India's insurers spread boom benefits
By Raja M

MUMBAI - Tata Consultancy Services and India's other embattled information technology (IT) companies are getting a much-needed boost from the country's insurers as they update systems to meet demand for cover from the sub-continent's growing middle class.

IT spending by insurers such as New India Assurance will more than treble to exceed US$9 billion by 2012, Celent, a Boston, US-based researcher, said in a report at the end of last January.

New orders from insurers are a bright spot for India's software giants as they struggle to compete under the pressure of a stronger local currency, increased salaries for their engineers, and



a downturn in the US, a key export market.

Tata Consultancy's shares have plummeted to about 890 rupees from 1,350 rupees in February 2007, after hitting a recent low of 730 rupees in late January this year. Shares of close rival Infosys Technologies are recovering from a recent low of 1,212 rupees after halving in value from 2,439 rupees last February. They were at about 1,517 rupees on Thursday.

TV, marketing companies and even motor-racing teams are also getting a cut of the pie, thanks to higher ad-spending by insurers as they seek bigger market stakes amid the stiff competition. Life insurance advertising spend on TV ballooned 72% in 2007 compared with a year earlier, according to market watcher Indiantelevision.com. ING Vyasa is trying to catch the eye as title sponsor for India's first Formula One team "Force India".

India insurers generated premium income of $31.6 billion in 2006, or a 1% share of world insurance premiums and 5% of Asian premiums. That is still less than half the $77 billion equivalent income generated in China.

Gradual deregulation of the market, combined with the country's rapid economic growth, has helped the insurance industry leap forward over the past few years. Most recently the government in January 2007 removed centralized tariffs fixed by the Tariff Advisory Committee, opening insurance premium rates to market forces.

Customers responded enthusiastically to the more competitive deals available, with the market increasing more than 132% in the first 10 months of the fiscal year ending March 2007, after averaging 37% growth between 2000 and 2005-06. India's private life insurers, allowed to operate only since 1999, benefited in particular, growing 95% in the past year. The dominance of government-owned non-life insurers dropped to 65% of the market in 2006-07 against 73% in the previous year.

Even before last year's surge, life insurance companies dominated the business, reporting $37.2 billion in premiums sold in 2006, or 86% of total premiums. Non-life insurance reported $5.8 billion.

The added business is forcing insurers to spend more on software and other information technology. Celent estimates IT spending by Indian insurers will pass $3 billion this year and cross $9.4 billion in four years. The country's 16 life insurers will spend about $2.6 billion in 2008 and its 15 non-life insurers $346 million, according to the report. Motor, non-life and health insurance are expected to be key drivers of growth, along with marine insurance.
Overseas insurers, which are allowed a maximum of 26% ownership, are increasingly keen to capture a share of the growing market, with Prudential, Allianz, American International Group (AIG), Aviva, ING and New York Life Insurance all finding Indian partners, including leading corporate houses such as Tata, ICICI and Bajaj.

Their arrival is expected to play an important part expenditure on locally produced IT products.

"The first year total cost of ownership of foreign vendor [information technology] systems in India range from $500,000 to $10 million," according to Catherine Stagg-Macey, a London-based analyst who co-authored the Celent report. "This pricing would exclude hardware and conversion or migration. There are cheaper bespoke solutions available from local solution providers taking advantage of low labor costs."

The gains to local IT companies will come on top of spending by domestic insurers. Tata Consultancy Services, India's largest computer-services provider, won a $40 million order from government-owned New India Assurance this January for insurance software product - TCS BaNCS Insurance - to be used across 1,100 New India Assurance branches.

Insurance firms are also using software to modernize their contact points with customers. The sector leader, government-owned Life Insurance Corporation of India, recently enabled online payments of premiums through Internet banking accounts in 22 banks.

The upgrades are crucial as leading insurers have to be able to handle upwards of 5 million policies. Life Insurance Corp, with over 2,000 branch offices and one million agents, has sold more than 10 million policies.

There is no indication yet that the big insurers are entering one unusual market. Ticketless travelers using Mumbai's suburban rail system are said to be able to buy "policies" offering reimbursement if they are nabbed by ticket inspectors.

But as the legitimate market grows, insurers are expanding their range of products into areas such as specific health risks and increasing the ways in which they can reach customers.

"India is one of the key countries for micro-insurance," says Stagg-Macey, pointing to innovations such as insurance for diabetics and community insurance. On February 4, Life Insurance Corp launched its first health insurance product, part of the state-owned sector's efforts to compete better with the privately owned rivals. Life Insurance Corp has seen its share of the life insurance market tumble to 63% in March 2007 from 99% in 2002. 

Insurers are also forging partnerships with the postal department, banking institutions including rural cooperative banks, self help groups and others, she said. About 10% of policies currently are sold through banks and 10% through Internet.

(Copyright 2008 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)