India achieved gross written premium worth more than $ 130 billion with 11% CAGR growth in FY2020-23 while both Thailand and China saw a growth rate of less than 5%, according to a McKinsey & Company report.
In its report titled Steering Indian Insurance from Growth to Value in the Upcoming 'Techade', it was shown that the life insurance industry grew at 11 percent per annum, reaching $107 billion in 2023 and the general insurance industry saw an annual growth of 15 percent to reach $35.2 billion.
It is this strong performance, among other factors, that enabled Indian life insurers to sustain valuation multiples and price-to-book of seven to ten times, versus just one to two times for regional peers in Asia," the global consulting firm added.
Even so, the report indicated that penetration levels of India's insurance sector were to decline to 4% in 2023 from 4.2% in 2022, indicating a sad reality of sector growth lagging behind economic growth of the country.
While India's top five private life insurers had new business premium sales growing over 17% CAGR, their net profits have increased less than 2% CAGR in the last five years. According to McKinsey, these differences mainly reflect the chronic difficulties in cost control and operational productivity due to increasing costs comprising commission costs, operation costs, employee cost, and marketing spends.
The report also mentioned that an expansion of insurance cover would bring in economic benefits to the country. It said that the administration would save around $10 billion annually because increased penetration of insurance among deprived sections and unforeseen events were tackled. "A comprehensive life insurance coverage would enable the government to reduce the ex-gratia relief provided to families as costs involved in the loss of life or livelihood through accidents or unexpected events," it added.
"Targeted intervention programs for crop insurance could contribute to the reduction of crop losses, loan defaulting, and also improvement in yield," the report further noted.
While claims ratios have been trending down, McKinsey observed the incumbents saw expense ratios rise that till 2023 sent the combined ratio higher. Improvements in leading productivity metrics, including operating expenses per life or policy, have been slight the past two to three years for life and general insurers alike, McKinsey said.
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