RISK MANAGEMENT &

INSURANCE SERVICES

ASSIGNMENT

Submitted By,
Jithin Savio
S4 MBA
Roll No: 03
Introduction
The insurance industry of India consists of 57 insurance companies of which 24 are in life insurance
business and 33 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole
public sector company. Apart from that, among the non-life insurers there are six public sector insurers.
In addition to these, there is sole national re-insurer, namely, General Insurance Corporation of India (GIC
Re). Other stakeholders in Indian Insurance market include agents (individual and corporate), brokers,
surveyors and third party administrators servicing health insurance claims.

Market Size
Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country
and proliferation of insurance schemes.

Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion
(US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. Overall
insurance penetration (premiums as % of GDP) in India reached 3.69 per cent in 2017 from 2.71 per cent
in 2001.

In FY19 (up to October 2018), premium from new life insurance business increased 3.66 per cent year-on-
year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October 2018), gross direct premiums of non-life
insurers reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth rate of 12.40 per
cent.

Investments and Recent Developments

The following are some of the major investments and developments in the Indian insurance sector.
 As of November 2018, HDFC Ergo is in advanced talks to acquire Apollo Munich Health Insurance
at a valuation of around Rs 2,600 crore (US$ 370.05 million).
 In October 2018, Indian e-commerce major Flipkart entered the insurance space in partnership
with Bajaj Allianz to offer mobile insurance.
 In August 2018, a consortium of WestBridge Capital, billionaire investor Mr Rakesh Jhunjunwala
announced that it would acquire India’s largest health insurer Star Health and Allied Insurance in
a deal estimated at around US$ 1 billion.
 In September 2018, HDFC Ergo launched ‘E@Secure’ a cyber insurance policy for individuals.
 Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7 billion) through public
issues in 2017.
  In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals worth US$ 903
million.
 India's leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix Inc to
build a robust insurance distribution network in the country through a new distribution exchange
platform.

Government Initiatives
The Government of India has taken a number of initiatives to boost the insurance industry. Some of them
are as follows:

 In September 2018, National Health Protection Scheme was launched under Ayushman Bharat to
provide coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million vulnerable families.
The scheme is expected to increase penetration of health insurance in India from 34 per cent to
50 per cent.
 Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima Yojana (PMFBY) in
2017-18.
 The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue redesigned
initial public offering (IPO) guidelines for insurance companies in India, which are to looking to
divest equity through the IPO route.
 IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that are
issued by banks to augment their tier 1 capital, in order to expand the pool of eligible investors
for the banks.
 Road Ahead
 The future looks promising for the life insurance industry with several changes in regulatory
framework which will lead to further change in the way the industry conducts its business and
engages with its customers.

The overall insurance industry is expected to reach US$ 280 billion by 2020. Life insurance industry in the
country is expected grow by 12-15 per cent annually for the next three to five years.

Demographic factors such as growing middle class, young insurable population and growing awareness of
the need for protection and retirement planning will support the growth of Indian life insurance.
Emerging Trends in Insurance Industry
1. New Models, Personalized Products
The digital economy will make usage-based, on-demand and 'all-in-one' insurance lifestyle products more
relevant. Customers will prefer personalized insurance covers instead of the one-size-fits-all products
currently available.

Today, more than 80 percent of the premiums collected by insurers is lost to distribution costs. Digital
models will make intermediaries in the insurance value chain - marked by their excessive dependence on
human effort - obsolete.

Flexible coverage options, micro insurance and peer-to-peer insurance will become viable options in the
long run. Reinsurers will provide risk capital directly to digital brands, and regulatory frameworks will
accommodate shorter value chains.

Lifestyle apps will re-imagine the insurer-insured relationships. Application Programming Interfaces (APIs)
will enable the creation of insights-driven offerings as they integrate data from multiple sources. Deeper
understanding of customer behaviors will lead to more accurate risk assessments, personalized premiums
and value on a sustainable basis for better customer experience and brand loyalty, plus reduced false
claims.

