Frequent natural catastrophic events, such as the heavy rainfall in Northern India and cyclone Biparjoy hitting Gujarat and Rajasthan, will challenge Indian property insurance profitability, warns data firm GlobalData.
The Indian property insurance industry's loss ratio is set to remain high at 75.2% in 2023 and is projected to rise further to an average of 76.8% between 2023 and 2027, based on GlobalData’s insurance database.
GlobalData’s insurance analyst Aarti Sharma said that inflation and increased claims due to more frequent natural catastrophes will keep insurer profitability in jeopardy. Recent floods in North India will lead insurers to reevaluate risks and raise property insurance rates.
Initial figures put losses from the North India floods at around INR 150 billion ($1.9 billion) and the Biparjoy cyclone damage at INR 10.1 billion ($126 million). Consequently, payouts for both events are anticipated to be substantial; however, there is a silver lining.
“Despite these challenges, the property insurance industry in India is forecast to grow over the next five years, supported by new product launches and favorable regulatory developments. The property insurance industry is expected to grow at a compound annual growth rate (CAGR) of 10.9%, from INR710.4 billion ($9.1 billion) in 2023 to INR1,075 billion ($12.7 billion) in 2027 in terms of gross written premiums (GWP),” Sharma said.
Agriculture insurance, a significant contributor to property insurance premiums in India, is expected to represent 49.3% of such premiums in 2023. The introduction of parametric insurance products, such as Saral Krishi Bima, and other upcoming offerings by the Agriculture Insurance Company of India (AIC), will also expand agriculture insurance coverage.
Sharma noted that premiums from parametric products will help mitigate losses due to frequent catastrophic events. AIC's license extension to include livestock, aquaculture, and sericulture industries will foster a 11.5% CAGR growth for agriculture insurance from 2023 to 2027.
Fire and natural hazard insurance will make up 44.1% of property insurance premiums in 2023, with the sector projected to grow at a 10.8% CAGR between 2023 and 2027 attributable to recent regulatory changes enhancing market practices. Construction and engineering, on the other hand, will contribute the remaining 6.7% of property insurance premiums in 2023.
In April, the Insurance Regulatory and Development Authority of India (IRDAI) abolished the burning cost measure for fire reinsurance premiums, a development that is expected to reduce premium prices, rendering fire insurance more affordable. IRDAI also implemented fire insurance policies based on policyholder claims history for precise pricing. These changes will enhance customer confidence and sustain property insurance growth.
“Extreme weather events are expected to remain a major pain point for property insurers, prompting them to increase prices to maintain profitability. Insurers are likely to engage in alternate propositions such as parametric insurance and risk-based premium pricing to offset their exposure,” Sharma said.
Another market study from the data firm revealed that the Taiwan life insurance sector is set to make a decent comeback beginning in 2024, powered by improving global macro-economic situations, increased interest rates, as well as positive regulatory developments.
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