Life Insurance Industry – Set to Consolidate?

Life Insurance Industry on Robust Growth Path

The growth for the life insurance industry has been stupendous from fiscal 2014 onwards, after witnessing a slowdown during fiscal 2010 to 2014. Private sector players as well as LIC contributed significantly to the growth during the period. The buoyant performance of capital markets, rising awareness about financial products and under-penetration of life insurance in India aided the performance for the sector.

Trend in premium growth for private players and overall industry (New Business Premium)

Source: Company Reports, IRDAI

Going forward as well, the growth is likely to continue owing to under-penetration of the sector in India as compared to Asian peers as well as other developed countries.

Market share concentrated among top players in the private life insurance space

There are 22 players in private life insurance industry (excluding Sahara Life). However, as of March 2018, the top 7 players enjoyed 78% market share on NBP (New Business Premium) basis. Further, the top 3 players constituted around 53% market share.

Market Share of players in private life insurance space (As of March 2018)

Source: Company Reports, IRDAI

During the period of continuous growth (fiscal 2014 to 2018), the market share of top 5 and 7 private players increased continuously on NBP basis. The growth for these top players has largely been supported by the strong banca (insurance sold through bank branches) channels. Therefore, the wide distribution and cross-selling opportunity for such players aided the sale of insurance products

Trend in share of top 5 and 7 players on NBP basis (among private players)

Source: Company Reports, IRDAI

The top 5 private players in the industry have leveraged their strong bank branch network to sell insurance products. Further, selling through branch network has also aided in reducing overall operational costs for the players, as it reduced the need to setup a standalone life insurance office in all regions. Therefore, the share of premium generated through bancassurance network has increased steadily over the years, consequently leading to drop in business from individual agents

Rise in share of premium sold through bancassurenace channel over last few years (on NBP basis)

Source: Company Reports, IRDAI

The operational efficiency coupled with better geographic reach due to banca channel has aided the profitability for the top players in the industry. The operating expense ratio for majority of top players is significantly lower than the average operating expense for private players in the space

Operating Expense Ratio for top players and overall private players (4-year average) 

Source: IRDAI, Company Reports

Also, the share of top 5 players in overall profits among private players stood at 65% as of fiscal 2017; further top 7 players constituted 99% of overall profits for private players. Some players in the industry have also been reporting substantial losses.

Share of profits for top 5 and 7 players (among private players)

Source: Company Reports, IRDAI

Industry likely to consolidate over next few years

After witnessing slew of new entrants in the previous decade, no player has entered the market post fiscal 2012. Edelweiss Tokio Life Insurance was the player to enter the market in fiscal 2012. Going forward, the industry is likely to consolidate over next few years, as smaller players which do not generate high share of premium through bank network will find it difficult to compete with large players on account of:

• Lower geographic reach
• Lack of Cross-selling opportunities
• Better pricing of large players due to benefits of scale in long-run

However, players such as Canara HSBC Life, IDBI Federal Life, PNB MetLife which are currently not among top players in industry but enjoy strong bank branch network might enjoy strong growth as well going forward. Further, SBI Life, HDFC Standard Life, ICICI Prudential life & Kotak Mahindra Old Mutual Life will continue to leverage their strong banca channel and record industry-leading growth.

We believe that the private insurance players outside top 7 (in terms of market share) and without strong bank partners might find going difficult in long run.

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