HYDERABAD: India’s slowing economy will be a drag on insurance premium growth over the next two to three years, according to Moody’s Investors Service.
Although the supportive measures put in place by the Insurance Regulatory and Development Authority of India (IRDAI) will help counter balance the deteriorating economic environment, insurers’ premium growth will likely be affected, it added.
“India’s GDP growth weakened to its slowest rate in five years in the fiscal year ended March 2019, and the resultant financial pressure on rural households amid weaker job creation is in turn also weighing on premium growth,” said Benjamin Serra, senior VP, Moody’s.
He added though the country’s low insurance penetration rate suggests ample room for further growth, supportive government and regulatory initiatives were also helping mitigate the currently challenging environment for Indian insurance and reinsurance companies. India’s real GDP growth declined to 6.8 per cent in FY19, the lowest in five years.
The ratings agency expects growth to slow further to 4.9 per cent in FY20 before partly recovering to 6.3 per cent in FY21. The slowdown, which has increased financial pressure on rural households amid weaker job creation, will weigh on (re)insurance premium growth.
According to Moody’s, health premiums in particularly are likely to increase, thanks to roll out of Ayushman Bharat, a government-funded programme that aims to provide 100 million families with up to Rs 5 lakh health cover per year.
The IRDAI has also put in place measures, including the removal of the limit of foreign ownership stakes in Indian insurance intermediaries, which will strengthen distribution capabilities. It also plans to introduce a new risk-based capital system with similar principles as the Europe’s Solvency II regime, which should help improve insurers’ risk management.