India General Insurance Vision 2025

India General
Insurance
Vision 2025
Towards an inclusive, progressive
and high performing sector
October 2013
India General Insurance

Vision 2025
Towards an inclusive, progressive
and high performing sector
October 2013
India General Insurance Vision 2025: Towards an inclusive, progressive and high performing sector
Contents
Foreword.................................................................................................................. 7
Executive summary.................................................................................................9
Chapter I: Role and importance of insurance........................................................15
Chapter II: Current position of General Insurance in India................................ 21
Chapter III: Key trends shaping the GI industry..................................................39
Chapter IV: Scenarios for the future..................................................................... 47
Chapter V: Agenda for action................................................................................63
Foreword
Dear General Insurance practitioners and
interest groups,
The General Insurance industry in India is at a
critical juncture of its evolution. We have grown at
close to 20% over the last 5 years and reached an
annual premium of ~` 70,000 crore in the fiscal
year 2013. However, penetration levels are low,
leaving much scope for growth.
The business environment for the industry has
been challenging, given the overall slowdown in
the economy, weak investment stream and the
changes accompanying the de-tariffed regime. The
industry is burdened with growing underwriting
losses as claims ratios are well above international
benchmarks.
However, a number of positive developments have
also taken place during these turbulent times. Retail
lines have seen strong growth in the recent past
as customers are becoming increasingly aware of
the benefits of general insurance. With companies
already having weathered the impact of Motor Third
With best regards
Bhargav Dasgupta
Co-chair, FICCI Insurance Committee
Party Pool, the outlook for the industry in the future

is largely positive.
have also laid out an aspiration which is true to our

potential and the path that we will take to get there.
The road to profitability would require players to

reassess all aspects of their business models from
pricing, products, risk management, customer
acquisition and distribution. Progress would
undoubtedly require concerted efforts by the
players to become globally competent in claims and
operations.
I would also take the opportunity to thank key

supporters without whose help the report could
not have materialised. I thank each of my CEO
colleagues for taking time out and sharing their
views on industry evolution and the key changes
required. We also received tremendous support
from our distribution partners, the provider
network, our reinsurers and the regulatory
bodies. Specifically, I would also like to thank the
IRDA for their valuable inputs and support in the
development of the industry vision.
With this backdrop, we embarked on an exercise to

define a long-term vision for the General Insurance
industry in India.
For the industry to become inclusive, progressive
and high performing in the future, we partnered
with McKinsey & Company to build a fact-based
view on the current state of the industry, the key
trends that will shape it in the next decade and,
therefore, its potential evolution. As an industry, we
We hope you find this report insightful and

engaging.
Executive summary
The General Insurance (GI) industry in India has
evolved significantly over the last decade and is now
at a watershed in its development. From a ` 12,000
crore top-line industry in 200102, today it is worth
` 70,000 crore, clocking an annual growth rate of
17%. The industry today provides a cover of ` 1,000
lakh crore, which by itself is a huge testament to its
importance to the economy.
While the last few years have been challenging
for the industrys profitability, the industry holds
significant potential, both from the perspective
of growth and value creation. However, to meet
its full potential, Indias GI industry will require a
concerted effort by all the stakeholders. This report
paints a picture of the aspirations of the GI industry
and what it will take to realise the vision.
Role and importance of insurance

GI is a major contributor to the countrys economy. It
effectively pools and transfers risk from individual
and corporate consumers, thus encouraging
investments and driving GDP growth. It supports
the government and society by reinvesting funds
and sharing the cost of catastrophes. The industry is
also a major contributor to employment.
Detailed analyses show that GI is a strong
driver of GDP growth. A one standard deviation
increase in GI penetration induces a per capita
GDP growth of 0.39%. This is superior to the
growth induced by private credit (0.34%) or life

insurance (0.37%).
GI industry in India employs around 7 lakh
people both directly and indirectly.
The industry supports the government and
society by reducing the financial burden of social
welfare and sharing the cost of catastrophes.
The insurance sector contributed 1112% of total
losses over the string of natural catastrophes
in India (e.g., it contributed ` 1012,000 crore
across floods in Mumbai in 2005, Surat in 2006
and Uttarakhand in 2013). Further, the sector
as a whole has invested 35% of its total assets in
government securities.
related elementscustomers, the individual

insurers capabilities, the industry acting in
collaboration and external stakeholders such
as policy makers/regulators and other related
stakeholders (e.g., reinsurers, third-party
administrators, healthcare and motor insurance
providers). This interplay shapes industry
performance and determines how it fares on its
three core objectivesproviding universal access
and coverage; returning value to shareholders; and
ensuring a superior experience for customers. An
assessment of the current position of the industry
indicated that it has some way to go in terms of
performance against these three core objectives.
1. Providing universal access and coverage
The GI industry has also played an unparalleled

role in creating access to financial services and
to protection. Supported by the largest health
insurance programme globally, the industry
prides itself on having added over 300 million
beneficiaries in a short span of 4 years. Further, a
majority of the beneficiaries are from the belowpoverty-line segment, which goes a long way in
contributing to the policy objectives of universal
financial inclusion.
A detailed micro-analysis of underlying needs and

risks indicates substantial scope for improvement
in penetration and access across segments. For
example, home insurance penetration is less
than 1%; there is significant underinsurance in
segments such as two-wheelers and personal health;
corporate (property and indemnity), SME and rural
risk coverage is substantially lower than global
benchmarks. Further, the total economic losses due
to underinsurance are estimated to be close to
` 150200,000 crore.
Current position of General Insurance in

India
2. Delivering returns to shareholders
The GI industrys performance is influenced

significantly by the interplay between various
India has the highest combined ratio compared

across developed and developing economies and
time periods. This has been largely driven by
10
substantially higher claims ratios. As a result, the

industry has delivered poor returns to shareholders.
Barring a few exceptions, the returns have been
lower than 15% (i.e., below cost of capital) even in
the tariff era. Returns post detariffication (2007)
have largely remained in a single digit even after
adjusting for TP (motor third-party) pool losses.
While the average economics have been poor, there
is huge spread in industry performance, with a few
players earning substantially higher returns than
the rest of the industry, driven almost entirely by
superior underwriting performance.
3. Ensuring superior customer experience
and building loyalty
GI industry in India has shown considerable
improvement on customer service and experience
(while only 60% of claims were settled in 1 month,
customer grievances have dropped significantly
from 2,800 per million policies in FY10 to 1,100
per million policies in FY12). Even on a relative
basis, the industry has performed better than other
financial services. Complaints are lower compared
to banking (~3,500 complaints per million SA), asset
management (~1,800 per million folios) and life
insurance (~1,200 per million policies).
Even on this dimension, there is substantial
dispersion in performance across players, with the
best players performing up to 5 times better than the
industry average, and about 30 times better than the
bottom quartile performers.
The report card of various inter-related

elements which inf luence industry
performance reveals mixed results:
Customers: Customer awareness and
involvement is increasing. However, there
remains a trust deficit between the customers
and the industry participants, leading to
relatively low loyalty and highly transactional
price-driven relationships. This behaviour is also
leading to underinsurance, particularly among
SME customers, who may buy a risk cover of as
low as 20% of asset value to bring down their
upfront insurance spend.
Individual insurer capabilities: Players
have significantly improved the operating model
and made progress in upgrading their product
and distribution capabilities; however, there is
a large gap vis--vis the desired best practice
on core technical capabilities (claims and
underwriting), with significant spread across
players.
Industry conduct: Over time, the market has
opened up and seen the entry of new players,
which has increased competition and choice for
customers. However, competition has largely
remained price driven, with limited focus on
creating new capabilities. As an industry, there
has been a high degree of collaboration in areas
like dismantling pools, articulating the need for
more consistent product and distribution
reforms and creating entities such as the
Insurance Information Bureau (IIB). However,

there is opportunity to do more in terms of
raising the industry profile, defining common
standards and self-regulation mechanisms, and
building more industry-wide utilities.
Regulatory interventions: Over the last
decade, regulatory interventions have helped
open up the industry, foster more competition
and largely benefited the industry. However,
there remain several areas to be addressed
particularly on issues of distribution, product,
pricing and solvency reform.
Other industry participants:
Reinsurers: India continues to attract
capacity from global reinsurers, particularly
on casualty and specialty lines of business
(while witnessing a reduction in higher rated
capacity on property lines); however, the lack
of local presence of global reinsurers has
inhibited the market from getting access to the
best talent and expertise.
Providers: Relationship of insurers with
motor and health stakeholders (i.e., OEMs/
repair shops and providers) is relatively poor,
with limited progress made in some pockets.
TPAs and surveyors: Capabilities of
the Third Party Administrators (TPA) and
surveyor industry are low and remain a big
area of concern.
Key trends shaping General Insurance over

the next decade
2. Changing customer behaviour and

expectations
The GI industry in India will be shaped by trends

and discontinuities across four themes over the next
decade. These themes areglobal forces; consumer
behaviour and expectations; demandsupply
dynamics in related sectors; and macroeconomic
factors.
Increasing consumer awareness and

involvement.
1. Global forces impacting Indias insurance

industry
Emerging Asiamainly China, India and
Southeast Asiais expected to become the most
important playing field for global insurers.
These countries will account for around 35%
of total growth. This will result in heightened
competitive interest from a range of foreign
insurers, who look to India as a major source of
growth.
Continued high bar on technical excellence
with winners pulling away further and
capturing disproportionate share of industry
value.
Technology discontinuities (Big Data, Mobility,
Social Media, Cloud) which will allow for more
sophisticated business models to emerge.
Increasing complexity of risks driven by an
ageing population, lifestyle changes, climate
changes, new types of coverage.
Blurring boundaries between the online and

offline world, with demonstrated multi-channel
behaviour, e.g., 6070% of online users conduct
digital research before purchasing any financial
services product; two-thirds change their
mind about the product and brand after online
research.
Emergence of various segments of customers
with different needs and expectations, requiring
the development of a finer customer centric
approach. Customers increasingly expect a
solution oriented approach rather than a claimlinked transactional approach, e.g., cover for
entire healthcare needs and not just IPD claims.
3. Shifting demandsupply dynamics in
related sectors
Healthcare: Rapid increase in healthcare
spend and formalisation and corporatisation of
provider space will lead to new opportunities.
Auto: Pressure on core sales margin and ageing
of car PARC will result in heightened focus of
OEMs/dealers for insurance pools.
11
Corporate sector: Globalisation, organised

retail and infra spending translate into
significant GI opportunities; continued
importance of SME.
4. Macroeconomic factors
Uncertain and volatile macroeconomic outlook
will temper near-term growth and investment
return; it will necessitate building resilient
business models.
Wage cost squeeze and talent crunch (especially
for technical skills), compounded by increasing
attrition.
Scenarios for the future

The future direction of the industry will be
shaped by the interplay of various stakeholders
the individual insurers efforts to upgrade
their capabilities, industry conduct and level of
collaboration, and external influence, in particular
the policy actions.
In this context, there are three potential evolution
paths/scenarios for the industry:
Status quo: In the status quo scenario, a few
insurers will focus on initiatives to build holistic
capabilities across the value chain. However,
capabilities for a large part of the industry would
continue to be low and industry conduct will remain
12
poor. Further, the policy environment would be

largely conservative, with few enabling actions. As a
result, in this scenario, the outcome would be one of
unfulfilled potential. The industry would grow at
a CAGR of 13% and reach a size of ~` 3,00,000 crore
by 2025. However, the industry CoRs would remain
high (~110%), resulting in single digit RoEs and
value creation will continue to be negative.
As a result of underperformance, the industry as
whole will require fresh capital to the tune of
` 4045,000 crore, with a bulk of this required to
recapitalise a few weak players.
In the scenario above, if economic recovery is
accelerated over the next 23 years, the industry
would benefit from both higher growth and higher
contribution from investment income. However, due
to limited effort to build skills and capabilities and
improve industry conduct, the impact would still be
moderate 1415% growth to reach a GWP of
` 3,50,000 crore by 2025; RoE in low double digits,
continued negative value creation and high capital
requirements of ` 2530,000 crore.
Gathering momentum: To break out from this
cycle and control its own destiny (as against being
dependent on external economic conditions), the
industry will require a combination of individual
insurer efforts to upgrade capabilities and
significant improvement in industry conduct
and collaboration. Accordingly, the gathering
momentum scenario will help the industry realise
significant improvement in outcomesgrowth

