Mumbai: The life insurance industry has the potential to grow to 2-2.5 times by 2020 from its current size even as it is faced with multiple challenges, including sudden regulatory changes, says a report by BCG Group.
“Based on long-term trends and fundamentals underlying household savings, which continues to be around 25 per cent of GDP, we believe life insurance has the potential to grow to 2-2.5 times its current size by 2020...,” says a BCG report on ‘India Life Insurance - negotiating the Troublesome Teens'. “... even with a conservative share for financial savings of 35 to 40 per cent of household savings and consistent share of life insurance (nearly 20 per cent of financial savings),” it added.
“The life insurance sector is likely to remain flat for the next two years at 12-16 per cent where the top 10 companies will grow, while the smaller players will have to find ways to survive,” BCG senior partner and Managing Director Alpesh Shah told PTI here.
The report points out that drastic decline in the industry's performance can be attributed to three key factors - derailing of India's economic growth, topline focused industry model and drastic regulatory changes.
The topline focused industry model is full of multiple challenges like a fixed cost agency model, high cost infrastructure model, an undifferentiated bancassurance model and mistaking the intermediary as the key customer.
“All of this led to an unsustainable model which fell apart post the initial honeymoon period of 6-7 years when the promoters asked for returns in exchange for capital.”
It further says that even as the regulator was forced into ringing in the changes given the industry's challenged operating model, the changes relating to channels and products have clearly impacted the sector's growth adversely.
While the sudden product-related regulatory changes have created severe disruption in the insurers' business, the existing commission structure for channels is one of the lowest in the world, making it less attractive for intermediaries to sell life insurance.
The insurance industry is at the crossroads, it said, adding, there is a pressing need to take some difficult decisions.
The larger insurers will need to act on a broad and bold agenda across multiple fronts and the smaller insurers will have to take equally bold calls to identify the niche areas to focus on, it adds.
Based on the current status of the industry, challenges and the likely possibilities for the path forward, the report identifies key agenda like distribution, more customer-centric model and developing value propositions and digitalisation to reduce the cost base.