The Changing World of Insurance: Opportunities and Challenges

By Geetanjali Vikram Kirloskar 

Change is coming to the insurance business, which will be even more pronounced in India.

The societal perception of risk has increased over the last few decades, driven by natural calamities, accidents, machinery failures in an increasingly automated world, cyber threats and illnesses.

While this increased risk perception can be seen as an opportunity for the global insurance industry, it also calls for the industry to reinvent itself before Big Tech, armed with increasingly powerful AI, disrupts the industry.

In India, the insurance industry faces a turbo-charged opportunity and challenge.

Indian society and economy will undergo a paradigm shift over the following decades.

We will go from a low-income to a middle-income country in a decade, and if we stay on our current trajectory, we will be a high-income country in the next three decades.

Projections are that affluent households with annual incomes over Rs 30 lakhs in today's money that can afford a good, comprehensive health insurance policy will go from 2.6% today, covering 37 million individuals, to 11% in 2031, covering 160 million individuals and 26.3% in 2047 covering 437 million people. Based on purchasing power parity, India's health insurance market will approach that of the US by 2031 and surpass it by 2047.

The year 2023 saw an 11% growth in health insurance premiums in India. Some of this growth can be due to the lingering fear that the pandemic caused.

Accelerated growth in the health insurance sector will become a feature of the Indian insurance industry in the coming decades.

The consumer is better educated and equipped with information, and soon, with AI at her fingertips, she expects end-to-end solutions. Insurance providers who use advanced data gathering, analytics, and AI to provide single-point health risk prediction, prevention and intervention services using permission-driven tracking and feedback devices will be winners in tomorrow's health insurance markets.

The great opportunity in the health insurance sector I have outlined is matched by the insurance market in other B2C and B2B segments in India.

Take the auto insurance market - a premiumization trend in the PV segment has set in as in many other consumer categories. Further, both in the PV and CV segments, there is a trend towards vehicles being part of IoT networks. With the right data warehousing system and AI-driven analytics, auto insurance can drive usage and event-driven insurance with real-time premium and claim transactions in addition to prediction, prevention and intervention, adding value to the insurer and the insured.

Climate change will not spare India. Swiss Re estimates that 95% of India's exposure to natural calamities is uncovered. This is both an immense opportunity and a challenge. Insurance companies and intermediaries will address this sector in all its dimensions - with the Government to cover public infrastructure and property owned by the underprivileged, the commercial sector and private residential property owned by middle-class and affluent households. To address this tremendous opportunity and challenge, insurance companies must evolve new prediction and risk assessment models and reinsurance modalities. Doing so will be a win-win for both the customer and the insurance industry.

India is spending big on infrastructure, with Rs 10 trillion outlay in 2023 and Rs 11 trillion in 2024. Further, if India is to grow at the pace required over the next three decades, its manufacturing sector will need to expand over 14 times.

Between the growing infrastructure and new plants and machinery, another tremendous opportunity in Engineering Insurance beckons.

The immense opportunities and challenges the Indian insurance industry faces also herald a potential shift in insurance intermediaries like brokerages.

While customer outreach and service will remain key dimensions of intermediation, the opportunity and challenge for the intermediaries is also to become the insurance companies' technology and product design partners.

Insurance brokers must work with insurance companies at the cutting edge of IoT systems, Data Analytics and predictive AI. They will also need to build relationships and contracts with insurance companies that enable them to design and sell usage and event-based insurance policies in real-time (within given parameters, of course). At the customer end, they will need the expertise and capabilities to input on and assess risk at the design stage of the complex infrastructure, factory, and fab projects.

The Swiss Re prediction for insurance premium growth in India during FY24 is 5.4% and 5.8% in FY25. Given that the Indian economy grew by more than 10% in nominal INR terms and more than 7% in USD at exchange rates this year and is predicted to grow even faster to reach its goal of becoming a $ 32 trillion economy by 2047, I believe the insurance industry should match the growth of the overall economy at least. As outlined above, as insurance penetration increases in so many critical sectors, it should be feasible for insurance to grow at a faster clip than the economy.

In conclusion, let me assert that the world is changing unprecedentedly, making risk an integral part of every aspect of life. At the same time, technology is giving the insurance ecosystem the means to predict and prevent rather than only intervene. The age of AI has dawned, and as it matures, it will take our predictive and preventive ability to new heights. The opportunity and challenge for the insurance ecosystem are to change the insurance paradigm - from a contract focused on action after the fact to an ongoing, integral relationship with an individual and a family, with an economic entity, with entire societies and economies.

Insurance must become a social good that enables and empowers a better quality of life while powering the economic engine. Societies and governments must accord insurance a place in the social infrastructure matrix similar to education and health.

Over the coming decade, the Indian insurance industry has the opportunity to go beyond being a safety net and become a force multiplier for India's economy and its people.

(As addressed to the audience at the BCIC Insurance Summit, 2024 in Bangalore)