Impact of motor insurance on the non-life insurance market in India

Posted by Andrew Thomas on September 19th, 2019

Automotive Insurance which is one of the biggest chunks that delivers growth in the general insurance sector, may be in crisis. With automotive giants like Maruti, Tata and Mahindra recording quarterly losses due to lower demand and sales, the expected boost that the auto insurance sector was to receive may have been an over estimation. If news reports are to be believed that up until FY 16 auto insurance accounted for nearly 49% of the gross direct premiums earned at USD 6.5 Billion in the general Insurance space which itself was growing at a 17% rate yearly. Back then, the automotive sales were up, and the industry was growing at a steady compound annual growth rate 9CAGR) of 6%. Experts had predicted that the CAGR will grow further as consumer profiles were changing and newer technologies used to upgrade passenger vehicles will increase the sales. But after the demonetisation in Indian economy in late 2016, the liquidity in the market dried up gradually causing a shortfall in sales. Demonetisation hit like a storm overnight and little though was given to its impact in the long run.

Nonetheless, coming back to the non-life insurance market in India, as per the Motor Vehicle Act, 1988, it is a mandate that all vehicles should be insured for third-party risks. As this compelled vehicle owners to purchase and renew motor insurance every year, they started understanding the benefits of having an insurance. This consciousness even had an impact on the whole insurance sector as well regardless of life or non-life, as people started opening-up to the idea of having a third party look out for them in desperate times.  

Coupled with the fact that the government allowed nearly 49% Foreign Direct Investment (FDI) in the insurance sector, the market saw an increased capital inflow and new players came into the filed offering innovative products and increasing the penetration of insurance further deep down. The non-life insurance market in India to nearly USD 13.4 Billion from USD 2.6 Billion in a span of 14 years.  

However, one of the grey areas remained, which was the claim settlement process that took a really long time. Even though, insurers tried to make the process smooth, but in a country like India with such a huge population, where every hour motor accidents are reported from across the country, operators had to face several challenges in order to make the claims reach those who needed it.  

Hence came digital to the rescue. More and more insurance players started moving towards the digital platform which not only helped in faster resolution of claims but even sales of insurance increased. Many aggregator platforms came up which made it easier for the people to compare and choose the right insurance plan for their vehicles. Insurance operators also upped their game as the competition got tougher.

The other benefit of moving digital was ditching the agent. This turned out to be a huge cost saving mechanism for the operators as they no longer had to offer commissions and hence more benefits could be passed along to the end user.

While these disruptions made the auto insurance sector flourish, the sudden slowdown in automotive sales is threatening to impact the growth of the auto insurance sector alongside the whole of non-life insurance sector. Let’s hope that the automotive industry picks up steam in the coming quarters.

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Andrew Thomas

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Andrew Thomas
Joined: February 6th, 2019
Articles Posted: 33

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