CAGR of 1516% translating into a total industry
GWP of ` 3,90,000 crore by 2025; improvement in
CoRs to 103104% resulting in a total industry RoE
of 1315%.
In this scenario, the industry would require fresh
capital infusion of ` 2025,000 crore to fund the
higher growth requirements.
Inclusive, progressive and high performing:
For the industry to realise its true potential and
achieve its vision of becoming an inclusive,
progressive and high performing sector, there
will need to be significant enabling policy actions
to complement the industry and individual
insurer actions. The upside of these actions will be
substantialGWP of ` 4,80,000 crore by 2025;
substantially higher penetration levels (over 85% of
motor vehicles covered; about 1 billion health lives
covered; overall GWP to GDP penetration of 1.4%);
industry CoR of 99101% translating into RoE
upwards of 20% and incremental value creation of `
3540,000 crore.
In this scenario, the additional capital infusion
will be ` 1015,000 crore primarily driven by
significantly higher volume and growth. Further,
the industry will witness significant demand for
technical talentover 1 lakh underwriters, claims
assessors and surveyors will be required.
Agenda for action to build inclusive,

progressive and high performing industry
Industry stakeholders will need to take a
coordinated set of actions to help the industry
unlock its full potential and realise its ambitious
vision
1. Individual players need to drive initiatives
across three axes of innovation:
Build distinctive granular customer insights to
capture high potential growth opportunities
and enhance engagement across the customer
lifecycle.
Upgrade to next generation technical capabilities
(claims, underwriting, analytics, and actuarial
capabilities).
Build world class operating models to achieve
gains in efficiency while strengthening the
human capital.
2. Industry-level initiatives required to
further performance:
Raise the profile of general insurance in the
Indian ecosystem.
Contribute in defining industry standards and
protocols.
Co-sponsor the building of common

infrastructure (in concert with policy makers/
regulators) for fraud detection, claims
management, skill building, etc.
3. Policy and regulatory initiatives that will
help complement individual and industrylevel actions:
Foster innovation and deepen penetration
through product and distribution reform, and
create an environment to attract capital.
Strengthen the industry structure through
focused regulatory intervention and supervision.
Enable and guide efforts towards a common
industry infrastructure.
Strengthen targeted initiatives to ensure
consumer protection.
13
15
Chapter I
Role and importance of insurance

General Insurance significantly contributes to the economy and strengthens the financial system:
Drives GDP growth: 1 standard deviation increment in GI penetration induces GDP growth of 0.39% (higher than banking or life insurance).
Contributes to the employment of ~7 lakh people, directly and indirectly.
GI supports the government and society
Unlocks government resources by reducing the financial burden of social welfare and security, and shares the cost of catastrophes (it paid ` 1012,000 crore
in recent catastrophes).
Finances government activities by investing in government securities (~35% of total invested assets in government securities).
The industry protects individuals and enterprises against uncertainty, and increases social harmony and stability through the coverage
of risks.
The GI industry has created greater access to financial services and protection in recent yearsover 300 million new beneficiaries added
over the last 3 years and ~16 million claims paid in 201213.
16
I.Roleandimportanceofinsurance
GeneralInsuranceisastrongdriverofGDPgrowth
GrowthinGIinducesasuperiorGDPgrowthcomparedtoothersectors
Amarginalincrease1 in
Privatecredit penetration
Lifeinsurance penetration
inducesapercapitaGDPgrowth2 of
0.34%
0.37%
Generalinsurance penetration
0.39%
1Definedasaonestandarddeviationincrementinthepenetrationofindependentvariable(privatecredit,lifeinsurance,orgeneralinsurancepenetration)
2Analysisofdatafor56countriesoverthe19762004period
SOURCE:IHSGlobalInsight;Doesinsurancemarketactivitypromoteeconomicgrowth?;MarcoArena(2006),TheWorldBank
GIisalsoamajorcontributorofemploymentbothdirectlyandindirectly
Thousandsofemployees
GIcontributestosalariesof~7lakhpeopleinIndiaandhaspotentialforgeneratingmoreemployment
680
245
250
70
~350
~220
100
Direct
15
Surveyors Agentsand Garage/

bodyshop
andassesors brokers
Population
Million
Health
service
providers
Total
1,240
German
insurance
industry
UK
insurance
industry
82
62
Assumptions:
1 Averageincomeperagent` 60,000peryear
2Insurancesupportedemploymentatautomotivepartsandcomponentssectorbasedonassuming10%oftotalclaimspaidforemployeepayrollandaveragesalary
perworkeratbodyshopis` 8,000permonth
3Insurancesupportedemploymentathospitalsassumes86%privateoutofpocketexpenditure,andrestbyinsurance
SOURCE:IRDA;annualreportsofGIcompanies; McKinseyanalysis
17
18
Theindustryprovideseconomicstabilitytopeopleaffectedby
naturalcalamities
Globally,insurerspaid~USD135billioninthe
3majorcatastrophes
Hurricane
Katrina2005
Japan
earthquake
2011
75
35
175
200
9/11attacks
24 76 100
2001
250
235
Paidbygovernment/
outofpocket
Indianinsurerspaid1012,000crore inrecentmajor
catastrophes
Insuredloss
share
Percent
Totalloss
USDbillion
Paidbyinsurers
Totalloss
000 crore
30
Mumbaifloods
2005
15
Suratfloods
2006
23
23
Uttrakhandfloods
2013
45 1718
30%ofworldwidecatastrophe
lossesin2011werecoveredbyinsurance1
1USD115billioninsurancecoveredlosseswithinatotallossofUSD370billion
SOURCE:SwissRe report;IRDA;Preventionweb;presssearch
Insuredloss
share
Percent
13
12
17
25
27
2024
19
Inspiteoflowpenetration,~11%ofthe
catastrophelossescoveredbyinsurers
GIcreatedsignificantaccesstofinancialcoverageandprotectioninthelastfew
years,recordingthehighestincrementalgrowthamongallfinancialcategories
Customersadded
Numberofclaimspaid
Million
FY09
FY12
624
1.2
+67%
374
2013,million
15.8
461
380
+23%
309
9.8
+367%
4.7
99
Banking
Number
ofsavings
accounts
Lifeinsurance
Numberof
policies
General
insurance
Beneficiaries
covered1
Motor
Health
1Onlyincludesretailbusinessandhealthinsurancecoverageprovidedbythegovernment
SOURCE:RBI;IRDA;IIB;PlanningCommission;PublicHealthFoundationofIndia;publicdisclosures;McKinseyanalysis
Others
Total
19
21
Chapter II
Current position of General Insurance in India

GI has been on an accelerated trajectory20% CAGR post tariff deregulation over the past 5 yearsand reached a total size of ~` 70,000
crore in FY 2013. However, the industry has some way to go in terms of performance against three key objectives:
Providing universal access and coverage: A detailed micro-analysis of the underlying needs and risks indicate that there is substantial scope to
improve penetration and access across segments; e.g., home insurance penetration is <1%; there is significant underinsurance in segments such as twowheelers and personal health; corporate (property and indemnity), SME and rural risk coverage is substantially lower than global benchmarks. Further, the
total economic losses due to underinsurance are estimated to be close to ` 150200,000 crore annually.
Delivering returns to shareholders: India has the highest combined ratio across developed and developing economies and across time periods. This
has been largely driven by substantially higher claims ratios. As a result, the industry has delivered poor returns to shareholders. Barring a few exceptions,
the returns have been lower than 15% (i.e., below cost of capital) even in the tariff era. Returns post detariffication (2007) have largely remained in a single
digit even after adjusting for TP pool losses. While the average economics have been poor, there is huge spread in industry performancea few players earn
substantially higher returns compared to the rest of the industry, mainly due to their superior underwriting performance.
Customer experience and loyalty: The industry has shown improvement on customer service and experience (claims settled in 1 month is low at 60%;
however, customer grievances dropped from 2,800 per million policies in FY10 to 1,100 per million policies in FY12). Further, complaints have been lower
compared to other financial services such as banking (~3,500 complaints per million SA), asset management (~1,800 per million folios) and life insurance
(~1,200 per million policies). Even on this dimension, there is substantial dispersion in performance across players, with the best players performing up to 5
times better than the industry average and about 30 times better than the bottom quartile performers.
The outcomes above are a result of the interplay of various factors which have a significant inf luence on industry performance. The
report card of these inter-related factors reveals mixed results:
Individual insurer capabilities: Players have significantly improved the operating model and made progress in upgrading their product and
distribution capabilities. However, there is a large gap vis--vis the desired best practice on core technical capabilities (claims and underwriting), with
significant spread across players.
Industry conduct: Over time, the market has opened up and seen the entry of new players, which has increased competition and choice for customers.
However, competition has largely remained price driven, with limited focus on creating new capabilities. As an industry, there has been a high degree of
collaboration on areas like dismantling pools, articulating the need for more consistent product and distribution reforms, and the creation of entities like the
Insurance Information Bureau (IIB). However, there is opportunity to do more in terms of raising the industry profile, defining common standards and selfregulation mechanisms, and building more industry wide utilities.
22
Other industry participants:

