Evolving Indian Reinsurance Landscape: Trends,

Challenges & Growth Opportunities

The year 2015 will undoubtedly hold tremendous importance in the history of Indias insurance
regulatory landscape. In March, the Indian Parliament finally passed the Insurance Laws
(Amendment) Act, 2015 (Amendment Act), cementing the eagerly awaited insurance reforms in
the country. The reforms include raising the foreign investment cap on insurers and
intermediaries from 26% to 49% and laying out the statutory framework for the entry of Lloyds
and branches of foreign reinsurers in India.
Branches in Special Economic Zones
In addition to the foregoing developments which stem directly from the Amendment Act,
separately, in March 2015, the Indian Central Government notified the IRDA (Regulation of
Insurance Business in Special Economic Zone) Rules, 2015, which enables the IRDAI to permit
foreign (re)insurers to set up branches in SEZs to underwrite reinsurance within the SEZ and
elsewhere in the country on the condition that they will be viewed as cross-border reinsurers.
Pursuant to these rules and in anticipation of the setting up of Indias first international financial
service centre (IFSC), ie a financial services focused unit inside an SEZ, in Gujarat, the IRDAI
issued the IRDA (International Financial Service Centre) Guidelines, 2015 (Guidelines) in
April 2015, stating that foreign (re)insurers interested in carrying out business in and from an
SEZ could register an IFSC Insurance Office (IIO) to accept reinsurance business within the
SEZ and from outside India.
The IIOs will additionally be permitted to service mainland Indian insurers and may retrocede up
to 90% of their business. However, reports indicate that the establishment of the first IFSC is
presently on hold until 2017 as a number of taxation and forex issues need resolution by the
government.
Why India??
Urbanization:
Indias urban population will soar from 340 million in 2008 to 590 million in 2030. And this
urban expansion will happen at a speed quite unlike anything India has seen before. It took India
nearly 40 years (between 1971 and 2008) for the urban population to rise by nearly 230 million.
It will take only half the time to add the next 250 million. To meet urban demand, the economy
will have to build between 700 million and 900 million square meters of residential and
commercial space a year. In transportation, India needs to build 350 to 400 kilometers of metros
and subways every year, more than 20 times the capacity-building of this type that India has
achieved in the past decade. In addition, between 19,000 and 25,000 kilometers of road lanes
would need to be built every year. Handled well, India can reap significant benefits from
urbanization. These cities could generate 70 percent of net new jobs created to 2030, produce
around 70 percent of Indian GDP, and drive a near fourfold increase in per capita incomes across
the nation.

Points for Asia that apply to India: By 2025, and possibly as early as 2023, Asias urban
population will reach a tipping point of 50 percent. Driven by the regions robust economies and
an exploding middle class, the pace of urban growth is driving more and more cities into the
range of 10 million or more in population formerly called megacities and even to 20
million and beyond.
New opportunities for risk management: In 2011, Asia represented a 28.24 percent share of
world premiums; by 2020 we expect that figure to rise to 32.4 percent, nearly a third of global
premiums. Urbanisation is one of many factors driving the expansion of (re)insurance markets
across the region, which also include high GDP growth rates, low insurance penetration, and
active deregulation in many markets.
We estimate that compound annual growth rate for Asia in insurance premiums between 2010
and 2020 will be 8.7 percent nearly double that of the global figure excluding Asia of 4.9
percent. Asias reinsurance market is projected to grow to US$117 billion by 2020 with China
making up 36 percent of the total.
Funding requirements of US$98 trillion in infrastructure spending: Asian cities face huge bills to
keep up with the pace of demand for urban infrastructure, particularly India, where
underinvestment has created chronic deficits in basic urban services and utility supply. At the
other end of the spectrum, exports have made Chinas cities wealthy, but weak market pricing
and corruption have led to over-investment, asset bubbles, and a plethora of white elephants, like
the worlds longest sea bridge in Qingdao where traffic is only one-third the projected volume.
Getting market signals right and marshalling private capital to support urban growth will present
enormous challenges. As Asian debt markets expand and deepen, (re)insurance has a role to play
in providing favorable access to credit.
Connectivity: With new aircraft demand averaging about 1,300 aircraft per year, Asia Pacific
carriers will account for one-third of all new orders between 2009 and 2029, or 8,290 aircraft,
providing significant new opportunities in the property-casualty market. Airports too will
constitute a major area of growth, both through traditional covers and through the potential
development of an airport bond market along US lines, with retail revenues as well as landing
fees servicing the debt.
Coping with energy and environmental challenges: As global energy markets shift to Asia, urban
demand for energy will rise to 73 percent of the global total by 2030, according to the
International Energy Agency.
China will account for 79 percent more energy consumption than the US, and Asia will represent
a dominant 39 percent share of global spending on energy infrastructure, of US$31 trillion to
US$38 trillion.
(Re)insurance can play a role not only in traditional ways through direct investment and project
insurance, but also help to incentivise sustainable energy use through new types of covers.

