were active and helped spread consciousness for insurance among the middle class, richer classes and corporates.”

Life insurance business was taken over by LIC in 1956 and general insurance by four government companies namely New India, National, Oriental and United India. When the insurance sector was opened up for private participation, Tamil Nadu witnessed new players- Cholamandalam, Royal Sundaram and Star Health. The Shriram Group floated Shriram Life and Shriram General Insurance companies headquartered outside the state, but quite active here.


Tradition for insurance...

Mony said: “historically and also post-liberalisation, the loss ratio has been lower and profitability in most sectors much higher in the south. This applied even to motor insurance.  In fire insurance, the main non-motor cover business is quite strong in the south. Despite the reduction in premium rates several times, profitability has been maintained in the south. This showed good risk management.”

Mony appreciated the regulator permitting a realistic increase in rates for third party insurance for motor vehicles. This correction has helped in arresting the huge losses suffered in third party cover. Today this loss ratio has come down and several companies have been able to make profits even under this portfolio, Mony pointed out.

“Overall, the general insurance business in the south is much better organised and profitable than in rest of the country,” said Mony.

After the privatisation of the insurance industry in 2000, the floodgates opened. Gross written premium of the general insurance grew from Rs. 11,446 crore in FY02 to Rs. 77,750 crore in FY15: a compounded annual growth rate of 17 per cent per annum. Insurance density, which is the ratio premium to total population, increased from Rs.160 in FY05 to Rs.675 in FY15. General Insurance penetration, which is insurance premium as a per cent of GDP, improved from 0.5 per cent to 0.7 during the same period. Despite these improvements, both insurance penetration and insurance density are low in comparison with other countries. There is thus a lot of untapped potential.

Along with opening up of insurance industry, the government set up the Insurance Regulatory and Development Authority (IRDA). IRDA has been instrumental in protecting policyholders’ interest, regulating the industry and facilitating its smooth functioning.

 

42 per cent share of private insurers

Currently, there are 17 private players. The market share of private players has grown phenomenally from zilch in 2000 to 42 per cent in FY15. In 2006, IRDA allowed standalone health players to do business in India. There are 5 standalone health insurers, they hold a market share  of 3 per cent.

 

More FDI flow…

2001 was a landmark for the general insurance industry. Two major developments, which changed the industry dynamics, took place that year.

First, 26 per cent foreign direct investment was allowed in the Insurance sector. Global majors like AIG, Allianz, Sun Alliance and Mitsui Sumitomo entered into joint venture agreements with Indian conglomerates  to do insurance business in India. This has facilitated flow of foreign capital and technical know-how into the industry. Earlier this year, the FDI limit has been enhanced to 49 per cent. The industry has already been witnessing major corporate structure changes.

 

A game changer...

Second, IRDA issued Third Party Administrator (TPA) regulations. TPA is an organisation that processes claims or provides cashless facilities as a separate entity. Establishing TPAs has helped insurance companies to provide cashless facility to the insured. This was a game changer for health business.

The following year, IRDA came out with licensing of corporate agents that had led to distribution of insurance products through bank assurance channels. This channel is one of the major sources of business for general insurance industry.  Since the onset of privatisation the share of retail products like motor, health and personal accident have grown steadily (71 per cent of premium share in FY15) while the share of commercial lines of business has been continuously falling. This trend is expected to continue in the foreseeable future.

 

A pioneering effort...

Tamil Nadu is ranked third in India, behind Maharashtra and NCR, in terms of gross written premium. Headquarters of three major players United India, Chola MS and Royal Sundaram are in Chennai.

The state is a pioneer in providing health insurance cover for BPL families. Currently 1.3 crore BPL families are covered under comprehensive health insurance scheme that provides free medical and surgical treatment up to 4 lakh  in government and private hospitals to the members of family whose annual family income is less than Rs.72,000.

In Tamil Nadu, motor and health insurance are the two major contributors, with 77 per cent of premium share in FY15. Since it is mandated by law, motor product holds 50 per cent of the share of premium pan-India. The strong 31 per cent share of health product can be attributed to awareness created among general public due to aggressive implementation of government- sponsored schemes.

General insurance business flourishes well in states with strong industrial growth. Tamil Nadu has always been a leader in industrialisation and hence there is immense growth potential for general insurance companies here.

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