Insurance enters the era of consolidation

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Sponsors of private insurers are finding it increasingly difficult to generate adequate income from their core businesses after last year’s coronavirus outbreak. As such, their life insurance lines are not able to generate enough capital injection, which is crucial for such a business.

The problem is more acute for life insurers run by manufacturing companies and run by non-bank financial companies (NBFCs), according to five experts who TBEN spoke to.

An internal study by a major private life insurer showed that the weighted average market share of India’s top 10 private life insurers fell from 84% in 2017 to 87% in 2021, indicating consolidation in the sector. It also highlights how mid and smaller players are unable to grow as the big players grow.

Twenty-four life insurers in India received a new business premium of ??34 388 crore between April and August of this year, compared to ??27,946 crore the previous year. “During the pandemic, a clear picture emerges is the increase in the overall market share of the top 10 private players. It now stands at 87%. In addition, customers’ preference for simpler and more economical products from big brands is observed, ”said Tarun Chugh, Managing Director and Managing Director of Bajaj Allianz Life Insurance Co. Ltd.

The Insurance Regulatory and Development Authority of India (IRDAI) is now regularly criticized for the financial weakness of insurer promoters and their inability to maintain themselves following the coronavirus epidemic, said a person close to the insurance regulator . As a result, the regulator licenses and approves products only to cash-rich, sponsor-focused life insurers, a person familiar with Irdai’s processes said.

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“Over the past 20 years, many players have entered the life insurance industry hoping to make money, without thinking too much about the ability to infuse ongoing capital or adapt to the market development and advanced systems. Companies in the manufacturing sector are deeply stressed because of covid-19 and cannot contribute capital. If the promoters don’t see a return on their investment even after 10-15 years, they will retire, ”the person said.

“New generation entrepreneurs have the money and the latest internet technology and don’t have inheritance issues. As such, their entry is good for the industry, ”the person said.

“Unfortunately, we don’t have too many deep-pocketed trading houses. As a result, many players will quit. The problem is more with life insurers. General insurers start making money in three to four years because they have easier solvency requirements and don’t need such a capital injection. Only 10 out of 24 life insurers can stay after 10-15 years, ”the person said.

The recent acquisition of Exide Life Insurance Co. Ltd. by HDFC Life Insurance Co. Ltd. last month is just the start of the consolidation brought on by the fundamental change brought on by the pandemic, according to four insurance industry experts.

“Consolidation will lead to three types of events. Existing players or cash-rich new entrants will acquire smaller or more cash-hungry players. Medium-sized or larger players in joint ventures with weak Indian promoters will sell their stake to existing foreign joint venture partners, who will transfer control to foreign entities in the area of ​​private life insurance. Third, large or medium insurers with non-bank promoters will form joint ventures with large banks or bank-controlled insurers, ”the head of a large private sector life insurer said on condition of anonymity.

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Navi Technologies Pvt. Ltd, headed by Flipkart co-founder Sachin Bansal, is in talks to buy Kishore Biyani’s life insurance business, Future Generali India Life Insurance Co. Ltd, in a ??1400 crore ??A 1,500 crore contract, said two people familiar with the talks.

In April, Axis Bank Ltd said it had become a co-promoter of Max Life Insurance Co. Ltd after acquiring a 12.99% stake in the company.

Axis Bank has announced its intention to purchase a 30% stake in Max Life Insurance for approximately ??1,530 crore in April of last year.

August 11, TBEN announced that the billionaire Burman family will reduce its stake and cede majority control of Aviva Life Insurance Co. India Ltd to its overseas joint venture partner, UK-based Aviva Plc, as part of a plan to raise capital for its main activity of consumer goods.

Last year, the Burman family spoke with Bansal about a possible sale of the family’s stake in Aviva. “Discussions and negotiations with Sachin Bansal were completed in March, and we were unable to reach any conclusions. Aviva will increase the stake (in Aviva Life) by purchasing (the stake) from the family. The evaluation exercise is continuing, “said Mohit Burman, vice president of Dabur India (the flagship of the Burman family group of companies).

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The deal will see the Burmese family’s stake drop to 26% from 51% currently in Aviva Life, while Aviva’s stake will increase to 74%, giving the foreign partner control of the life insurer.

The government increased foreign direct investment (FDI) in insurance from 49% to 74%, further accelerating the pace of consolidation. “We’ll have to wait and see how the FDI guidelines apply to each entity. For most players, especially small businesses, this can mean that new capital can flow in and help them grow. This is an opportunity for foreign players to further strengthen their presence here and bring best practices in terms of efficient services and processes, ”said Chugh.

“As we move forward, maybe we will see some of these small businesses develop strong niches and offer something exclusive and unique to customers. It will help them move forward on their growth path, ”said Chugh.

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Manufacturing companies are deeply stressed because of covid and cannot contribute capital.

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