Page 20 - Insurance Times May 2020

respected person was asked by the author, "How to injected further volatility into financial markets after the
manage this unnecessary ruining of Fire Premium base?", outbreak of Corona Virus currently.
in the open session of one Seminar organized at Hotel Taj
Seminar Hall in Mumbai, a few years back (being organized As the result of market and economic uncertainty on several
by an well-known Magazine House) - but no satisfactory counts, insurers generally become more heavily invested in
reply was then available from him. fixed-income securities and bonds, despite the prevailing low
interest yields, and have far less exposure to equities than
Situation that prevailed in General before the crisis. This approach keeps returns low, and limits
insurers' exposure to the upside of equities gains, but it is
Insurance market in India: not likely to remain the favoured stance for them. Profit
The operational expense ratio of the Indian non-life industry margins for non-life insurers declined broadly since de-
deteriorated despite already being the highest globally. This tariffing, despite efforts to improve operational efficiency,
deterioration was evident among both Indian public and because gains in underwriting performance were not
private insurers. Operational expenses increased as sufficient to offset dilapidated investment returns.
insurance players continued to invest in the expansion of their
business and to compete absolutely being in a severe cut- As such all non-life insurers are focused on reducing
throat competition with the international players in this operational costs and raising efficiency, but market-specific
market, as India's Insurance Regulatory and Development conditions continue to be the single most important factor.
Authority of India (IRDAI) had contemplated an increase in With investment income likely to be limited for the
the limit on foreign direct investment in insurers to 49% long foreseeable future, and many insurers already trying to
back about almost ten years ago. make routine activities as efficient as possible, business
acquisition costs are likely to be the next target for non-life
The effect is, if global players acquire larger stakes in insurers seeking to improve their profitability. Agents and
domestic operations, it could lead to more widespread brokers remain ubiquitous in most of the markets, so any
adoption of best practices, and resultant operational significant reduction in acquisition costs is likely to emerge
efficiencies in the long run. The acquisition ratio of India's only as the use of direct channels being more ubiquitous in
non-life insurers declined as new and low-cost distribution India.
channels emerged, especially among private-sector
providers, where acquisition costs are lower than that Global Efficiency-Ratio Model showed Indian Non-Life Claim
existing amongst public insurers. Investment ratios- the Ratios were significantly hit hard by Catastrophe Claims for
return on insurers' investment portfolios - are declined the last decade. To analyze the specifics of performance,
heavily. Since the financial crisis, insurers have been more insurers used the Efficiency Ratio Model to calculate
conservative in their investments amidst ongoing efficiency ratios [expense and profit metrics against gross
uncertainty in world markets and weaknesses in written premiums (GWP)] for major players in each market,
macroeconomic conditions. The European debt crisis and to analyze broad industry performance trends by
market accordingly.

The operational ratio in some insurance companies
improved, albeit very slightly, as insurers continued to invest
in productivity improvements despite rising claim levels, and
are starting to see the benefits of productivity investments.
Insurers had been slow to make such investments as they
faced significant competitive pressure and very low profits.
However, investment became necessary as existing systems
were aging, and needed to be overhauled or replaced.

System upgrades have led to efficiencies, but the industry is
still only part of the way through the updating process.
Acquisition ratios are changing very little with only a fraction
of customers using direct distribution networks. However,
insurers are undertaking widespread efforts to increase the
20 The Insurance Times, May 2020