Issue Focus
Relevance of Life Reinsurance in current
Indian context
Sunayana Mahansaria
Chief Marketing Actuary – Life and
Health, Munich Re India Branch
Introduction
The life reinsurance market in
India has demonstrated
strong expansion over the
past decade. The market size
of life reinsurance in India
today exceeds INR 2,100
crore, representing an
annualized expansion rate of
almost 21% over the past
decade i.e. between FY 2007-
08 and FY 2017-18. (Source:
Public Disclosures)
This growth has been
supported by the growth of
the direct life insurance
market and by the increase in
sums assured for new
business, especially for
individual life. The chart
below indicates the increasing
focus on protection products
in recent years, as exhibited
by expansion in individual
new business sums assured.
In addition, life insurers have
been expanding the scope of
protection coverage from
pure mortality, to include
morbidity and health risks,
and this trend looks set to
continue. Reinsurers support
the industry not only by
providing capacity, but also
providing international best
practices, for example, in
framing product boundaries,
definitions and exclusions for
these products. Given the
rapidly changing product
landscape, the need for life
Reinsurance
reinsurance support
continues to increase.
Regulatory aspects
Until 2013, life insurers were
able to independently decide
on the levels and forms of
their reinsurance
arrangements. The Insurance
Regulatory and Development
Authority (Life Insurance –
Reinsurance) Regulations,
2013 encouraged insurers to
set minimum retention limits
based on the age of the insurer
and year in which the risk was
introduced. This led to a
significant change to the
reinsurance arrangements,
requiring insurers to retain
most of the risk coming from
the lower sums assured
levels.
The Draft Insurance
Regulatory Development
IRDAI Journal March 2019
Authority of India
(Reinsurance) Regulations,
2018 seeks to have the
reinsurance arrangement to
be decided by the life
insurers, subject to a
minimum sum at risk being
retained on an overall
portfolio level. The draft also
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 contains provisions allowing services, which can aid life likely that reinsurers will be
for alternate risk transfer insurers to better manage able to assist direct life
arrangements on a case to their core business and insurers to optimize their
case basis. processes. The benefits capital position and reduce
offered by a full service the strain of writing new
If finalized in the current
reinsurer can therefore be business through offering a
form, the new reinsurance
divided into two classes: suite of capital solutions.
regulations will bring several
Direct benefits and Value
advantages to life insurers. 4) Reinsurers offer
added services. Let us have a
capacity to cover mass
• Life insurers can bring in detailed look at how
market insurance schemes,
new products while reinsurers are relevant in the
rapidly evolving product and enabling government
sharing higher amounts
promoted insurance schemes
of those risks which they risk landscape of life
to be successful in achieving
are still not comfortable insurance:
deeper insurance penetration
with, given lack of
Direct benefits: within India.
experience in those
areas. 1) With rising incomes, 5) Insurers relatively less
nuclearisation of families and experienced in writing micro-
• Product lines such as
consequent increase in insurance schemes can offer
micro-insurance or
personal liabilities, the this coverage with support of
morbidity products, can
average sums assured sold in reinsurers uniformly sharing
be written by insurers
term insurance products have in the risks.
in higher volumes with
risen, at several life insurers,
adequate reinsurance Values added services:
to INR 10 million.
support at the backend.
Reinsurance capacity is 1) Over the past decade,
• Reinsurers will also be available to absorb these high a number of new products in
more incentivized to sums assured and beyond, so the market have been
bring in newer concepts that insurers can write larger brought in by reinsurers as
given that the volumes of policies, while value added services to
regulations, in the minimizing the volatility support their clients.
proposed form, removes impact to their financial Reinsurers bring in not just
the requirement for life statements. the design aspects but also
insurers to follow an share the international
2) Insurers can offer a
order of preference of experiences of how certain
wide variety of morbidity
cessions. products have fared in other
covers which protect against
various critical illnesses and similar markets around the
Benefits offered by
globe. Insurers can leverage
reinsurers to life also niche covers protecting
this information to make
insurers against cancer, cardiac
diseases at various severity informed decisions when
In India, reinsurers offer a levels. This is made possible introducing these concepts in
wide spectrum of risk as reinsurers share in the the Indian market. In the
IRDAI Journal March 2019

coverage and technical risks over the term of the current context of rising
services to direct life insurers. policies. In addition, insurers awareness of protection,
In this context, it is important can use reinsurance risk reinsurers assist in setting
to recognize that the value premium rates as a basis for optimal technical definitions
brought in by reinsurers is setting their own morbidity and claims processes which
not purely transactional assumptions. are essential for successful
(offering risk pricing) but in product risk management.
fact covers a wide spectrum 3) With changes to the
reinsurance regulations, it is 2) Reinsurers share best
of technical value added

10 Reinsurance
practices with their clients on
a range of aspects: it is
common for reinsurers to
conduct trainings for clients
on technical aspects such as
underwriting and claims
management, and to hold
forums where topics of
common interest can be
discussed and debated.
Besides conducting their own
events, reinsurers regularly
contribute to industry events
by having their experts speak
on global developments or
local issues of relevance.
3) The widespread fraud
in the industry (mainly on
term insurance products) has
impacted the entire life
industry in India over the
past five years and is only
now showing signs of abating.
Reinsurers have worked
alongside insurers to stem 5)
service providers with whom
frauds, offering a range of
they have global tie ups, to
predictive analytics services
to help identify malpractices
and deal with the root cause
of fraudulent claims. Several
insurers have reported an
improvement in the
experience after
incorporating these tools
within their risk management
framework.
4) Reinsurers have the
advantage of being an
independent neutral third
party which is tuned into the
issues facing the industry and
has the technical capabilities
to deal with these aspects.
Reinsurers therefore share
information on suspicious
claims, prepare industry wide
experience studies, and help
in setting of standardized
definitions for the industry.
Reinsurers can bring in
Reinsurance
offer value added services
such as medical second
opinions or third party
administration. These
services reach the end
customers of direct life
insurers at a nominal cost on
account of the larger volumes
sourced through the global
offices of reinsurers.
Many international reinsurers
have set up offices in India, to
be able to better serve the
Indian market, with the
mixture of local market
knowledge and international
best practices being shared
with their clients.
The life insurance industry in
India can and will continue to
grow, and by forging a
healthy relationship with
reinsurers it will achieve a
higher reach while ensuring a
robust risk management
framework.
The article was
written prior to the
notification of IRDAI
(Reinsurance)
IRDAI Journal March 2019
Regulations, 2018.
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