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Regulatory reforms help Indian insurance market development

28 January 2017

Axco has released its latest country report on India highlighting the tremendous potential for development of the non-life sector helped by a series of regulatory reforms. 

India was forecast to be the world's seventh largest economy in 2016 by the IMF, but ranked third in GDP by purchasing-power-parity and is thought to be the world's fastest growing large economy. With the world's second-largest population, demographic factors such as a growing middle class, a young insurable population and growing awareness of the need for protection and retirement planning further support the prospects for growth of the Indian insurance sector. Non-life insurance penetration in India is, however, below both its true potential and the targets set by the regulator and 2016 figures show it to stand at 0.49%, little having changed over the past five years.

The Indian government and regulator are keen to encourage growth. In an attempt to better protect farmers from the erratic weather patterns seen in recent years the government introduced in 2016 a subsidised crop insurance scheme entitled the Comprehensive Crop Insurance Scheme (Pradhan Mantri Fasal Beema Yojna), replacing the National Agricultural Insurance Scheme (NAIS). The principal feature of the Comprehensive Crop Insurance Scheme is to limit the premium rate paid by farmers to 2% of the sum insured for food grains and oil seed crops and up to 5% for horticultural and cotton crops with the government subsidising any surplus premium charged by insurers in excess of these limits. The full impact of the new scheme is yet to be demonstrated but it is anticipated that these developments will significantly increase agricultural insurance premium income in the market and open it up to notable competition compared to the previous situation in which the state-owned AIC had a near monopoly. Some commentators indicate that the future agricultural insurance market could be worth some USD 3.5bn in total annual premium income with the benefit of government subsidies and, should this occur, this sector would become the third biggest in the insurance market, after motor and health insurance. It is evident that both public and private non-life insurers regard this as a potentially very favourable development.

Reforms introduced in 2015 saw foreign direct investment (FDI) limit in the Indian insurance industry increased from 26% to 49% and there are plans for the progressive listing of private insurance companies on the stock markets in India as well as prospective IPOs of the state-owned insurers (including GIC Re).

A series of reinsurance market regulations were issued in 2016 permitting Lloyd's and foreign reinsurers to operate through branches in India, outlining the priority procedure for the offering of Indian reinsurance business to local and cross border reinsurers and establishing regulations relating to the transaction of (re)insurance business by Indian and foreign (re)insurers from an office situated in a Special Economic Zone (SEZ). To date, the regulator has granted authorisation to give Hannover Re, Reinsurance Group of America (RGA), SCOR Global, Munich Re and Swiss Re direct access to the country's insurance market.

Changes in listing regulations and local reinsurance market regulations are all indicative of the current government's determination to change the historic operational status quo in the Indian insurance market in favour of more up to date conditions, many of which have been favoured by some other markets in Asia for a number of years. Although the regulator appears to remain intent on retaining very tight and detailed routine market control on all aspects of insurance company operation the revised product filing guidelines for non-life insurance products represent a further indication that the authorities are beginning to become more prepared than was the case previously to allow some limited self-regulation by insurers in the interests of efficiency. 


Further information can be round in Axco's Insurance Market Report for India. Contact your Axco representative for details.