Regulatory interventions over the last decade have helped open up the industry and foster more competition which benefited the industry. However, there
remain several areas to be addressedparticularly on issues of distribution, product, pricing and solvency reform.
India continues to attract capacity from global reinsurers, particularly on casualty and specialty lines of business (while witnessing a reduction in higher
rated capacity on property lines); however, the lack of local presence of global reinsurers has inhibited the market from getting access to the best talent
and expertise.
The relationship of insurers with motor and health stakeholders (i.e., OEMs/repair shops and providers) is relatively poor, with limited progress made in
some pockets.
Capabilities of the TPA and surveyor industry are low and remain a big area of concern, particularly in terms of delivering superior customer service and
building technical skills.
II.CurrentpositionofGeneralInsuranceinIndia
IndianGImarketassessmentframework
Interplayofvariousfactorsinfluencingindustryperformance
Coreperformance
objectivesforindustry
Provideuniversal
1 accessandadequate
coverageofneeds
Productinnovation
Distribution
Technicalcapabilities
(underwriting,claims)
Operatingmodel
B
Insurer
capabilities
Awarenessand
involvement
Sophistication
andtrust
A
Returnvalueto
2
shareholders
Consumer
Otherindustry
participants
Deliversuperior
3 consumerexperience
andbuildloyalty
SOURCE:McKinseyanalysis
Regulatorandpolicymakers
Healthcareproviders
Motordealersandrepairshops
Reinsurers
TPAsandsurveyors
C
Industry
conduct
Natureofcompetition
Levelofcollaboration
23
24
1 ComprehensiveneedsbasedviewofGI
Individual
Corporates/Institutions/Rural
Assetsandrisks Insuranceproducts
Assetsandrisks
Insuranceproducts
Vehicle
MCV/HCV(ODandTP)
LCV/PCV(ODandTP)
Employees
Grouphealth
Assetprotection
Fire
Businesspayments
Exportcreditriskcover
Employees
Individualhealth
Govt sponsored
Grouphealth
Newprojects
Engineering
Accidentcover
Assetprotection
Fire
Transport
Marine
Businesspayments
Exportcreditriskcover
Liability
Professionalindemnity
Aviation(3rd party)
Vehicle
Tractor
Otherassets/risks
Rural/agri.(e.g.,
Personalcar(OD
Vehicle
andTP)
Twowheeler(OD
andTP)
Homeinsurance
Home
Health
policiesforBPL
Travel
Income
Personal
indemnity
Liability
SOURCE:Stakeholderdiscussions
weather,cattle,etc.)
SMEs
Corporates
Rural
1 Penetrationheatmap:Individualrisks
FY13
GWP1
000crore
Riskstobecovered
New2
Cars
Old2
Vehicle
Twowheelers
6.5
Home
0.5
VehiclePARC
Homeownership
Massaffluent+
Health
Income
Total
Massmarket
5.53
Below
mass
2.6
Accident
1.6
Benchmark
85%
2.8
18.8
Penetration
80%
9.5
Total
Individual
Penetrationbase
Livesassociated
Disposableincome
60%
25%
>90%
<1%
>95%
20%
90%
Verylow
75%
40%4
65%
0.02%
0.07%
9.7
1GWP:GrossWrittenPremium
2Newcars:lessthan3yearsold;Oldcars:morethan3yearsold
3Almostentirely(95%+)contributedbymassaffluentandabove
4Ofthetotalruralpopulation,40%iscoveredthroughRSBYandstatehealthinitiatives
SOURCE:IHS GlobalInsights;Autocar;IIB;IRDA;NCAER;RSBY website;UScensusbureau;AMBest;AssociationofBritishInsurers;RBI;McKinseyGlobalInsurance
pools;McKinseyanalysis
25
26
1 Penetrationheatmap:Commercialrisks(1/2)
FY13
GWP
000crore
Riskstobecovered
MCVsandHCVs
6.0
LCVsandPCVs
4.5
Employees
Grouphealth
1.0
Livesassociated
Asset
protection
Corepropertyrisks
(fire,engg,marine)
1.2
Business
Exportcredit1
0.1
Vehicle
SME
VehiclePARC
Penetration
70%
70%
Benchmark
>85%
10%
75%
IndustrialGDP
0.14%
3%2
ExportsbySMEs
0.02%
Livesassociated
70%
80%
0.83%
3.5%3
12.8
Total
Corporates
Penetrationbase
Employees
Grouphealth
6.2
Newprojects
Engineering
2.2
Asset
protection
Fire
6.0
Transport
Marine
2.7
IndustrialGDP
1Assumedat10%oftotalGWPfromSMEs
2MaturemarketshaveequallybigSMEliabilitycovers(~3%ofSMEindustrialGDP)andothercovers(propertyandliability,upto~2%ofSMEindustrialGDP);these
arealmostnonexistentinIndia
3Includesinsurancecoverswhichcannotbeclassifiedeitheraspurepropertyorpurecasualty(e.g.,accidentandhealth,international,etc.)
SOURCE:IHS GlobalInsights;Autocar;IIB;IRDA;NCAER;MSME annualreport;UScensusbureau;AMBest;AssociationofBritishInsurers;RBI;McKinseyGlobal
Insurancepools;McKinseyanalysis
1 Penetrationheatmap:Commercialrisks(2/2)
FY13
Riskstobecovered
Business
payments
Corporates
Professional
indemnity
GWP
000 crore
Exportcredit
1.0
Liability
1.4
Aviation
Total
0.5
Penetrationbase
Exportsbylarge
corporates
Penetration
Benchmark
0.17%
Industrialand
servicesGDP
0.04%
1.25%
30%
85%
0.24%
9%
20.0
Vehicle
Tractors
0.5
VehiclePARC
Otherassets
Rural/agri
(weather,cattle,
etc.)
3.5
AgricultureGDP
Agri
Total
4.0
Others
3.2
TOTAL
69
SOURCE:IHS GlobalInsights;IIB;IRDA;NCAER;AICC website;UScensusbureau;AMBest;AssociationofBritishInsurers;RBI;McKinseyGlobalInsurancepools;

McKinseyanalysis
27
2 IndiahasthehighestCoRacrossdevelopedandemergingcountries
Claims
Percent
Expenses
Combinedratio(CoR)
200106
Developed
countries
200709
201012
US
73
25 98
74
24 97
76
23 99
Germany
73
21 95
73
20 93
75
20 95
UK
68
31 99
70
34 104
67
33 100
Indonesia
Emergingcountries
28
47
45 92
SouthAfrica
79
18 97
China
70
34 104
Malaysia
60
India1
83
32 92
33 116
51
82
71
64
85
39 89
17 99
33 104
31 96
35 119
1ReferstoperiodsFY0207,FY0810,FY1113respectively.Also,theCoRincludestheimpactofmotorTPpoollosses
SOURCE:McKinseyGlobalInsurancePools
53
80
34 87
16 96
64
30 94
61
29 90
88
35 123
2 Theindustryhasdeliveredlowreturnsonequity(RoE)inthelast5
years,evenafteradjustingforlossesduetothirdpartymotorpool
ReportedRoE
RoEexcluding
TPpoollosses
Percent
22
21
16
15
13
13
8
6
13
7
4
2
13
5
5
FY01
FY02
FY03
FY04
FY05
Initialliberalisation
FY06
FY07
FY08
FY09
FY10
Detarrification
FY11
FY12
FY13E
Partialrecovery
Thelevelofunderperformanceisnotthesameacrossplayers.Significantspreadexistsbetween
topperformersandtherest,withsuperiorunderwritingperformancebeingthekeydifferentiator
SOURCE:IRDA;annualreportsofGIcompanies; McKinseyanalysis
29
30
3 Improvedperformanceoncustomerexperience;hugespreadacrossplayers
Claimssettlement,percentsettledwithinamonth1
Complaintspermillionpolicies
Complaintslowercompared
tobanking(~3,500),MF
(~1,800)andLI(~1,200)
78
60
2,800
1,100
FY10
FY12
Topquartile
average
95
90
Topquartile
average
Bottomquartile
average
20
30
Bottomquartile
average
FY10
FY12
170
200
24,500
6,000
Keytrends
Claimssettlementdroppedfrom78%to60% forinsurers;bestin
classplayersstillmaintain~90% levels
Sharpdropincomplaintsperpolicy,lowercomparedtoother
financialservicessectors;however,hugespreadacrossplayers
Note:Onlyplayerswhichhavebeenpresentfrom2005onwardshavebeenincludedinthequartileanalysis
1Onlyshorttailclaims(motorODandretailhealth)considered
SOURCE:Publicdisclosures;IRDAannualreport;IRDApolicyholderwebsite;McKinseyanalysis
Reportcardofprogressonvariousfactorswhichinfluence
industryperformance(1/2)
Keycapabilities/metrics
A Customers
B Insurer
capabilities
Status
Littleornoimprovementmade;
significantrequired
Someimprovementmade
Significantimprovementmade
Comments
Awarenessand
involvement
Improvementinawarenessandinvolvementinlast5years;
however,remainslowonabsolutebasis
Levelof
sophisticationand
trust
Continuedtrustdeficitonmotorandhealth;commercial
relationshipsextremelytransactionalandpricedriven
Productinnovation
Innovationintermsofprovidingaddonbenefits;customised
productstospecificsegments(SME,weather)
Distribution
Evolutionofamoremultichannelarchitecture;however,
structuralchallengesandlowpenetrationacrossmostchannels
Technicalcapabilities
Limitedriskbasedpricing;claimscapabilitiesstilllowon
advancedanalytics,frauddetection
Operatingmodel
Higherprocesscentralisation;severalinnovationsinformofE
andMcovernotes1;instantissuance;efficiencygainsbothona
premiumperemployeeandperofficebasis
C Industryconduct Natureof
competition
Levelofcollaboration
1Covernotesinelectronic/mobileformat
SOURCE:Stakeholderdiscussions;McKinseyanalysis
Increaseinnumberofplayersandreducedconcentration;but
competitionprimarilypricedriven
Collaborativestandonpooldismantling,distributionreforms,
IIB;cancollaboratemoreincreatingindustryutilities
31
32
Reportcardofprogressonvariousfactorswhichinfluence
industryperformance(2/2)
Keycapabilities/metrics
D Otherindustry
participants
Status
Littleornoimprovementmade;
significantrequired
Someimprovementmade
Significantimprovementmade
Comments
Regulatory/policy
support
Systematicallyopenedupindustrythroughdetariffication,pool
dismantling,demat;needforproductanddistributionreforms,
betterdisclosureandaccountingnorms,enhancementsin
solvencyregime,andmandateinsuranceforgovt bodiesto
enableinsurersbettersupportthemduringnaturalcatastrophes
Healthcareproviders
Continuestobeablackboxfortheindustry;limitedcollaboration
withinsurerstoimprovestandardsandoutcomes
Motordealersand
repairshops
OEMsmoreprofessionalbutexercisefullcontrol;semiorganised
andunorganisedworkshops(~4045%volume)havelowmaturity
TPAandsurveyors
Veryfragmented;significantskillandprocessgapsresultingin
mostplayerssettingupoperationsinhouse
Reinsurers
Changingdynamics:
Reducedtreatycapacityforpropertyfromtopratedinsurers
makingitmorechallengingforcertainsegmentsofplayersto
participateinbusiness
Simultaneousincreaseincapacityprovidedbylowerrated
insurersopeningup/holdingmarketforothersegmentof
players
Capacityincreasedonthenonpropertysidewithmore
disciplineonratesandterms
Lackoflocalonthegroundpresenceofglobalreinsurers
constrainingaccesstotalent,capitalandexpertise
A Retailcustomersawarenessandinvolvementhasclearlyriseninthe
last4years
MOTORONLY
Customerawarenessisincreasing;morecustomers
renewingpolicybeforeexpiry
Highercustomerinvolvementinpurchase;
selfinitiatedrenewalsmorethandoubledin4years
Whendidyoustarttherenewalprocess?
Whoinitiatedtherenewalprocess?
Afterexpiration
ofpolicy
46
33
Insurancecompany
34
24
33
Lessthan2weeks
beforeexpiration
Morethan2
weeksbefore
expiration
54
Dealer/agent
47
43
42
11
13
2009
2013
Selfinitiated1
19
2009
2013
1Asansweredbytherespondent;thiswillalsoincludecustomerswhoreceivedrenewalreminderfrominsurersbutbelievethattheyinitiatedtheprocessontheir
ownaccordandnotduetothereminder
SOURCE:McKinseyproprietarymarketresearch inpersonquantitativesurveyof1,000+retailcustomersin2009andin2013
33
34
A Motorinsurance:Significanttrustdeficitvisvisinsurers
Customer
segments
Pricesensitive
Younger
generation
(Value
consciousand
aware)
Qualityseekers
Agent
NonOEMworkshop
OEMworkshop
Insurer
Seesagentasa
trustedallytoextract
maximumvaluefrom
policy
Costeffectiveand
efficientsolutionto
minorcarissues;
preferregulargarage
Costlybutprovides
expertiseformajor
repairs
Seenasopaque,big
corporationwithno
personalengagement
Seesagentas
unnecessary
complication
Costeffectiveand
efficientsolutionto
minorcarissues;
preferregulargarage
Costlybutprovides
expertiseformajor
repairs
Seenastedious,with
unclearintentions,
butcanbeengaged
withdirectly
Unnecessaryand
lacksauthority
Lacksqualityand
expertise
Providesquality,
convenience,and
expertisebutata
price
Professionalbutlacks
expertise.Doesnot
provideconvenience
SOURCE:McKinseyproprietarymarketresearch inpersonqualitativeinterviewsofcustomers,dealers,workshopownersandagents
A Commerciallines:CustomerrelationshipwiththeGIecosystemisextremelyprice
driven
Customer
view
Industry
view
LackofclarityonbenefitsfromGI
Lackoftrust intermsofclaimssettlement
Unawareoffullbouquet ofproductofferingsthatcanmeettheirspecific
needs
SMEpurchaseprimarilyduetobankpush forassetcoveroncollateral
Pricesensitivesegment, thecustomerwillchoosethelowestcostplayer
evenatthecostofunderinsuranceorinferiorservicelevel(insomecases,
riskcoveraslowas20%ofthevalueofassetinsured)
Priceisthekey(oftenonly)pitchpointanddifferentiatoracrossplayers
evenleadinginsurers
TheGIindustryhasnotinvestedenoughtoeducatecorporateclients
SOURCE:McKinseyproprietarymarketresearch
35
36
B Distribution:Twolargestchannels agencyandbrokers faceseveralchallenges

