Covid Disrupt India Insurance Capitalization

Promoters of private insurers are finding it increasingly tough to generate adequate income from their core businesses following the coronavirus outbreak last year. As such, their life insurance arms are not able to generate enough capital infusion, which is crucial to such a business.

The country’s life insurance industry, with assets worth more than ₹51 lakh crore, has entered into its first era of consolidation about 22 years after its liberalization. The problem is more acute for life insurers driven by manufacturing companies and led by non-banking financial companies (NBFCs).

The weighted average market share of India’s top 10 private life insurers has increased from 84% in 2017 to 87% in 2021, indicating consolidation in the industry. This also highlights how mid-size and smaller players are unable to grow while big players are growing bigger.

Twenty-four life insurers in India collected new business premium of ₹34,388 crore between April and August this year, up from ₹27,946 crore in the year earlier. During the pandemic, one clear image emerging is the increase of the overall market share of the top 10 private players. It now stands at 87%. Also, customers’ preference for simpler and value-packed products from larger brands is observed.

The Insurance Regulatory and Development Authority of India (IRDAI) is now regularly intimated about the financial weakness of the promoters of insurers and their inability to sustain following the coronavirus outbreak. As a result, the regulator is giving licenses and approving products of only cash-rich promoter-driven life insurers.

Over the last 20 years, many players entered the life industry, expecting to make money, without thinking much about the ability to infuse continuous capital or adapt to the evolving market and advanced systems. Companies in the manufacturing sector are in deep stress because of covid-19 and cannot bring in capital. If the promoters do not see a return on investment even after 10-15 years, they are likely to exit. 

New-generation entrepreneurs have the cash and the latest internet technology and do not have legacy issues. As such, their entry is good for the industry. Unfortunately, India does not have too many deep-pocketed business houses. Hence, many players will exit. The problem is more with life insurers. General insurers start making money in three to four years as they have easier solvency requirements and do not need so much capital infusion. Only 10 out of 24 life insurers may remain after 10-15 years.

The recent acquisition of Exide Life Insurance Co. Ltd by HDFC Life Insurance Co. Ltd last month is just the beginning of the consolidation caused by the fundamental shift brought about by the pandemic.