Economic slump to hit insurance premium growth over next 3 years: Moody's

Despite low penetration, the ongoing economic slowdown will impact insurance premium collections over the next two to three years, global ratings agency Moody's Investors Service said on Tuesday.

The total insurance premium collected slowed down marginally for the year-ended March 2019, while the dip in growth was much sharper for general insurance, it said in a report.

The report comes at a time when India's GDP growth is estimated to have slowed down to a decadal low of 5 per cent in 2019-20 as per official estimates.

The International Monetary Fund has pegged the number at 4.8 per cent and expects it to pull down global growth as well.

"We expect India's more moderate economic expansion to result in slower (re)insurance premium growth over the next 2-3 years," the rating agency said in its report.

Total insurance premium grew 11.3 per cent in 2018-19 as against 11.5 per cent in the year-ago period due to a slowdown in economic growth, while the same for general insurance, which amounts for a fourth of the overall industry, was sharper at 12.5 per cent from 17.6 per cent a year before, it said.

The agency, however, said that low penetration points to further growth penetration in the Indian market from a long term perspective.

As the middle class expands, there will be a greater scope for insurance companies, it said, pointing out that the penetration stood at 3.7 per cent in 2018, which is low as compared to developed markets such as UK at 10.6 per cent and the US at 7.1 per cent.

Health premiums in particular are likely to continue to increase as a result of the launch of Ayushman Bharat or National Health Protection Mission in September 2018, which aims to give a cover of Rs 5 lakh for 100 million families, it said.

Moody's, however, said that the approach adopted by a majority 23 states is "less favourable" to insurers than the alternative insurance model, where government funds are paid to insurers in the form of premiums.

Insurers may nonetheless be involved in trust funds as India's states have the option of a hybrid model in which insurance protection is purchased for claims in excess of given limits, it added.

The agency also noted that the changes in foreign ownership caps are credit positive for the sector and added that new reinsurance regulations will benefit non-life insurers.