intheirmodelandvisvistheinsurers
Severalchallengesintheagentsandbrokerchannel,whichtogetherdistribute60%ofindustrypremiums
ShareofGWP,000crore,percent
FY0910
Keychallenges
FY1213
Perceivedlowincomeearningpotentialresultingin
Individual
agents
13.7
36%
25.0
36%
relativelypoortalentattractedtoindustry translating
intolowengagement,highchurnandlowproductivity
Aggregatorscontrolasignificantpartofagency
resultinginlowercustomerconnectandoverallcontrol
onprocess
Keyasksfromtheinsurers Bettercustomerservice
level;ownershipofcustomers;transparencyinclaims
andtimelinessofpayments
Highfragmentationandlowlevelofprofessionalism
Brokers
5.7
15%
16.8
24%
beyondthetop2530brokers(outoftotalof300+)
Beyondaselectfew,mostbrokersunabletoofferfull
rangeofservices tocustomers(riskassessment,loss
control,policydesign)
Largelyonesizefitsall approach;lackofrealproduct
(e.g.,liability,specialrisks)andsegmentspecialist
expertisebeingdeveloped
Insurersnotfullyevolvedtoworkwithbrokersas
businesspartners;relationshipsremaintransactional
SOURCE:IRDA;publicdisclosures;McKinseyproprietarymarketresearch;McKinseyanalysis
B Distribution:Industryhasnotleveragedbancassurance toits
fullpotential
LIincomeper000NII
GIincomeper000NII
FY13,
PlayershavenotfullyleveragedthebancassurancechannelacrossPSUandprivatebanksandlagtheirlifeinsurance
peers
Privatesectorbanks
Publicsectorbanks
34.8
27.3
23.3
19.4
12.2
7.6
3.4
2.0
LItoGI
premium1
6.5
4.8
2.4
0.7
2.3
1.8
Bank#1
Bank#2
Bank#3
Bank#4
Bank#1
Bank#2
Bank#3
10x
5x
2x
1x
4x
2x
1x
1Assuming1015%feeonGWPforGIand2025%forLI;overallLItoGInewbusinesspremiumratiofortheindustry(acrosschannels)is1.5xinFY13
SOURCE:RBI;bankannualreports;McKinseyanalysis
37
Chapter III
Key trends shaping the GI industry

Global forces impacting the Indian landscape:
Emerging Asia will become the major playing field for global insurers with heightened interest and increased competition for China, India, and Southeast
Asia.
The bar on technical capabilities will keep rising with winners pulling away.
Several discontinuities on technology, increasing complexity of underlying risks, and continued policy and regulatory intervention.
Customer behaviour and expectations:
Rise in customer awareness and sophistication, along with the blurring of boundaries between online and offline world, will require fundamental shifts in
the operating model.
Segmentation and customer centricity will become a key capability.
Shifting demandsupply dynamics in related sectors:
Healthcare: Rapid increase in healthcare spend and formalisation and corporatisation of the provider space will lead to new opportunities.
Auto: Pressure on core sales margin and ageing of car PARC will increase the focus of OEMs/dealers on insurance pools.
Corporate sector: Globalisation, organised retail and infra spending will translate into significant GI opportunities; the importance of SMEs will
continue.
Economic factors:
Uncertain and volatile macroeconomic outlook will temper near-term growth and investment return; resilient business models will need to be built.
Human capital will be scarce while wage-cost squeeze will increase.
39
III.KeytrendsshapingtheGIindustry
KeytrendsanddiscontinuitieswhichwillshapethefutureoftheGIindustry
inIndiaoverthenextdecade(1/2)
Globalforcesimpacting
theIndialandscape
Consumer
behaviour&
expectations
40
KeyShifts/Discontinuities
i. EmergingAsia(inparticularChina,IndiaandSEAsia)asthemajor
playgroundforglobalinsurers resultinginhigherforeigninterestand
increasedcompetitiveintensity
ii. Everincreasingbarontechnicalcapabilities: Spreadbetweenthebest
andrestwideningandalmostfullydrivenbytechnicalperformance
iii. Rapidconvergenceof4majortechnologydiscontinuities:BigData,
Cloud,InternetofThings/Mobility1 andSocialMedia willallowforfiner
pricing,moredisruptivebusinessmodelsandlargescalemass
customisationofproducts
iv. Evolvingnatureofunderlyingrisks(increasingseverityfromclimate
changebutdecreasingfrequencyfrombettertechnology;lifestyle
changesandlifestylediseases;increasinglifeexpectancies)requiring
largercapacitiesandnewtechnicalcapabilities
v. Morechallengingwayofdoingbusinessasaconsequenceof
regulatoryreforms,e.g.,riskbasedcapital,consumerprotection
Impact
horizon
Growth
impact
<3years
37years
>7years
Profitability
impact
vi. Increasingconsumerawareness,sophisticationandinvolvementacross
categorieswithimportanceofbrandsrisingrapidly
vii. Emergenceofmultichannelworld:Blurringofboundariesbetween
offlineandonlineworldwithrapidproliferationofmobilityenabled
accesstointernet
viii.Segmentationasakeycapabilityofcustomercentricity,toaddress
moregranularconsumerneedsandevolvingdemographics
1Abilitytogeneraterealtimeandinteractivereportsfromdevicesacrossanetwork,enabledeepdataprocessing,andprovideimmediatefeedback/correctiveactions
SOURCE:McKinseyanalysis;stakeholderdiscussions
KeytrendsanddiscontinuitieswhichwillshapethefutureoftheGIindustry
inIndiaoverthenextdecade(2/2)
Structuralshiftsinrelatedindustries
demandandsupply
Healthcare:Rapidincreaseinhealthcarespending,evolutionof
diseasepatterns andgovernmentinitiativetoprovideuniversal
coveragewillresultinnewopportunitiesforhealthinsurancebut
requiringaverydifferentsetofcapabilities
x. Healthcare:Increasingformalisationandcorporatisationofthe
providerspaceandemergenceofnewbusinessmodels willsetanew
basisforengagementbetweenpayors andproviders
xi. Auto:IncreasingpressureonmarginsoncoresalesforbothOEMsand
dealers,ageingcarPARCandrisingautocomplexity(e.g.,more
electronics)willresultinanincreasedcompetitionfordownstream
autovaluechain
xii. Corporate sector:IncreasingglobalisationofIndiancorporateswill
significantlyincreaseexposuretoreputationandotherliabilityrelated
risks;privateinfraspending(~50%ofnearlyUSD1trillion)and
organisedretailwillopenupopportunitiesinengineering,marine,etc.
xiii. Corporate sector:ContinuedrelevanceandimportanceofSMEs to
industrialoutputandexpansioninrangeofactivities
Economicfactors
KeyShifts/Discontinuities
ix.
xiv. Macroeconomicoutlook:Uncertainandmorevolatilemacroeconomic
environmentinthenearterm(next34years)willtempergrowthand
investmentincome,andrequirebuildingamoreresilientbusiness
model
xv. Productivityandhumancapitalchallenge:Continuousincreasein
employeewagecostsdrivenbyaseveresupplycrunchcallforre
evaluatingthecurrentproductivityandtalentmanagementmodel
SOURCE:McKinseyanalysis;stakeholderdiscussions
Impact
horizon
Growth
impact
<3years
37years
>7years
Profitability
impact
41
42
USNONLIFEEXAMPLE
ii Continuedhighspreadbetweentopperformersandtherest,
withsuperiorunderwritingcapabilitybeingthekeydifferentiator
19881996
ROE
inpercent
Underwriting
profitability
vs industry
average
Investment
margin
vs industry
average
19972005
20062012
16
12
2
3
SOURCE:Annualreports;AMBest;McKinseyanalysis
10
10
Top
Quintile
Bottom
Quintile
3
4
Top
Quintile
Bottom
Quintile
10
14
11
3
0
Top
Quintile
Bottom
Quintile
vi Consumerinvolvementandmaturityhasbeenincreasingandwill
starttrendingtowardsgloballevels
MOTOREXAMPLE
Activechoice1 increasingbutstilllowerthangloballevels
Percentofcustomersactivelyshoppingformotorinsurance
81
Active
shoppingisexpectedtoincrease
furtherwithgrowing
marketsophistication
44
40
33
27
21
7
UK
Spain
Poland
China
Italy
FY13
FY09
India
1Referstocustomerswhoactivelycomparedifferentofferingsinthemarketandchoosethebestproductinsteadofbeingguidedbyagent/dealerintobuyinga
specificproduct
SOURCE:McKinseyproprietaryconsumerresearch
43
44
vii Blurringboundariesbetweenonlineandofflineworld
DIGITAL HIGH VALUE

CONSUMERS
Asignificantportionofinternetuserswhoboughtaproductofflinedoonline
research
Onlineresearch
Percentofinternetuserswhoboughtaproductofflineinthelast12months
Creditcards
70
Healthinsurance
68
Lifeinsurance
66
TD/FD
63
Autoinsurance
63
Savingsaccount
Personalloans
SOURCE:McKinseyDigitalConsumerResearch;McKinseyGlobalInstitute;McKinseyanalysis
62
53
66%changed
theirmindabout
productand
brandafter
onlineresearch
Insurance:65%
Personalloans:
73%
Homeloans:
75%
xi PressureinmarginsoncoresalesmakingOEMsanddealersfocuson
aftersalesandloweffortinsurance
Economicsfordealersinautoindustry
EconomicsforOEMsinautoindustry
Newcarsales
Services
Aftersales
Marginsandtheir
expectedtrends
100%
85
65
20
2
13
Revenues
15
Newcarsales
Accessories
Aftersales
Financing
Marginsandtheir
expectedtrends
100%
48
1015%
33
2025%
5
2
Profits
25%
2025%
85
2025%
Insurance
5 3
2
6
11
Revenues
1015%
23%
1015%
Profits
Keyimplications
Keyimplications
OEMs arelikelytofocusonaftersalesparts
Dealers viewinsuranceashighvalueloweffort
marketbecauseofthelargeprofitpools
OEMsinterestininsuranceislikelytobearound
Securingaftermarketsalesthroughclaims
handling
Securingadditionalrevenues
profitpool
Dealersmakehighermarginsof~20%onsaleof
partsandonly~2%onsaleofnewcars
Dealersarelikelytocontinuetheirfocuson
capturingrenewalsandsellingaftermarketparts
45
47
Chapter IV
Scenarios for the future

The future direction of the industry will be shaped by the interplay of various stakeholdersthe individual insurers efforts to upgrade
their capabilities, industry conduct and level of collaboration, and external inf luence, policy actions in particular. In this context, there are
three potential evolution paths/scenarios for the industry.
Status quo: In this scenario, a few insurers will focus on initiatives to build holistic capabilities across the value chain. However,
capabilities for a large part of the industry would continue to be low and industry conduct will remain poor. Further, the policy
environment would continue to be conservative with few enablers. As a result, in this scenario, the outcome would be one of unfulfilled
potential
Modest growth CAGR of ~13% resulting in GWP of ~` 3,00,000 crore by 2025.
Combined ratio remains very high at 108110%; very few players operate below 100%.
Incremental value creation will be negative to the tune of ` 5560,000 crore while delivering average RoE of 68%.
As a result of underperformance, the industry as a whole will require fresh capital to the tune of ` 4045,000 crore, with a bulk of this required to recapitalise
a few weak players.
If economic recovery is accelerated over the next 23 years, the industry would benefit from both higher growth and higher contribution
from investment income. However, with limited effort to build skills and capabilities and improve industry conduct, the impact would
still be moderate
Growth CAGR of ~1415% resulting in GWP of ~` 3,50,000 crore by 2025.
With no improvement in combined ratio, the industry would continue to have a negative value creation of ` 2025,000 crore while delivering average RoE of
1012%.
Capital requirements remain relatively high ` 2025,000 crore of fresh infusion.
To break out from this cycle and control its own destiny (as against being dependent on external economic conditions), the industry
will require a combination of individual insurer efforts to upgrade capabilities and significant improvement in industry conduct and
collaboration. Accordingly, the gathering momentum scenario will help the industry realise marked improvement in outcomes.
CAGR of 1516% resulting in GWP of ~` 3,90,000 crore by 2025.
48
Improvement in CoR to 102104%; many players starting to operate below 100%.

