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India’s insurance sector recorded a gross written premium in excess of $130 billion, with a 11% CAGR growth during FY2020-23, outpacing Thailand and China, which grew at less than 5%, according to a McKinsey & Company report.
According to the report, Steering Indian Insurance from Growth to Value in the Upcoming ‘Techade’, while the life insurance industry grew 11% per annum to $107 billion as of 2023, the general insurance industry grew 15% per annum to $35.2 billion.
The report was published on Thursday.
“This robust performance, among other reasons, has allowed Indian life insurers to maintain valuation multiples, and price-to-book (P/B) of seven to ten times, compared with just one to two times for regional peers in Asia,” the global consulting firm said.
The report, however, noted that that despite a strong premium growth, India’s insurance penetration rate slipped from 4.2% in 2022 to 4% in 2023, indicating that the progress has not kept pace with the country’s economic growth.
The report also said while achieving over 17% CAGR in new business premiums, India’s top five private life insurers have reported a less than 2% CAGR in net profits over the past five years.
McKinsey has attributed this to challenges in cost management and operational efficiency due to escalating expenses, including higher commissions, operational costs, employee-related expenditures and marketing expenses.
The report also points out that the government could potentially save about $10 billion annually by expanding insurance penetration to encompass under-served population and events. A comprehensive life insurance coverage could assist the government in alleviating the burden of providing ex-gratia benefits to families affected by the loss of life or livelihood due to accidents or unforeseen events, it said.
“Targeted intervention programmes for crop insurance could contribute to minimizing crop losses, reducing loan defaults and improving yield,” it noted.
According to McKinsey, despite a decline in claims ratios, a steady increase in expense ratios among traditional players (until 2023) pushed the combined ratio upwards. “Improvement in leading productivity metrics, such as operating expenses per life or policy, has been negligible over the past two to three years for both life and general insurance companies,” McKinsey said.
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