2. AI & Automation for Faster Claims

Robotic Process Automation (RPA) and AI will occupy center stage in insurance, driven by newer data
channels, better data processing capabilities and advancements in AI algorithms. For example, InsurTech
company Lemonade's business model deploys AI and behavioral economics as its core elements. While AI
eliminates brokers and paperwork, its behavioral economics capabilities minimize fraud - leading to
reduced time, effort and costs.

Another InsurTech firm Tyche has deployed an AI-infused claim likelihood model in underwriting to
accurately determine the risks and achieve higher profitability.

Bots will become mainstream in both the front and back-office to automate policy servicing and claims
management for faster and more personalized customer service. For example, a leading U.S. auto
insurer's virtual assistant answers customer queries on policies and payments. Lemonade's claims bot Jim
assesses and pays out property claims in just three seconds. Automated insurance agent SPIXII interacts
with customers through a mobile app and other messenger platforms to help in the purchase of the right
policies.
AI and automation will profoundly impact and improve business outcomes in customer experience, cost
optimization, operational efficiencies, market competitiveness and newer business models.

3. Advanced Analytics & Proactiveness

Premiums will become highly personalized, enabled by new sources of tech-enabled data such as Internet
of Things, mobile-enabled InsurTech apps and wearables. With the connected devices market poised to
grow strongly in the next five years, Property and Casualty (P&C) insurers will be able to extract real-time
and accurate data on the loss exposure of individual consumers. This will help them proactively respond
with timely and highly personalized interventions.

A Europe-based insurance company's partnership with Panasonic is a good example. Panasonic's sensors
provide mobile alerts to both the insurer and its customers for quick and informed mitigation of issues.

Drone and imaging technology will increasingly enable insurers to obtain high-definition images for
remote and accurate property estimations and analysis. A few leading U.S. auto insurers deployed drones
to assess Hurricane Harvey's damages. An Australian insurance company was able to settle 90 percent of
big loss claims within 90 days by deploying drones.2

Additionally, insights will be built through data set relationships to create deeper granularity in individual
risk profiles and protect insurers from emerging risk exposures. For example, a U.K.-based insurance
company leverages predictive analytics to model complex customer behavior, achieve enhanced pricing
accuracy and significantly reduce decision time. A U.S. insurer deploys a telematics device to provide
drivers real-time feedback to encourage safe-driving. This has helped customers save up to 40 percent on
insurance premiums.3

Advanced analytics will be deployed to dynamically segment users and needs, model behaviors and
identify exceptions, adjust policy prices, optimize business strategies, and identify new growth
opportunities. Scale can be further incorporated through automation, AI and machine learning to
transform insurers into active risk managers.

4. InsurTech Partnerships
InsurTech firms have been showing significant growth in the areas of auto, home ownership and cyber
insurance. Such strong growth will stimulate traditional insurers to either acquire technology capabilities
or partner with InsurTech companies. With an increasing demand for innovative products and services
from millennials, such collaboration will become a critical imperative.

Overall, it will be a win-win situation — traditional insurers will benefit from faster results in establishing
a tech culture and InsurTech companies will get access to larger customer bases, funding and domain
expertise. It will give rise to newer models and revenue streams for higher profitability and reduced
operational costs. Customer experiences will be enhanced with value-added offerings.
5. Mainstreaming Blockchain
The need for huge volumes of customer data to be processed in real time by different insurance functions
calls for easy and secure transfer of data across organizations and their diverse stakeholders.

Blockchain technology provides the advantage of secure data management across multiple interfaces and
stakeholders without loss of integrity. From identity management and underwriting to claims processing,
fraud management and reliable data availability, the technology offers reduced operational costs.
Decentralized Autonomous Organizations (DAOs) and smart contracts are additional benefits that
blockchain can offer in policy management.

Interestingly, more than 38 insurance and reinsurance companies have embarked on an initiative called
the B3i to explore blockchain applications in insurance. The beta version of a blockchain-based insurance
solution is expected to be deployed in 2018.