Average RoE of 1315%; however, the industry as a whole will continue to operate at or around the cost of capital and not create any incremental value.
Capital commitment will be more limited ` 2025,000 crore.
For the industry to realise its true potential and achieve its vision of becoming an inclusive, progressive and high performing sector,
significant enabling policy actions are needed to complement the industry and individual insurer actions. The upside of these actions
will be substantial.
GWP will potentially reach ` 4,80,000 crore (CAGR of 1719%) by 2025.
Significant increase in penetrationover 80% of vehicles covered; close to 1 billion health lives covered; overall GWP to GDP at 1.4%.
Combined ratio of 99101%, with many players operating sustainably below 100% and a few high performing players below 95%.
Industry RoE of 2123%, translating into a total industry wide value creation of ` 3540,000 crore.
Realising this will require a capital commitment of ` 1015,000 crore from the industry.
More balanced portfolio mix (across retail and commercial; large and SME) and industry structure.
This scenario will also result in greater demand for high quality technical talent; over 1 lakh underwriters, claims assessors and surveyors will be required.
IV.Scenariosforthefuture
FactorsinfluencingtheevolutionoftheGeneralInsuranceindustryoverthenext
10years
Natureandextentofactionsundertakenbyindustrystakeholder
Capturegrowthopportunity
Strengthendistribution
Upgradetechnicalcapabilities
Developworldclassoperating
model
Enhancecustomer
engagement
Strengthenhuman
capital
Driveproductand
distribution
reform
Ensurestronger
industrystructure
Strengthen
industry
infrastructure
Protectconsumer
interests
Createenabling
environmentto
attractcapital
willdrive7keyindicators
1 Sizeoftheindustry
(GWP)
Individual
insurer
capabilities
2 Penetration
3 Portfoliomix
C
Policyand
regulatory
framework
Consumer
4 Businessefficiency
(CoR)
B
Industry
conduct
5 Industrystructure
6 Capitalrequirement
7 Talentandskills
required
Raisetheprofileofinsurance
Defineindustrystandardsandprotocols
Buildandleveragecommoninfrastructure
(inconcertwithpolicymakers/regulators)
49
50
Inthestatusquoscenario,afewinsurerswillfocusonupgradingindividual
capabilities;however,industryconductandpolicyenvironmentremainconservative
Consumerbehaviour
Insurercapabilities
Industryconduct
Policyandregulatory
framework
Relatively
immature,
primitive
shopping(push
drivenselling)
Highlyaware,
sophisticated
customers(pull
drivenselling)
Focuson
strengthening
onlyspecific
capabilities
Focuson
buildingholistic
capabilities
acrossvalue
chain
Independent
initiativesby
individual
players
Coherentinitiatives
byplayersfostering
collaborative
environment
Conservative
policy
environment
withfewer
enablers
Enablingpolicy
frameworkthrough
targetedreforms
onproduct,
distributionand
industryconduct
Scenario1: Statusquo:
Unfulfilledpotential
Inthestatusquoscenario,theGIindustrywilllikelygrowatamodest~13%CAGR,
continuetounderperformandbewellbelowpotential
Fuellingthisgrowthwillrequireafreshcapital
commitmentof4045,000crore
Growth:GWPtrend
000crore
69
55
2012
2013E
CAGR
Percent
300
160
Totalcapital
Retainedearnings2
2020F
13
Capitalrequirement,000crore
Freshcapital3
2025F
100110
13
3035
Profitability:CoRtrend
Percent
RoE
Percent
122
113
2012
2013E
301
110112 108110
2020F
2013
2025F
68
4045
Value
creation4
2025F
(5560)
Theindustrycanpotentiallyclock1415%CAGRifmarketsrevivetosupporta
higherreturnoninvestments.Butdowewanttobeexternallydependent?
1DoesnotincludeAICCandECGC
2 Assumingdividendpayoutof15%andtaxrateof25%
3.AvailableSolvencyMargincomparedto1.6timesRequiredSolvencyMargintodeterminecapitalrequired
4.Valuecreation=(Returnonequity Costofequity)*AverageNetWorth;assumingaBetaof1.1andequityriskpremiumof5% ;()denotenegativevaluecreation
SOURCE:IRDA;annualreportsofGIcompanies; publicdisclosures;RBI;McKinseyanalysis
51
52
Ifeconomyrecoveryisaccelerated,theindustrycanpotentiallygrowat1415%but
willstillseelimitedperformanceimprovement
Thegrowthwillstillrequirecapitalcommitmenttothe
tuneof2025,000crore
Growth:GWPtrend
000crore
CAGR
Percent
58
69
2012
2013E
350
170
2020F
14
Retainedearnings2
Freshcapital3
2025F
15
130140
Percent
RoE
Percent
Totalcapital
7882
122
113
2012
2013E
110112 108110
2020F
301
2025F
1012
2013
Value
creation4
2025
2025F
(2025)
IfstakeholdersacrosstheGIindustrygathermomentum,itcanreachclosertoits
truepotentialwithoutleaningheavilyonthemacroeconomy
Consumerbehaviour
Insurercapabilities
Industryconduct
Policyandregulatory
framework
Relatively
immature,
primitive
shopping(push
drivenselling)
Highlyaware,
sophisticated
customers(pull
drivenselling)
Focuson
strengthening
onlyspecific
capabilities
Focuson
buildingholistic
capabilities
acrossvalue
chain
Independent
initiativesby
individual
players
Coherentinitiatives
byplayersfostering
collaborative
environment
Conservative
policy
environment
withfewer
enablers
Enablingpolicy
frameworkthrough
targetedreforms
onproduct,
distributionand
industryconduct
Scenario2:Gathering
momentum
53
54
Inthisscenario,industryislikelytogrowat1516%withimprovedprofitabilityand
muchlowerdependencyoncapital
Thegrowthwillrequireafreshcapitalcommitmentof
2025,000crore
Growth:GWPtrend
000crore
390
58
69
2012
2013E
CAGR
Percent
180
Retainedearnings2
Freshcapital3
2020F
15
2025F
140150
16
9095
Percent
RoE1
Percent
Totalcapital
122
113
2012
2013E
105106 102104
2020F
301
2025F
1315
2013
Value
creation4
2025
2025F
(010)
Enablingpolicyactiontosupportindividualandindustrylevelactionscanhelpthe
industryrealiseitsambitiontobeinclusive,progressiveandhighperforming
Consumerbehaviour
Insurercapabilities
Industryconduct
Policyandregulatory
framework
Relatively
immature,
primitive
shopping(push
drivenselling)
Highlyaware,
sophisticated
customers(pull
drivenselling)
Focuson
strengthening
onlyspecific
capabilities
Focuson
buildingholistic
capabilities
acrossvalue
chain
Independent
initiativesby
individual
players
Coherentinitiatives
byplayersfostering
collaborative
environment
Conservative
policy
environment
withfewer
enablers
Enablingpolicy
frameworkthrough
targetedreforms
onproduct,
distributionand
industryconduct
Scenario2:Gathering
momentum
Scenario3:Inclusive,Pro
gressive andHighPerforming
55
56
Inthisscenario,theGIindustrycangrowat1719%CAGRwithsignificantlybetter
economicperformance
Thegrowthwillrequireafreshcapitalcommitmentof
1015,000crore
Growth:GWPtrend
000crore
480
58
69
2012
2013E
CAGR
Percent
200
Retainedearnings2
Freshcapital3
2020F
17
2025F
19
180190
140145
Percent
122
2012
RoE
Percent
Totalcapital
113
2013E
301
103104 99101
2020F
2013
2025F
2123
Value
creation4
1015
2025F
3540
4.Valuecreation=(Returnonequity Costofequity)*AverageNetWorth;assumingaBetaof1.1andequityriskpremiumof5%;()denotenegativevaluecreation
Comparisonofvolumesandprofitabilityacrossscenarios
Keymetrics
Current
Statusquo:
unfulfilledpotential
Gatheringmomentum
Inclusive,
progressive and
highperforming
480
GWP
000crore
390
300
200
180
160
69
2013
2020
2025
2020
2025
2020
2025
CoR
Percent
108110
102104
99101
RoE
Percent
68
1315
2123
57
58
Morebalancedindustrystructureinthethirdscenario
Number
ofplayers
GWP
` 000crores
20+
45
Large
full
service
insurers
Multispecialist
insurers with
dominanceinfew
LOBs/channels
410
Product
(e.g.,Health,
Commercial)
Channel
(e.g.,Direct)
Basisofcompetition
Inorganicgrowth
Technicalexcellencein34areas
Multichannelmanagement
Privilegedinsightandcapabilities
1520
intoselectregions/channels/
products
Technicalexcellence
Distinctivecapabilitiesacross
Specialists
14
2020VIEW
1015
businesssystemforchosen
model/segment
Keypenetrationlevelsacrossthethreescenarios
Possiblescenarios
Statusquo:
unfulfilledpotential
Current
Privatecars
insured
Percent
Livesinsured
(health)
Million
Corecommer
cial GWPto
industrialGDP1
Percent
Total
Penetration
(GWPtoGDP)
Percent
1AcrossSME,midandlargecorporates
69
350
0.49
75
550
0.55
0.75
0.90
2013
2025
Gathering
momentum
80
770
0.75
1.15
2025
Inclusive,progressive
andhighperforming
85
960
1.00
1.40
2025
59
60
Portfoliomixacrossthethreescenarios
000crore,per cent,FY25
Statusquo:unfulfilled
potential
Current
100%=
Motor
Commercialproperty
Health
Commercialliability
Gatheringmomentum
andhighperforming
69
300
390
480
43
40
39
38
22
28
30
31
18
3
14
16
16
16
13
12
12
SME1
Percent
22
23
24
25
Retail2
Percent
39
43
44
45
1IncludesCV,SMEgrouphealth,SMEassetprotectionandSMEexportcredit
2Includespersonalvehicles,health(retailandgovernment)andothers(home,accident,travel)
SOURCE:IRDA;annualreportsofGIcompanies; publicdisclosures;McKinseyanalysis
Others
Technicalmanpowerrequirementacrossthethreescenario
Underwriting
Employeesinthousands,FY25
Statusquo:unfulfilled
potential
Assessors/surveyors
Gatheringmomentum
andhighperforming
95115
7090
5575
2535
2030
1525
7080
4050
5060
Note:Estimatesonlyforunderwriting,assessorsandoperationsemployees.Doesnotestimatethetotalmanpowerrequiredforthe industry.Basedongrowthin
businessandclaimsvolumeineachlineofbusiness;further,1530%efficiencyimprovementisassumeddependingonpossibleadvancements(lean
processing,straightthroughclaimsprocessing,techenablement,etc.)ineachlineofbusiness
SOURCE:IRDA;annualreportsofGIcompanies; publicdisclosures;McKinseyanalysis
61
Chapter V
Agenda for action

