The Insurance Industry in India is going through gut wrenching times as policy paralysis,low margins,falling premiums and customer friendly policies of IRDA have hit the sector.The government has failed to increase the FDI cap on insurance investment which means that the companies face a capital crunch.Major industrial groups in India like Bharti, DLF, Relaince which had invested are trying to exit quickly though without much success. The revenues are declining and the margins are abysmal.Insurance Industry is said to have massive potential given the fast growing GDP, increasing wealth and lack of insurance penetration.However this is a cyclical downturn for the insurance industry as it is for the whole economy. The downturn till now has not been pretty.The reasons for the down movement has been
The results have been very bad for jobs in the insurance sector with employment in the private sector taking a massive hit.During 2010-11, one out of four people employed in the private life insurance sector lost their jobs in the country. For instance, total number of people employed by the top five life insurance companies as on March 31, 2011 stood at 60,215 as against 81,507 in the corresponding period last year. Also, these life insurers closed down more than 900 branches, and more than 1,74,000 agents suddenly found themselves out of a job.
1) Reforms of ULIPS by IRDA increasing the lock in to 5 years and prevention of undue commissions and charges
2) Pension Plan Reforms
3) Very Low Margins considered to be one of worst in the world
4) Massive Losses on Third Party Insurance for Vehicles where rates are regulated by IRDA.Big provisioning has hit the profitability.
5) Policy Paralysis where FDI is capped at 26% and no other reforms are being taken
But note like other things this too should too pass as more reforms are introduced.The archaic laws will also go and lead in to faster growth.The increased competition will decrease with players going out and margins should increase as well.If the Indian growth story works out , then the Insurance Story should work out as well.
Turbulent times for a sunrise sector
The timing could not have been worse. With the Parliamentary Standing committee rejecting the proposed amendments in the Insurance Bill, the insurance sector faces a very serious reality check regarding its future. Whether it concerns the new norms on unit-linked policies for life insurers or third party motor pool losses for the non-life sector, the fact is the India insurance story is desperately seeking some life-giving sustenance. Crippled with regulatory issues, low margins and lack of a policy road map, the industry today is reeling from negative growth and job losses. This has meant a further delay in break-even periods and lower returns for promoters.
