It's time for economics to take over

MUMBAI: The stock market crash following the credit crunch may force promoters of Indian life insurance companies to take an economic view of their business earlier than anticipated. According to Olver Wyman a management consultanty firm the Indian insurance market is entering a stage where economics takes over.

Speaking at the CII summit on insurance, Andrew Rear, partner, Oliver Wyman said with stock markets falling 35% since January, India is heading into the tough stage. ���The economics of the business is going to bite into the insurance industry before you wanted it to,��� he told insurers at the summit.

The Indian stock market is seen particularly susceptible to the equity markets as over 85% of premium is generated from sales of unit-linked insurance plan where most of the money goes into equity. A crash in markets would result in policyholders savings shrinking. This could result in lower-than-expected renewals thereby upsetting all assumptions on policy renewals.

Mr Rear pointed out that so far India was the fastest-growing market in the world if one were to take into account only reasonably-sized markets. ���A growing market is a great situation to be in. As long as you are writing reasonably profitable business, the topline will deliver the bottomline,��� said Mr Rear. But, things are likely to change in the Indian market and insurers who refused to fix a break-even date might now be forced to look for profits, according to observers.

According to Mr Rear the evolution of the life insurance market takes place in stages. The first stage involves disruption where new players bring in new products and gain marketshare.

In the second stage, the market gets more complex in terms of distribution before the market finally reaches a stage where it begins to look at the bottomline. Advising insurers on how to plan ahead for the tough market, he said that companies needed to professionalise their agency force and be good at high value business.

CII and E&Y released a comprehensive report on the insurance industry. The report provides insights on various nuances in the insurance industry in India with a focus on new emerging product formats in niche sectors such as health insurance, micro insurance, etc.

It also highlights the reach of insurance products in the light of changing regulatory norms. The report states that, in the FY07 the Indian insurance industry was the fifth largest in Asia and that the private sector share in the industry segment has increased from 2 % in FY03 to 18 % in FY07.

Auto and health are the promising sectors and there is a trend of insurance companies getting attracted to health insurance policies.