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Welcome to our Monthly Newsletter – August 2007

Talk Around the Bazaar

  • The European Union is planning comprehensive changes to solvency requirements of insurers and reinsurers which will be implemented by 2012. These rules, known as Solvency II, will also align the regulation of companies with the way they currently manage their risks. By the time it is implemented (2012) the recently announced reform of the Financial Services Act in the U.K. should almost be ready, too
  • The World Insurance Forum will be held outside Bermuda for the first time next year. It will be held in Dubai – was the attraction really the International Rugby Sevens tournament?
  • HSBC is looking for a life insurance licence with help from its partner in China. AIG has just been given permission to establish a wholly owned non-life subsidiary: all you need is a few decades of patience. In the meantime, the PICC is eyeing the life market and so things get more complicated
  • With claims from flooding in England bound to break records, it remains to be seen if the soft reinsurance market has reached the end of its cycle
  • Qatar has introduced new rules regulating insurance companies.  Bahrain is promoting itself as a base for developing Takaful insurers. Syria has attracted a Malaysian/Kuwaiti team to set up a Takaful company there next year. Competition is heating up in the Middle East
  • After announcing plans to introduce an old age pension scheme for migrant rural workers, China is now planning to launch a new medical system for urban residents. This could slow down the migration to the cities but more must happen
  • Allianz is establishing a life insurance unit in Japan which is due to open for business early in 2008
  • The population of Turkey is increasing by almost one million a year: carriers from the European Union are lining up to get into the market for personal lines and health products
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    We are currently discussing projects in the following markets:

  • Portugal
  • India
  • U.S.A.
  • Germany
  • South Africa
  • Turkey
  • Japan
  • Romania
  • Italy
  • Australia
  • Canada
  • Turkmenistan
  • United Kingdom
  • Netherlands
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    What Clients Say

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    “They have the sort of experience which we needed”

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    Disclaimer
    Information appearing in WoRdS is checked for technical accuracy but is not intended to provide a basis of knowledge upon which advice can be given. Worldwide Risk Solutions accepts no responsibility for any loss occasioned to any person acting or refraining from action as a result of the material included in this newsletter.

    A New Force in International Insurance

    Worldwide Risk Solutions is a U.K. based commercial organisation facilitating global business strategies and business development in the international insurance industry. For more information about us, please go to www.worldwiderisksolutions.com.

    Since Our Last Newsletter

    We have entered into an agreement with a relatively new but fast developing network to assist them with their growth and continued effective performance.

    In our SPOTLIGHT series we will help understand the way different markets around the world operate so that those who do business there can feel more “at home abroad.” Different does not need to mean difficult but knowledge of the needs and characteristics of specific geographic markets is an advantage to those who are active in the global economy.  This helps avoid misunderstandings and unfulfilled expectations..

    India

    Developments in the Indian Insurance History

    The effect of the Indian insurance industry on global premiums may be relatively low but the world is paying attention to India. All of the world leaders in the insurance industry have a presence in India: AIG, Allianz, Chubb, ING, Royal & SunAlliance, Lombard, Swiss-Re, Munich-Re, Marsh, Aon, Willis… the list is still growing.  Lloyd’s has also indicated that they would like to set up operations within India.

    What has changed in India? Why is there a sudden move from corporations across the globe to perceive India as a growing opportunity? This article attempts to provide a brief insight into the Indian insurance industry and what drives the market. The focus of this article is on the general (non-Life) insurance sector.

    Indian Economic Background

    India is one of the fastest growing economies in the world today with a GDP of 9.4%. The per capita income in the company has grown by about 8.4% and the foreign reserve of the country is almost US$ 180 billion. FDI expected this year in the country is to the tune of US$ 12 billion and 35% growth in the export market is expected to happen! No wonder the world is looking at India!

    Key facts of the country

  • Growth in economy has been between 8-9% in the first quarter of the fiscal year
  • Major contributors to the growth are the Manufacturing, Agriculture, Transport & Communication and the Infrastructure Industry
  • Exceptional growth has also been seen in the commercial vehicles, telephone connections, passenger growth in civil aviation - indicating higher disposable income for the average person
  • India has emerged as the fastest growing wealth creator, thanks to the buoyant stock market and higher earnings
  • 40% of the Top 100 of the Fortune 500 companies are present in India
  • Infrastructure to get almost US$ 320 billion as part of the 11th five year plan!
  • Almost US$ 36.6 billion was raised from IPOs in 2006.
  • Indian Companies - Big and Small - are reaching overseas destinations to tap new markets and acquire technologies. Outbound deals in India crossed the US$ 15 billion mark in 2006!

    With all this growth, the insurance industry in India is not lagging far behind. Growth in the economy brings with it increased risks and an awareness among players of the importance of Risk Management and mechanisms of Risk Transfer which are available.

    The general insurance industry in India has been growing at an average rate of 15% over the last few years.

     

    How the Industry Evolved

    It was only three decades ago that 107 insurance companies in the country merged into four nationalised general insurance companies governed by the national reinsurer – General Insurance Corporation of India.  Since the choice was so minimal, insurance buying became just a matter of routine. Most of the insurance covers available were guided by a pre-defined tariff and thus the chances of value addition by any of the insurers were also minimal.

    The Liberalised Market

    The last five to seven years have seen a sea change in the insurance industry. This began with the setting up of a regulatory body in the year 1999: the Insurance Regulatory Development Authority! The primary role of the regulator in addition to protecting the rights of the policy holder was also to ensure that there was a speedy and orderly growth in the Indian insurance industry. This was demonstrated by the opening up of the sector and the introduction of private sector companies to start insurance operations. This also led to the inclusion of foreign players in the market. AIG, Chubb, Allianz, Royal & SunAlliance, were amongst the first to set up office in India.  Slowly over the last three or four years, the state owned companies have lost 35% of their market share to the private sector companies.

