It has been an eventful year for India’s insurance sector. From public sector giants to new entrants, they have all experienced growth—some remarkable, others stable. Consider this: the Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), and the New India Assurance Company have all seen substantial increases in one-year average market capitalisation, gaining from the broader investor confidence in public sector undertakings (PSUs).
LIC, the largest insurance player in India by a distance, increased its average market cap by nearly 48%, jumping from Rs 3.94 lakh crore to Rs 5.83 lakh crore between October 2023 and September 2024. GIC and New India Assurance did even better in the period, witnessing more than 100% surge in market cap during the same period, reaching Rs 60,000 crore and Rs 37,679 crore, respectively.
This uptick has been part of a larger rally in PSU stocks, with the BSE PSU index soaring 69% in the year to September 30, 2024, surpassing gains in the broader BSE Sensex and BSE 500 indices, which rose by 29% and 40%, respectively, in that period.
In contrast, private insurers saw slower growth. ICICI Lombard saw its market cap increase 39% from Rs 59,239 crore to Rs 82,540 crore, and SBI Life rose by 23%, reaching Rs 1.51 lakh crore. Other major players such as ICICI Prudential Life, Max Financial Services, and HDFC Life also saw increases in their market caps of 22%, 34%, and 10%, respectively. However, Star Health was the outlier in an otherwise good year for the sector, recording a 5% decline in market cap, which fell to Rs 33,052 crore between October 2023 and September 2024.
“India’s insurance sector is poised for significant growth in the coming years, driven by economic expansion, rising middle class incomes, and favourable regulatory reforms,” says Himanshu Kohli, Co-founder of wealth management firm Client Associates.
Prashant Tripathy, MD and CEO of Max Life Insurance, says the life insurance industry is experiencing robust growth, with private companies expanding around 24% year-to-date. “Growth is occurring across product lines, including protection and annuities. The momentum has been particularly strong this year, fuelled by industry expansion beyond metro areas into Tier II and III cities,” he adds.
The good sectoral showing has helped the leader LIC break into the Top 10 of the BT500 list of India’s most valuable companies by market cap. In the 2024 list, it has jumped two spots to rank 9 from 11 last year. However, though other major firms in the sector saw their market cap rise over the study period—October 2023 to September 2024—they moved down in the ranking. HDFC Life dropped to No. 55 this year from No. 41 last year, while ICICI Prudential fell to No. 98 from No. 74. SBI Life also slipped from rank 42 last year to 51 this time around.
Life Story
The beginning of 2023 was challenging for the life insurance industry. That was largely attributed to the introduction of taxes on non-unit-linked insurance policies (non-ULIP) with premiums above Rs 5 lakh in the Union Budget 2023.
According to the new tax norms, for all policies issued after April 1, 2023, proceeds from non-ULIP policies exceeding the `5 lakh threshold are considered part of the policyholder’s income and are subject to taxation at applicable rates. This led many high-networth individuals and families to reconsider their investments in large insurance policies.
That forced insurers to revise their product mixes. Many shifted towards ULIPs to maintain growth and expand market share, especially as ULIPs became popular with investors looking to capitalise on buoyant equity markets.
Niraj Shah, Executive Director and Chief Financial Officer of HDFC Life, emphasises the need for a balanced approach to product diversification. “A diversified product mix and distribution strategy, along with ongoing product innovation and technology deployment, enable us to adapt with agility to an evolving market landscape,” he says. Going ahead, the company is focussed on driving growth in value of new business (VNB) while investing in customer-centric innovations, Shah adds.
The VNB margin is a crucial metric for a life insurance company. It reflects the firm’s profit margin. Calculated by dividing the VNB by the annualised premium for the year, it is akin to the profit margin in other industries.
The shift towards ULIPs has impacted VNB margins across the industry. In its latest insurance report, brokerage firm Motilal Oswal Financial Services notes a year-on-year (YoY) dip in VNB margins in the second quarter of FY25. “The rising share of ULIPs, driven by strong equity markets, and a delay in aligning non-participating product prices with declining bond yields contributed to the margin contraction,” the report highlights.
Motilal Oswal also indicates a decline in the protection segment’s contribution, even as ULIP contributions improved by 400-750 basis points YoY across players. The savings segment remained steady, but non-par products saw a marginal drop, leading insurers to focus on innovative protection products to improve profitability.
General Scenario
The general insurance industry has grown at a compound annual growth rate (CAGR) of 14% over the past decade, largely due to increased insurance penetration. Within general insurance, the health segment has emerged as a particularly fast-growing area.
A report by brokerage JM Financial pegs the health insurance sector’s CAGR at 19% from FY19 to FY24. “The retail segment, which contributes around 39% of health insurance premiums, is highly profitable, with the group and government segments contributing 51% and 10%, respectively,” it says.
Despite significant growth, India’s insurance penetration remains relatively low compared to developed markets. “The non-life insurance segment is projected to witness robust growth of 8.3%, fuelled by economic expansion, improved distribution channels, and government support,” says Kohli of Client Associates.
Going Forward
The sector has also seen notable listings this year, including Go Digit General Insurance and Medi Assist, a third-party administrator specialising in health insurance. The listings at premium valuations signal continued investor confidence in insurance.
As the sector continues to evolve, experts foresee a steady outlook for growth, albeit with some challenges. The focus on ULIPs is expected to remain, but this could slightly reduce VNB margins for firms. Shah says the sector is poised for expansion, though with a refined emphasis on balancing growth with profitability. “We will continue to invest in customer-centric innovations to ensure we meet evolving needs and remain resilient in a dynamic market. We remain focused on maintaining this high-growth trajectory while striving to deliver mid to high-teens growth in VNB,” he says.
The data paints a clear picture: while public insurers benefit from growth fuelled by market confidence, private players are finding value in maintaining steady, resilient operations. New players are breaking in with bold entries, hoping to carve out their niche.
@teena_kaushal
