Insurance enters consolidation era

Promoters of private insurance companies are finding it difficult to earn enough income from their core businesses after the outbreak of coronavirus last year. Thus, their life insurance branches are not able to generate sufficient capital inflow, which is crucial for such a business.

According to five experts, the problem is more acute for life insurers run by manufacturing companies and led by non-banking financial companies (NBFCs). Mint Speak to

An internal study conducted by a large private life insurer has revealed that the weighted average market share of India’s top 10 private life insurers has increased from 84% in 2017 to 87% in 2021, indicating consolidation in the industry . It also highlights that while large players are getting bigger, mid-sized and smaller players are unable to grow.

Twenty-four life insurers in India collected new business premium of ₹Above Rs 34,388 crore between April and August this year ₹27,946 crore a year ago. “During the pandemic, a clear image is emerging which is the increase in the overall market share of the top 10 private players. It is now at 87 per cent. Further, customer preference is observed for simple and value-packed products from big brands, said Tarun Chugh, Managing Director and Chief Executive, Bajaj Allianz Life Insurance Company Limited.

A person close to the insurance regulator said the Insurance Regulatory and Development Authority of India (IRDAI) is now regularly informed about the financial weakness of the promoters of insurers and their inability to keep up after the coronavirus outbreak. As a result, the regulator is licensing and approving only the products of cash-rich promoter-run life insurers, said a person aware of Irda’s procedures.

“Over the past 20 years, many players have entered the life industry, hoping to make money, without having to constantly invest capital or think much about the ability to adapt to the developed market and advanced systems. Companies in the manufacturing sector have to deal with Covid-19. They are under deep stress due to O.P. and cannot bring in capital. If promoters do not see return on investment even after 10-15 years, they will exit.”

“The new generation of entrepreneurs have cash and the latest internet technology and do not have legacy issues. So his entry is good for the industry.”

“Unfortunately, we do not have business houses with a lot of pockets. So many players will be out. The problem is greater with life insurance companies. General insurers start making money in three to four years as they have easy solvency requirements and do not require that much capital. Out of 24 life insurers, only 10 can survive after 10-15 years,” the person said.

According to four experts in the insurance industry, the recent acquisition of Exide Life Insurance Company Ltd by HDFC Life Insurance Co Ltd last month is the beginning of consolidation due to the fundamental shift brought about by the pandemic.

“The consolidation will cater to three types of events. Existing players or new cash-rich entrants will take over smaller or cash-starved players. Medium-sized or large players in joint ventures with weak Indian promoters will sell their stake to existing foreign joint venture partners, who will transfer control in the private life insurance sector to foreign entities. Third, large or medium-sized insurers with non-banking promoters will form joint ventures with large banks or bank-controlled insurers,” said the head of a large private sector life insurer on condition of anonymity.

Navi Technologies Pvt. Ltd., led by Flipkart co-founder Sachin Bansal, is in talks to buy Kishore Biyani’s life insurance venture Future Generali India Life Insurance Co Ltd. ₹1,400 crore- ₹1,500 crore deal, said two people familiar with the talks.

In April, Axis Bank Ltd said it has become a co-promoter of Max Life Insurance Company Ltd after the acquisition of 12.99% stake in the company.

Axis Bank announces its intention to buy around 30% stake in Max Life Insurance ₹1,530 crore in April last year.

on August 11, Mint reported that the billionaire Burman family will reduce its stake in Aviva Life Insurance Company India Ltd and control its overseas joint venture partner UK’s Aviva Plc as part of plans to raise capital for its core consumer goods business.

Last year, the Burman family spoke with the Bansals about the family’s possible stake sale in Aviva. “Discussions and talks with Sachin Bansal had ended in March, and we were not able to reach any conclusion. Aviva will increase the stake (in Aviva Life) by buying (stake) from the family. The valuation exercise is underway,” said Mohit Burman, vice-president, Dabur India (head of the Burman family group of companies).

The deal will reduce the Burman family’s stake in Aviva Life to 26% from the current 51%, while Aviva’s stake will increase to 74%, giving the life insurer foreign partner control.

The government increased the foreign direct investment (FDI) in insurance from 49% to 74%, further accelerating the pace of consolidation. “We will have to wait and see how the FDI guidelines play out with each unit. For most players, especially smaller companies, this could mean some new capital can flow in and help them grow. This is an opportunity for overseas players to further strengthen their presence here and bring in best practices in services and efficient processes,” said Chugh.

“As we move forward, perhaps we will see some of these smaller companies develop strong niches and offer something special and unique to customers. This will help them continue on their growth path.”