    They are now being forced to sit up and take stock of how they do business and how they need to change.

    The total market size today is approximately US$ 6.15 billion, 40% of which comes from the Motor insurance segment. Given below is the market bifurcation of the general insurance industry in India.

    In order to bring in more professionalism and expertise into the industry, the regulator decided to introduce third party administrators and insurance brokers in the years 2001 and 2003 respectively. Today there are about 25 TPAs and 300 licensed insurance brokers in the market.

    The TPAs provide support to the insurance companies by providing value added services for the health Insurance policies. Services such as claim processing, claim payment, cashless facilities at network hospitals are provided by the TPAs.
    The role of the broker is very close to the global definition of the insurance broker, except that in India, the premium / claims payment is not done to / by the broker for retail business within the corporate sector.  Brokers are only allowed to facilitate the entire buying process of insurance for the corporate client by providing consultancy and advisory services. Brokers also handle the administration of the policies and in many a cases provide outsourcing solutions for insurance management.

    The true impact of liberalisation in the Industry was felt only in the beginning of the year 2007 when the regulator finally decided to take the bold step of de-regulating the premium rates for the Property and Engineering insurance covers. Prior to this a free market or a non-tariff market existed only for the Health & Accident, Marine, Liability and some other small miscellaneous insurance classes. Cross-Subsidy was an unwritten rule for the insurance companies.
    The deregulation of the remaining insurance portfolio changed the scenario completely! Or at least it was meant to…  A rat-race started in the market in order to gain back lost market share or to increase market share and the customer was enjoying an almost 70-80% drop in premiums. In order to control unrealistic underwriting, the regulator announced that the premiums could be reduced only by the maximum of 55%. The change is currently allowed only with respect to rates and the policy terms and conditions are not to be altered for another year.

    While the industry expected that the overall premium base would get washed out due to the de-regulation, surprisingly the overall market growth is about 24% this year. This growth is due to the increase in rates for Motor as well as the increase in the asset base of the corporate sector when they were able to cover for same premiums as the previous year with a lower asset base.

    What to look out for in the Indian Insurance Industry

    The changing dynamics of the industry are giving rise to tremendous development potential. Some of the key aspects to look out for are:

  • Growth in the Export Market - Whether it is the IT / ITES industry, the auto component industry, the pharmaceutical industry; growth in exports is averaging 10-12 % annually. Initially the target country for exports used to be the United States of America, but slowly companies are looking at alternative markets like – Europe, Asia, Middle East, Africa etc. Insurance covers which are gaining importance because of this are the liability insurance policies, such as Product Liability, Professional Indemnity, General Liability, etc. The overall market for this business is almost US$ 120 million. So far the book of business has been profitable for all insurers and reinsurers who have participated in this class.
  • Strengthening of the Financial Markets - The stock markets has been bullish and there has been a lot of FDI flowing into the country. The number of companies going for a domestic listing has been increasing over the last three years. Moreover, large Indian corporate houses are on a buying spree, acquiring companies domestically as well as internationally. Last year the Securities Exchange Board of India also came out with very strict corporate governance norms which have forced corporations to look into their Risk Management philosophy. Specific insurance covers like Directors & Officers and the Public Offerings Securities insurance have been gaining a lot of importance over the last couple of years. The increased asset base of corporations has also seen the need for Business Interruption cover and large sums insured to be in place.
  • Growing Need and Importance of Health Care - Almost 6-7% of the country’s GDP is spent on the health care industry. Yet, so far health insurance is only available to a very select group. It is only the large corporates and some of the government owned organisations which provide health insurance coverage to their employees. The onset of the TPAs, and the growing health care costs have led to the growth of the health insurance market in India. Most of the companies do not make an underwriting profit for this particular class and hence are not in a position to offer competitive premiums. The state owned companies rely on their historical capital to offer cheap policies, but the trend is showing that this may not last too long. Stand alone health insurance companies are being encouraged and with the onset of the de-tariff regime in the country, health insurance costs will go up considerably. While the need for the coverage is increasing consistently, so are the related costs.
  • State Owned Insurance Companies looking at alternative methods for making good the loss in domestic Market Share - The state owned companies have a lot of historical capital and are keen on providing capacity to the international markets. While the need for reinsurance of their current book of business has been either decreasing or constant over the last few years, the companies are keen on providing capacity for property risks based abroad.
  • The effect of the Indian insurance industry on global premiums may be relatively low, but it is definitely not worth watching!

    In preparing this Spotlight article we received invaluable assistance from the leading broker, India Insure Risk Management Services, for which we are grateful.

    If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us – Details below.

    Worldwide Risk Solutions has a wide client base of internationally oriented organisations. Utilising the knowledge and experience gained over many years, we can put this capability at your disposal. If you would like us to conduct a swift appraisal of your global activities or if you have questions about international developments, just give us a call +44 (0)1444 450 919 or send us an e-mail and we will be happy to look at some of these questions and to start providing answers.

    In our next e-newsletter we will look at Spotlight: Reputation Risk – the Consortium Approach. This relates to an integrated approach combining risk identification, control and customised insurance protection. We will catch up with some of these developments and discuss some of them in our next edition of WoRdS.

    See our Contact Details

    George Worsley, Director
    Worldwide Risk Solutions
    Telephone +44 (0)1444 450 919
    E-mail info@worldwiderisksolutions.com

    © Worldwide Risk Solutions LLP 2007