A slew of measures along with several draft exposures have been initiated for the general insurance space, which focuses on — 1) giving more autonomy to insurers to file products, 2) reducing costs that eventually will translate into a reduction in premiums for end-customers, 3) easing the compliance burden of insurers to allow management focus on business growth and 4) setting targets for growth of various companies.
With the intent to expand the general insurance industry and bring ease of doing business, IRDAI has adopted the ‘Use and File’ procedure for all health insurance and most general insurance products under fire, motor, marine, and engineering.
This will allow insurance companies to launch products without any prior approval from the regulator, a major shift from the current regime where the insurance companies require the regulator’s prior approval for launching any product.
The insurance industry is expected to use this opportunity to respond faster to the emerging market needs resulting in more choices for the policyholders, which will further help in increasing the insurance penetration in India.
Taking a step forward, IRDAI has also extended the “Use & File” procedure to products covering Agriculture and Allied activities.
Among several of the reforms, IRDAI also reduced the solvency margin requirement for Insurers doing crop business.
Implementation of this move is likely to be positive on the industry as it will free up the capital, which can then be utilized for underwriting more businesses.
It is estimated that approximately Rs 14 billion will be unlocked and general insurers may use this freed-up capital to increase insurance penetration in India.
IRDAI has prescribed aspirational targets for the non-life insurance industry with the aim to increase the general insurance penetration to 2.52 per cent by FY27E from the 1 per cent level as of FY21.
This would indicate the general insurance premiums growing to Rs 11.7 trillion by FY27E from INR 2.2 trillion as of FY22. The regulator has given individual targets to companies based on their growth and various parameters.
We believe that some of the measures are expected to increase the competition but nevertheless given the low penetration, we expect all players to see strong growth led by the other enabling measures initiated by the regulator.
ICICI Lombard: Buy | LTP Rs 1,237 | Target Rs 1,500 | Upside 21%
We like
(ICICIGI) supported by its strong correlation to new auto sales, investments in the distribution in the health business, improving profitability, and superior tech capabilities.
Earnings growth will accrue from synergies from its merger with BAXA and improvement in the loss ratios for the health segment.
We expect the company to deliver a premium/PAT CAGR of 19/27 per cent during FY22-24 and an RoE of 18.8 per cent in FY24.
Star Health: Buy| LTP Rs 696 | Target Rs 850 | Stop Loss Rs 22%
Star Health, given its distribution scale advantage, is well poised to gain from the surge in demand for retail health insurance products.
Further, its focus on profitable segments such as specialised products, benefit-based products and SME segment in group business bodes well for its profitability. We expect GWP/underwriting profit/PAT growth of 19/46/30 per cent for FY25E.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited. Recommendations, suggestions, views, and opinions given by him are his own. These do not represent the views of Economic Times.)
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