The various industry stakeholders will need to take a set of coordinated actions to help the industry unlock its full potential and realise its
ambitious vision.
Individual insurers will need to build capabilities across three axes of innovation:
Build distinctive granular customer insights to capture high potential growth opportunities and enhance engagement across the customer lifecycle.
Upgrade to next generation technical capabilities (claims, underwriting, analytics, and actuarial capabilities).
Build world class operating models to achieve gains in efficiency while strengthening the human capital.
Industry-level initiatives that will be required to further performance:
Raise the profile of GI in the Indian ecosystem.
Contribute in defining industry standards and protocols.
Co-sponsor the building of common infrastructure (in concert with policy makers/regulators) for fraud detection, claims management, skill building, etc.
Policy and regulatory initiatives suggested to complement individual and industry-level actions:
Foster innovation and deepen penetration through product and distribution reform, and strengthen the industry structure through focused regulatory
intervention and supervision.
Enable and guide efforts towards a common industry infrastructure.
Continue to scale up initiatives to ensure consumer protection.
Create an environment to attract capital.
63
64
V.Agendaforaction
Insurerswillneedtobuildcapabilitiesacross3axesofinnovationtoensuresuperior
performance
Nextgenclaims
andfraud
Riskbased
pricingand
underwriting
Enhancedengagementacross
customerlifecycle
(CLM,renewalmanagement)
Nextgeneration
technical
capabilities
Individual
capabilities
Distinctivegranular
customerinsightsand
segmentedpropositions
Talent
development
(strengthand
skills)
Endtoendbusinessmodeltocapture
highpotentialgrowthopportunities
(Health,SME,specialtycommercial)
Efficienttech
enabledoperating
model
Multichannelretaildistribution;
Partnershipapproachtobrokers
V.Agendaforaction
CompanylevelinitiativestoaddressprioritiesoftheIndianGeneralInsurance
industry(1/2)
Distinctive,granular
customerinsights
Nextgenerationtechnical
capabilities
A.
Capturehighpotentialgrowthopportunities
1. Health: Buildaholistichealthinsurancepropositioncomprisingnewproduct
propositions(e.g.,outpatient,preventivecare),worldclassproviderandclaims
managementandenhancecustomerengagement(e.g.,medicalhelplines)
2. SME: Developsegmentspecificpropositionsenabledbybroadbaseddistribution
throughpartnershipsandeffectiveindustrialisedunderwritingcapabilities
3. Adoptagranularapproachtotargetpotentialgrowthhotspotsthrough
differentiatedbusinessmodelforselectedriskexposures(e.g.,greenrisksin
commerciallines;commercialvehiclesegment)
B.
Boostgrowthopportunitythroughenhancedengagementacrosscustomerlifecycle
1. Buildaneffectiveendtoendrenewalmanagementmechanism
2. Focusonholisticcustomerlifecyclemanagementtosignificantlyboostcrosssell
andupsellopportunities
C.
Maximisevaluecapturebyupgradingtonextgentechnicalcapabilities
1. Investinbuildingbestinclassnextgenerationmotorclaimsmanagement
incorporatingmultidimensionalcapabilities(e.g.,rulesbased,segmented
workflowsandstraightthroughprocessing,leanoperationsandTPclaims)
2. Supplementclaimsmanagementwithrobustfraudfightingmechanism
3. Buildadvancedtechnicalpricingmodelforpersonallines
4. Strengthencapabilityforefficientunderwritingandclaimsmanagementfor
commerciallines
SOURCE:Stakeholderdiscussion;McKinseyanalysis
65
66
V.Agendaforaction
CompanylevelinitiativestoaddressprioritiesoftheIndianGeneralInsurance
industry(2/2)
Customercentriclowcost
operations
D.
Buildworldclassoperatingmodeltocapturevaluethroughgaininefficiency
1. Adoptanendtoendtechenabledoperatingmodeltostreamlinebackend
processingandimproveefficiency
2. Improveexpensemanagementcapabilitybystreamliningorganisation,
prioritisinglocations,optimisingprocurementandoutsourcing
E.
Strengthendistributiontomaximisereach
1. Buildacomprehensivemultichanneldistributionforretailandpersonallines
acrossagency,bancassurance,digitalandPOS(e.g.,dealer)
2. Maximisepotentialthroughdifferentiatedpartnershipapproachforthebroker
channel incommerciallines
3. Developsuitablemodelstoeffectivelytapintoexistinginfrastructuretoenhance
reachinunderpenetratedruralareas(e.g.,CSCsandBCsinruralIndia)
F.
Strengthenhumancapitaltobridgeskillgaps
1. Undertakeacomprehensiveleadershipdevelopmentandcapabilitybuilding
approachcustomisedforvariouslevelsandfunctionalareas
V.Agendaforaction
A2 BestinclassexampleofendtoendSME focusedbusinessmodel
InitiativestakentoestablishitsSMEbusiness
Establish
ment ofa
dedicated
unit...
gradual
improvement
mode
continuous
innovation
andupward
transfer
SMEpremiums doubledigitgrowthrates
SeparationofSMEsandindependent
analysis(profitability,growth,etc.)forSMEs
EstablishmentofadedicatedSMEfield
salesteamandunderwritingstaff
Establishmentofservicecentres,toallow
agentstotransferSMEpolicyrenewaland
routineservices(suchasendorsement)to
insurerforafee
Concentrationofunderwriterstosales
centres
Formationofprofessionalfieldsales
representatives(withlimitedpricing
authority)
Formationofprofessionalpricingmodelfor
SMEbusiness
Policyadjustmentrelyingonitsscale(more
than1millioninsurancepolicies)and
implementationofdifferentialprices
ContinuousproductinnovationforBOPde
commodificationaccordingtotheemerging
needsofendcustomers
SOURCE:Insurerannualreports;McKinseyanalysis
+11%
1.2 1.4
1.0
0.8
1.7 1.9
2.7 2.8 2.7 2.6

2.5
2.3
x3.2
98 99 00 01 02 03 04 05 06 07 08 09
SMECoR(excludingcatastrophes)
PercentofNPE
CoR <100for
2%
consecutive
20years
100
100 99 97 96 95 94 90
84 81 77 84
98 99 00 01 02 03 04 05 06 07 08 09
67
68
V.Agendaforaction
C1 Nextgenerationclaimscapabilities:Techandanalyticsdrivenclaims
processing(1/2)
Predictiveanalytics
Usestatisticaltechniquestoanalyselargevolumesofdata(internalandexternal)and
identify thesmallsubsetofclaimslikelytoexperiencesignificantandunexpectedadverse
development,duetofactorssuchaslitigationandmedicalcomplications.Then,proactivelydeploy
resources,suchasexpertcounselandnurses,tomanagetheserisksandprovide bettercustomer
service
Decisionsupporttools
Achievehigherlevelsofconsistencyandaccuracyinclaimsoutcomesbyequippingadjusterswith
moresophisticated,factbased,realtimedecisionsupporttools thatharnessadvancedanalytical
horsepowertoprovidenewinsights.Reviewofliabilitydetermination,medicalpaymentsandauto
repairdamageareexamplesofclaimadjudicationtaskswheresophisticateddecisionsupporttools
haverapidlygainedtraction
Automation
Automatethecompletionofstraightforward,highvolumeandlowcomplexity
tasks (e.g.,policyinforceverification,payments,regulatoryletters).Thefullpowerof
automationisunleashedinstringingtogethermultipletaskstoautoadjudicateorhandleentire
classesofhighvolume,lowcomplexityclaimswithoutinvolvinganadjuster.Incomplexclaims,
automatingspecifictasks canfreeadjusterstofocusonthosecriticaldecisionsinthelifeofaclaim
thatdrivetheoveralloutcomeandimpactcustomersatisfaction
V.Agendaforaction
C1 Nextgenerationclaimscapabilities:Techandanalyticsdrivenclaims
processing(2/2)
Rulesaretechniques
topredictoutcomes,
supportdecisions
andautomate
processesby
codifyingand
embeddingbusiness
intelligenceandlogic
intodaytoday
claimsworkflows
Deliversignificantfinancialimpact identifyand
capture34pointsofcombinedratioimprovement
withbenefitsaccruingrapidly
Differentiatethroughdistinctivecustomerservice
provideongoingcompetitiveedgeanddifferentiation
topersonalandcommerciallinescustomers
Enhanceclaimsoperatingmodel improveaccuracy
andproductivityofclaimshandlingprocesses(e.g.,
segmentation/assignmentrecognisingcapabilityand
capacity)
Use bestpracticesconsistently systematically

leverageinstitutionalexpertiseandinternaland
externaldatasourcesfordecisionmaking,transparency
andinternal/regulatorycompliance
Energisetheclaimsorganisation enhancequalityof
workforadjustersandmaximiseimpactoftalentinthe
organisation
69
70
V.Agendaforaction
C2 Endtoendfraudmanagementcapabilities
Coreprocesses
Detection
Investigation
Prevention
Fraudindicators
Triageofsuspiciousclaims
Interactionwithotherunits
Incorporatefraudalertsin
tobeinvestigated
Proactiveanalysis
Engage3rd parties
Casesegmentation
Desktopinvestigation
Cognitiveinterview
Crossinsurerinvestigation
Fraudfunnel
Automated
Awareness
granularKPIs
Fraudscorecard
Keyanalyses
detectionsystem
Fraudworkflow
Investigationtools
programme
Trainingprogramme
(e.g.,detectionskills)
forclaimshandlers
Internalbestpractice
sharing
Enablingfactors
subscription
Internalandexternal
communicationprogramme
Dedicatedtriageunit
withdedicatedfraud
coordinatorsand
desktopinvestigators
Coordination
mechanismswithother
functions/units
V.Agendaforaction
Toachievefullpotential,individualactionswillneedtobesupplementedbyindustry
conductandenabledbypolicyandregulation
Fosterinnovationand
deepenpenetrationthrough
productanddistribution
reform
Strengthenindustry
structurethroughfocused
regulatoryinterventionand
supervision(e.g.,riskbased
capital)
Enableandguideeffortsto
strengthencommonindustry
infrastructure(e.g.,enabling
informationsharing)
Launchtargetedinitiatives
toensureconsumer
protection
Createenabling
environmenttoattract
capital(projectingIndiaas
anattractivedestinationfor
FDIandreinsurance)
Individual
capabilities
RaiseprofileofGIinthe
Indianecosystem
(consumerawareness,
communicationplan)
Consumer
Policyand
regulatory
framework
Industry
conduct
Contributeindefining
industrystandardsand
protocols (fraud
definition,medical
standards)
Cosponsorbuildingof
commoninfrastructure
(inconcertwithpolicy
makers/regulators)(e.g.,
claimsbureau)
71
72
V.Agendaforaction
InitiativesforindustrylevelcollaborationtoaddressprioritiesoftheIndianGeneral
Insuranceindustry
Industryconduct
A.
RaiseprofileofGIintheIndianecosystem
1. Launchanationwideconsumerawarenessdriveincludinginsuranceweek,
awarenessads,associatewithdrivesforhealthcareandroadsafety
2. Initiateasystematiccommunicationplanforphasewisedisseminationof
informationaboutindustryinitiativesandpoliciestostakeholders
3. Driveawarenessofimportanceofinsurancetootherstakeholders, e.g.,banksrisk
losingcustomersiftheyinsistoncoverageonlyuptothevalueofloansandnottotal
assets
B.
Contributeindefiningindustrystandardsandprotocols
1. Collaboratetodevelopastandardiseddefinitionofclaimsfraudacrosslinesof
business
2. Collaboratewithhealthcareindustrytodevelopstandardprotocolsformedical
treatment (onlinesofDRGsseeninmarketslikeUS,Germany,Australia)
C.
Cosponsorbuildingofcommoninfrastructure(inconcertwithpolicy
makers/regulators)
1. CreatecentralisedclaimsinformationcentreundertheaegisofInsurance
InformationBureauwithappropriategovernanceandprivatefunding
2. Cosponsorafraudinvestigationunittoundertakeongroundinvestigation,legal
actionanddevelopanalyticsmodelforearlydetection
3. Institutionaliseskillbuildingbypromotinganindustryaccredited insurance
academy cateringtodevelopmentoftechnicalskillsatscaleandincorporating
certificationstandards
V.Agendaforaction
A Caseexample:GDV coordinatesindustryefforttowardscustomer
educationandrepresentsaconcertedpositionoftheindustry
AboutGDV
TheBerlinbasedGesamtverbandderDeutschenVersicherungswirtschaft(German
InsuranceAssociation)istheumbrellaorganisationforprivateinsurersinGermany, with
470membercompanies
Keyroles
IllustrativelistofactivitiesperformedbyGDV
GDVarticulatesandrepresentsthe
Pressarticles:GDVpublishespressreleasestargetedat
positionsoftheGermaninsuranceindustry
beforesociety,politicians,businesses,the
mediaandacademia.Itworkstoachieve
regulatoryconditionswhichwillallow
insurerstoperformtheirresponsibilitiesin
theoptimalfashion
Itisalsoasourceofexpertinformation
aboutallmattersrelatingtotheinsurance
industry,makingavailableitswealthof
experienceandinformationtothepublic
GDVinformsandsupportsitsmember
companiesasaserviceprovider,identifies
politicalandsocialdevelopmentsof
relevanceforthesectorandproposes
solutions
SOURCE:GDV website
insurancecustomersalmosteveryweek.Recentlistoftopics
published:
Floodinglosses:Howtoprotectyourself
ClimatechangechallengesforGermany
Goingonvacation:Gettherightinsurance
Howtoavoiddamagetosolarcellunits
Besafeinthegarden
Securechildreninthecar
RadioandTVcampaigns:GDValsorunsradioandTV
campaigns.TVcampaigns,whichwouldnormallycosta
player200perspot,isfullysponsoredbyGDV
73
74
V.Agendaforaction
C Globally,insurershaverespondedtofraudwithawiderangeofindustrylevel
initiatives
Information
sharing
Description
Examples
Inseveralcountries,insurersshare relevant information

