All eyes turn to India’s reinsurance market

Ahead of this year’s Singapore International Reinsurance Conference, Shailendra Sapra, CEO of Aon’s Reinsurance Solutions in India, explores why India’s reinsurance market is attracting global attention.

Driven by increased government support and the expansion of the middle class, demand in the Indian reinsurance market has grown significantly, and projections for the next five to 10 years indicate this upward trend will continue.

Even though some challenges remain, India’s robust and competitive reinsurance landscape has the potential to emerge as a prominent regional and global hub, according to Sapra.

We hear a lot about the robust growth of India’s economy – are the same dynamics at play in the country’s reinsurance market, and which business lines are seeing the most growth?

The reinsurance market in India is extremely dynamic right now. The number of insurers and reinsurers is increasing, and premium volumes are on the rise, primarily driven by life and health insurance.

Life and health will be the major growth drivers in the next five to 10 years, as more people start buying insurance. Other specialty lines, such as surety, cyber, renewable energy and aviation, are also on the rise and we expect them to continue to increase. Construction is expected to increase, in line with macro trends, as the government invests more in infrastructure.

But whereas infrastructure spending is a common global trend, the rise in life and health is a trend more specific to India because more people are entering the middle class in the country. This means more penetration into the life and health market as a greater proportion of the population can afford to pay for this type of insurance.

What are the key differences between the reinsurance markets in India and China?

Even though many people tend to compare India and China on a global scale, they are two very structurally different economies. For example, in China’s insurance market, most insurers are government-owned. However, in the Indian market, the government sector’s market share has been declining and there is a significant amount of private investment. In addition, the Indian market is globalised – there are around 200 global reinsurers that are actively trading in India. India is a much more open and globalised economy, and we see that on the insurance side too.

Does the regulatory environment assist the growth of the Indian market, and are there any changes on the horizon?

Regulation has helped massively. The chairman of the Indian regulator, the Insurance Regulatory and Development Authority of India (Irdai) has been travelling around the globe. He was in New York and then Europe to show the growth potential of India, and to learn from other regulators. The regulator has also allocated states to insurance companies, with the objective to increase penetration in smaller cities. It will regularly check with these insurance companies to see if the insurance penetration in these states increases. The government has also allowed 74 percent ownership by a foreign company in India; for example, Zurich owns 74 percent of Kotak General Insurance.

Irdai’s risk-based capital framework is expected to come into effect next year, which will create greater demand for capital, meaning that more reinsurance will be placed. The regulator is also looking at implementation of IFRS 17, which will introduce standards within the insurance industry.

How diverse are the capital sources being utilised? Do facultative and ILS have a role in the market?

There is a good level of diversification on where risk is transferred in India as there are close to 200 participatory reinsurers, although ILS is a space that has not been explored yet. One of the major hurdles for that is because India does not have a double taxation agreement with Bermuda, where a lot of significant reinsurance capacity resides. This is stopping it from having its full potential.

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