toidentifypotentialfrauds
Themosteffectivewaytoexchangeinformationisthe
settingupofindustrywidedatabases thatcanbe
accessedbyinsurers
Insurancecompanieshaveestablishedformalisedunitsto
analysedatatoidentifymulticarrier/multiclaimsfraud:
Disseminate bestpracticesamongmembers
Educate legislatorsaboutthecostsofinsurancefraud
totheconsumersandtheindustry
Lobby toincreaseresourcestofightfraud
Investigatefraudcases
Increasedcooperation withpolice,judiciaryandother
agencies
IntheUK,theinsuranceindustryfunds the
InsuranceFraudEnforcementDepartment,
whichispartoftheLondonPoliceandisin
chargeofinvestigating potentialfrauds
Formaltraining ofinsurancestaffandpolicetoraise
awarenessandincreaseprobabilityofdetection
InDenmark,thelocalagencyorganisesseminars
foritsmembers
InFinland,theinsurancefederationhas
organisedspecifictrainingforthepolice
InSpain, awardsaregiventoemployeesof
insurersthatarebestindetectingfrauds
Dedicated
units
Cooperation
withlaw
enforcement
agencies
Training
Cheatlines
SOURCE:Presssearch
Inseveralcountries,helplinestoreport suspectedor
knowninsurancefrauds havebeensetup
Often,thesecheatlinesarerunbyindustrywide
organisations
IntheUK,theInsuranceFraudRegisterisa
databasethatstoresdetails ofindividuals who
madefraudulent claims
InsurescansearchtheDBandmayrestrict
access toinsurancetothoseindividuals
IntheUS,NICBanalysesdatatoidentifyfraud
cases
InFrance,in1989insurerssetupasectorial
agencytopromotecounterfraudactivitiessuch
astrainingandcertification offraudinvestigators
andadvice onhowtohandlefraudulentcases
Ireland,Sweden,UKandUS
V.Agendaforaction
C Insuranceindustryresponsetofrauds UKexample
Claimsfraudisaserious
issuein theUK
thatgeneratedstrongindustrywideresponses,withabout200
millioninvestmentperyear
Over139,000
bogusor
exaggerated
insuranceclaims
detectedin2011,
up5%vs 2010
Everyhour,
Setupin2006,theIFBcurrentlyfocuseson
Insurancefraudadds,
Currently,ithas33insurermembersthat
Valuesavingof
Itusesadvanceddatamatchinganalytical
TheIFBhas
personallines:motor,home,personalinjury
claims.Itactsassinglepointofcontactfor
lawenforcementagencies
15 fraudulent
insuranceclaimsare
reportedinthe UK
manageinexcessof95%ofUKpersonal
linesclaims.Ithasaccesstoanindustry
wideDB(theInsuranceFraudRegister)with
morethan130millioninsurancerecords
onaverage,anextra
50ayeartothe
annualbillforevery
policyholder
In2012,thecostof
techniquestoidentifypotential frauds
cashforcrash1
TheIFBmanages acallcentrethatallows
fraudswasworth
392million
individualstoreportinsurancefrauds
Itisestimatedthat
thereisafurther2
billionofundetected
fraud
InsuranceFraud
Enforcement
Department
Directlyfundedbytheinsuranceindustry,
theIFEDisaspecialistpoliceunit of34
detectivesdedicatedtotacklinginsurance
frauds
1Todeliberatelycausearoadtrafficcollisionforthepurposeoffinancialgain
SOURCE:InsuranceFraudBureau;AssociationofBritishInsurers
thesefraudswas
983million (a
7%increasevs
2010)
overseenmore
than 700arrests
since2006
Overthepast3
years,9,000
reportsof
insurancefraud
havebeenmade
viacheatline
75
76
V.Agendaforaction
C Skillbuildinginitiativeatindustrylevel InsuranceInstituteofCanada
Structureand
governance
Keyactivities
Notforprofit organisation established in 1899 through collaboration of GI players to help set

professional standards and training courses for insurance practitioners
Serves more than 39,000 members across Canada through 19 volunteerdriven provincial
institutes and chapters
Closelyworkswithfederalandprovincialregulatorsto:
Designcourses
Developtrainingmaterial
Conductcertificationexaminationswhicharerecognisedbyregulators(additionalexams
mayberequiredforspecificproductordistributioncategories)
3primarycoursesareoffered:
GeneralInsuranceEssentials(GIE):Entrylevel2courseprogrammefocusingonbasic
practicesandprinciples
CharteredInsuranceProfessional(CIP):10courseprogrammefocusingontechnicaland
appliedinsuranceknowledge.HighlyrecognisedthroughoutCanadaandinternationally.
Applicableforagent/broker,marineinsurancespecialist,claimsinvestigator,and
underwriter.
FellowCharteredInsuranceProfessional(FCIP): 6coursePremierdesignationforinsurance
professionalsfocusingonstrategyandinsuranceessentials
Industrylevel
activities
SOURCE:Presssearch
Platinum sponsor of the National Insurance Conference of Canada

Sponsor of Annual Conference and Trade Show hosted by the Insurance Brokers Association of
British Columbia
It is also actively involved in various womencentric insurance associations
V.Agendaforaction
PolicylevelinitiativestoaddressprioritiesoftheIndianGIindustry(1/3)
Policyandregulatory
framework
A.
Fosterinnovationanddeepenpenetrationthroughproductanddistribution
reform
1. Providescopetodeepenproductwisepenetrationandenabledifferentiation
by(a)designatingcertainproductsasmandatoryand/orprovidingtax
incentive (e.g.,homeinsuranceincatastropheproneareas);(b)streamlining
productapproval(e.g.,useandfileapproachforsimplestandardproducts(c)
liberalisingpolicywordingsandpricingacrossallcategories(d)expandingthe
frameworktoallownewproductstructurese.g.,savingslinkedcomponentwith
health;multiyearpoliciesforcategoriessuchastwowheelerstoreducechurn
2. Acceleratedistributionreforms: (a)Frameworkforclearlyclassifyingchannels
aseithertiedagentorIFA;(b)Cleararticulationofbasisofremuneration
(serviceproviderremuneratedbyservicereceiver insurerorcustomer);(c)
Ownershipoftrainingandcertificationbasedonproductcomplexityand
channel;(d)Uniformityinregulationsforsimilarlinesofbusinessacross
categoriesofplayers
B.
Strengthenindustrystructurethroughfocusedregulatoryinterventionand
supervision
1. Provideadifferentiatedregulatoryoversightandencourageplayerstoearn
therighttogrowthroughholisticperformancemeasurement(e.g.,RoE,
channel,productmix)anddifferentiatedsupportintermsofproductapproval,
investmentflexibility,solvencyrequirementsandlicensingprocess
2. Increasethelevelandrigouroffinancialdisclosures andensure
standardisationandtransparencyinreservingnorms
3. GraduallyadoptashifttowardshigherselfregulationwithIRDAplayingthe
roleofaprinciplebasedregulator(e.g.,allocationofriskbasedcapital)
77
78
V.Agendaforaction
Policyandregulatory
framework
C.
Structuralinterventionstoincreasepenetrationinuncovered/undercovered
segments,e.g.,disaster,rural,home,health
1. LeveragetheexperiencesandtechnologyplatformdevelopedthroughRSBYand
otherstatesponsoredhealthinsuranceschemestoextendscopeofmass
healthinsurancecoveragetoincludea)othervulnerablesegments,e.g.,APL,
b)outpatientanddiagnostics,c)preventivecare,e.g.,vaccinations
2. Enabledevelopmentof"benefit"basedhomeinsuranceproductstodrive
penetrationinlowcost/masshousingandruralhousingsegments
3. Catalysebuildingofnationaldisasterrecoveryfund tohelpinsurersincaseof
naturalcalamities,onlinesofsimilarsetupsabroad;takepolicyactionto
ensurenaturalcatastropherisktransfer(individuals,corporatesand
governments)1
4. Structuralreformstoincreasetakeupandefficiencyofagriculturecrop
coverage throughacombinationofremotesatelliteimagingbasedsurveys,
promotingweatherindexbasedproductofferingsandgovernmentsubsidy
onpremiumsinsteadofonclaims
D.
Enableandguideeffortstostrengthencommonindustryinfrastructure
1. Facilitateinformationgatheringandsharingacrossplayersbyoverseeing
infrastructuredevelopment,institutingprocessesandparticipatinginregular
governance(e.g.,acommonclaimsdatabasewithfeebasedaccesstoallGI
players)
2. Formulateguidelinesandfacilitatecoordinationwithassociatedindustry
bodiesforusageofruraldistributionnetworkbyallGIplayerstoenablecost
efficientaccessinremotegeographies
1DiscussionpaperbyIRDA NDMA,titled'DisasterReliefandRiskTransferThroughInsurance'providesdetailedstudyandactionsonthistopic
V.Agendaforaction
Policyandregulatory
framework
E.
Strengthentargetedinitiativestoensureconsumerprotection
1. Bringhigherlevelofcustomercentricityindisclosures (e.g.,clearlydefine
customercomplaint;no.ofcomplaints,claimssettledin<1monthtobepart
ofdisclosuresandIRDAreports);thiswillenablehealthycompetitionon
servicelevelsandlesscommoditisationofindustry
2. Designandlaunchaportfolioofinitiativesaimedatprotectingconsumer
interest(e.g.,enforcinggreatertransparencyinpolicyinformation,arbitration
committees,etc.);allocateresponsibilitiestorelevantindustrystakeholders
andoverseeexecution
F.
Createenablingenvironmenttoattractcapital
1. TakeproactiveinitiativestoprojectIndiaasanattractiveinvestment
destinationandhencepavethewayforFDIinflowsintotheIndianGIindustry
(e.g.,sponsorroadshowsinforeignmarketsforpotentialinvestors)
2. FacilitatedevelopmentofIndiaintoareinsurancehubtohelpunderwriteand
retainmorewithinIndiaandenableaccesstomoretalentandexpertiseto
supportmarketdevelopment(inparticularreviewcapital,legalstructureand
taxationnorms)
79
80
V.Agendaforaction
A1 Globally,significantproductreformshavebeeninitiated;MultipleProduct
ApprovalSystemisprominentamongthose
MultipleProductApprovalSystemincludes4keyproduct
approvalcategories
FileandUse:Insurerfirstfilestheproduct/ratesandcan
startsellingtheproductimmediatelyorwithinastipulated
periodoftime.Theregulatormightdisapproveoftherates
laterbasedonwhichtheinsurerisexpectedtotake
correctiveaction
UseandFile:Insurerdirectlyintroducesnewproducts/rate
inthemarketand,withinastipulatedtimeframefilesthe
detailswiththeregulator.Onsubsequentdisapproval,
correctiveactionsneedtobetakenbytheinsurer
Flexible:Newproducts/ratesareintroducedbytheinsurer
withoutpriorpermissionprovidedtheyarewithina
stipulatedrange.Theregulatorstepsinonlywhenthereisa
caseofnoncomplianceorcustomergrievance
Competitive:Insurersaregiventhefreedomtointroduce
newratesorproductsinthemarketwithoutregulatory
approval.Itisapurelymarketdrivensystemwithno
interventionfromtheregulatorunlesstherearecasesof
noncomplianceorcustomercomplaints
SOURCE:Presssearch
Countrieswherecorrespondingapproval
categoriesareallowed
V.Agendaforaction
A1 PotentialMultipleProductApprovalSystemforIndianGIindustry
Contoursof4typesofproductapprovalsystems
Prior
Approvals File&Use
Massmarketed
Custombuild
Typeofmarketing
FrameworkforpotentialMultipleProduct
ApprovalSystem
Fileanduse
(Forsomestandard
productsUseand
Filecanbe
considered)
Priorapproval
system
UseandFile
UseandFile
Systemwith
Regulatory
Safeguards
Simple/standard
Complex
Levelofproductcomplexity
Use&File
(Reg Std)
Product
Design
ByInsurer Standard
Products
GICouncil
Simple
Products
ByInsurer
Customer/
Insurer
Customer/
Insurer/
Reinsurer
Product
training
ByInsurer ByInsurer
ByInsurer
ByInsurer
ByCUO/AA
ByCUO/AA
ByCUO/AA
Yes
NoforStd
Products
Yesfor
others
NoforStd
Products
Yesfor
others
ByIRDA
ByCEO
within90
daysof
filing
ByCEO
ByCEO
ByIRDA
ByCEO
ByCEO
ByCUO/
Product
AA/
Viability
Certification
Product
Filing
Product
Approval
Pricing
Approval
Use&File
Yes
ByCEO
81
82
V.Agendaforaction
A2 SeveralEuropeancountriesmakecleardistinctionbetweendistributionchannels
representinginsurersandchannelsrepresentingcustomers
Country
Policyregardingdistributionchannels
Distinctionmadebetweenadvisorsandsellers
Advisorsofferproductsfrommultipleinsurers
Sellerssellproductsofasingleprovider
DistinctionmadebetweenIndependentFinancialAdvisorsandtiedagents
IFAs havethelibertytoadvisecustomersonproductsofvariousinsurers
basedonwhichproductwouldsuitthembetter
Tiedagentsrepresentthecompanyandcansellproductsofonlyasingle
insurer
Distinctionmadebetweentiedagentsandnontiedagents
Tiedagentsofferproductsofonlyasingleinsurer
Nontiedagentsarepermittedtocoverproductsofmultipleproduct
providers
V.Agendaforaction
C2 Homeinsurancepenetrationdriventhroughgovernmentandindustryaction,
productinnovationandmandate
Country
US
Homeinsurance
penetration
96%
Keycharacteristics/enablersofhomeinsurancemarket
UK
97%
Germany
>80%
France
99%2
1GesamtverbandderDeutschenVersicherungswirtschaft
2OnlycontinentalFrance
SOURCE:Presssearch;expertinterviews;McKinseyanalysis
Mandatorycover:Banksrequirehomeinsuranceformortgages
Liabilityprotection:3rd partyliabilityisacriticalriskintheUS,leadingto
demandforcomprehensivehomeinsurance(covering3rd partyliability)
Crosssell:Insurersprovidecrossselldiscounts(e.g.,1015%discountonhome
insuranceifcustomeralreadyownsinsurersmotorpolicy)
Governmentactionsandsupport:Norefusaltofloodcoverageenforcedby
government;potentialoverflowingindustrylossestobeabsorbedby
government
Mandatorycover: Banksinsist(thoughdonotmandate)riskcoverageof
mortgagedproperties
Productinnovation: Playersdevelopinnovativeandrelevanthomecontent
covers,e.g.,petinsuranceforrisingvetcost
Industryaction:Coordinatedawarenessandproductknowledgecampaignsby
theindustryassociation,GDV1 (throughprintads,TV,articles,etc.;theyalso
publicisetherangeofproductofferings)
Mandatorycover:Firecoverismandatoryformortgagesbybanks
Liberalisedpricingandproductdesign: Enablesproductbundling(e.g.,fire,
home,hail,etc.,allcoveredunderonepolicy)
Mandatorycover: Mortgagelendersrequirehomeinsurance,evenfrom
lessees
Productinnovation: GarantiedesAccidentsdelaVie(GAV)introducedfor
coverageofaccidentsathome/leisure;promotedasfamilyprotectioncover
83
84
V.Agendaforaction
C3 Severalcountrieshaverealisedthesebenefitsbysettingupspecialinsurance
systemstodealwithnaturaldisasters
US:
Nationalflood
insurance
program
California:
Earthquake
Optional
protection
providedtoall
byprivate
playersorstate
Florida:
Hurricane
Japan:
Earthquakes
Optional
protectionwith
publicre
insuranceby
privateplayers
Turkey:
Turkish
catastrophic
insurancepool
Caribbean:
Climatechange
related
disasters
France:Natural
catastrophes
Mandatorycoveragefor
allbyprivateplayers
Australia:
Flooding
Moveto
provide
coveragefor
allinprogress
V.Agendaforaction
C3 Thereareavarietyofdesignchoicesinsettingupanationalcatastrophe
insuranceprogrammeforIndia(1/2)
Area
Exposure
and
premiums
Private
sectorin
volvement
Designchoices
Isthereadifferentiation
betweenrisks?
Riskadjusted
premiums
Examples
Japan:sixpremiumrates(fourzonesbasedon
earthquakerisk,twoclassificationsbasedon
buildingstructure)
NFIP:premiumsdifferbyamountofcoverage,
locationandpropertycharacteristics
France/UK:fixedrate
Legacyvs newrisks
NFIP:subsidisedratesonexistinghomes,risk
adj.ratesonnewones
Whatistheroleof
privateinsurers?
US:sellingandservicingofpolicies
Whatistheroleof
thegovernment?
Japan/France:setupofaspecialisedreinsurer
bythegovernment
France:reinsurancewiththegovernment
isnotcompulsory
Japan:allearthquakeinsurancepolicies
cededtothegovernment
85
86
V.Agendaforaction
C3 Thereareavarietyofdesignchoicesinsettingupanationalcatastrophe
insuranceprogrammeforIndia(2/2)
Area
Designchoices
Examples
Coverage
Istheparticipationin
theschemevoluntary
ormandatory?
Loss
event
Adapta
tionand
mitigation
Whatisthe
"refinancing
mechanism"incase
ofloss?
Aremitigationand
adaptationmeasures
included?
Japan:earthquakeinsuranceisanoptional
rider
France:coverforwinddamagecompulsoryin
anyfirepolicy
England:compulsoryfloodinsurance
Japan:buildupofreserves,lossesarecapped
USNFIP:buildupofreserves,federal
governmentas"backstop"
Florida:bondissuance
NFIPintheUSsupportsfloodplain
managementordinancestoreducefuture
flooddamage
V.Agendaforaction
Initiativesneedtobesequencedinordertomaximiseimpact
Mediumlongterm
(37years)
Nearterm
(03years)
A
Individual
player
level
initiatives
Longterm
(Beyond7years)
CaptureopportunitiesinSME,healthandadoptdifferentiated
businessmodeltotargetgreenrisksincommerciallines
B Strengthencustomerlifecycleandrenewalmanagement
C Upgradetonextgenerationtechnicalcapabilities(e.g.,U/W&claims,fraudmanagement)
D Buildworldclassoperatingmodelthroughtechenablement
E Strengthendistributiontoexpandreach
F Strengthenhumancapitaltobridgeskillgapthroughtargetedcapabilitybuildingprogrammes
A Initiatesystematicinitiativestoraiseconsumerawarenessbackedbytargeteddrivesandcommunicationplan
Industry
level
initiatives
Standardisedefinitionofindustry
B standardsandprotocols(e.g.,fraud
definition,healthtreatmentprotocols)
C Cosponsorbuildingofcommoninfrastructure(e.g.,fraudinvestigationunit)
A,B
Policy
level
initiatives
Focusonreformsrelatedtoproduct,
distributionandregulatorysupervision
D
Initiateinterventionstoincrease
penetrationindisaster,home,etc.
Enablebuildingofcommonindustryinfrastructure
(e.g.,informationsharingplatforms,etc.)
E Conducttargeteddrivesaimedatconsumerprotection
F
Pavethewaytoattractcapitalby
enablingFDI relatedinvestments
Initiateinterventionstoattract
reinsurerstosetuplocalpresence
87

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India General Insurance Vision 2025

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India General

India General Insurance

Party Pool, the outlook for the industry in the future

have also laid out an aspiration which is true to our

The road to profitability would require players to

I would also take the opportunity to thank key

With this backdrop, we embarked on an exercise to

We hope you find this report insightful and

Role and importance of insurance

growth induced by private credit (0.34%) or life

related elementscustomers, the individual

The GI industry has also played an unparalleled

A detailed micro-analysis of underlying needs and

Current position of General Insurance in

2. Delivering returns to shareholders

The GI industrys performance is influenced

India has the highest combined ratio compared

substantially higher claims ratios. As a result, the

The report card of various inter-related

Insurance Information Bureau (IIB). However,

Key trends shaping General Insurance over

2. Changing customer behaviour and

The GI industry in India will be shaped by trends

Increasing consumer awareness and

1. Global forces impacting Indias insurance

Blurring boundaries between the online and

Corporate sector: Globalisation, organised

Scenarios for the future

poor. Further, the policy environment would be

significant improvement in outcomesgrowth

Agenda for action to build inclusive,

Co-sponsor the building of common

Role and importance of insurance

Surveyors Agentsand Garage/

Current position of General Insurance in India

Other industry participants:

SOURCE:IHS GlobalInsights;IIB;IRDA;NCAER;AICC website;UScensusbureau;AMBest;AssociationofBritishInsurers;RBI;McKinseyGlobalInsurancepools;

B Distribution:Twolargestchannels agencyandbrokers faceseveralchallenges

Key trends shaping the GI industry

DIGITAL HIGH VALUE

Scenarios for the future

Improvement in CoR to 102104%; many players starting to operate below 100%.

Agenda for action

2.7 2.8 2.7 2.6

Use bestpracticesconsistently systematically

Inseveralcountries,insurersshare relevant information

Notforprofit organisation established in 1899 through collaboration of GI players to help set

Platinum sponsor of the National Insurance Conference of Canada

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