Health and education: The growth of Asias cities is putting new strains on health and education,
both to expand capacity and to develop new financing and revenue sources. Private health
insurance in China may be a US$90 billion market by 2020, while commercial insurance covers
only 1.5-2 percent of health care expenditures in India. Meanwhile, Asian cities are increasingly
competing with each other in medical tourism and health services, investing to become health
and medical hubs for a regional and global market.
Sustainability: Governments and businesses are beginning to treat Environment, Social, and
Governance issues as part of corporate governance, with several major stock exchanges
including Singapore and Johannesburg either requiring or encouraging ESG reporting. Cities are
already rated by human resource consultants based on their attractions for multinational
relocations, which translate into mobility costs for employers and transaction costs for cities
competing for multinational investment. Such pressures are transferring sustainability from the
realm of the desirable to that of the necessary. Cities may increasingly face constraints on
borrowing and capital market issues if their policies or public corporations lack transparency.
Rising Incomes
In Asia, young populationscombined with rising productivityare creating a voracious
consumer force characterized by higher incomes and evolving appetites that will likely fuel
spending growth.
The size of the middle class may increase in number to 3.2 billion from 1.8 billion by 2020 and
to 4.9 billion by 2030with 85% of this growth coming from Asia. Equally impressive is the
growth in purchasing power: Global spending by the middle class may grow to $56 trillion by
2030 from $21 trillion todayand, again, more than 80% of this growth in demand is expected
to come from Asia.
As wealth increases, spending tends to shift away from necessities and more toward
discretionary items. As the absolute size of a household's budget increases, the relative share
toward basic necessities, such as food and clothes, within that budget decreases, while spending
on luxury items, such as leisure, travel and health care, increases. As wealth increases people will
want to protect it.
The spending power of the Indian consumer is increasing. There will be nearly one billion
middle-class consumerssome 320 million householdsin India by 2020. They are demanding
more, better, now for themselves and their children. Over their lifetimes, Indian children born
today will consume nearly thirteen times as much as their grandparents did.
Demographic Change
Economic miracles depend to a large degree on the right demographics: having more workingage people than young and old.
When you hit that sweet spot, known as a demographic dividend, the chances for swift
economic growth are higher. Basically, you have more working-age people to fill manufacturing
jobs.

By 2030 India is expected to have 28% of the worlds workforce, a billion person labor force,
and the worlds largest population of 1.4 billion citizens. In fact, in 20 years the labor force in the
industrialized world will decline by 4%, in China by 5%, while in India it will increase by 32%.
And the IMF, in 2011, reported that India's demographic dividend has the potential to add 2
percentage points per annum to India's per capita GDP growth over the next two decades. A
young working population offers investors opportunities in the financial services space,
infrastructure, affordable housing, healthcare, pharmaceuticals & FMCG.
Emerging challenges in Asia (India)
Use of technology and cyber risks
Insurers are increasingly leveraging on technology to reach out to their customers. Technology
innovations such as developments in telematics and wearable fitness monitoring devices allow
real-time customer data collection for more dynamic and precise pricing of insurance solutions.
Industry is also gradually taking to big data solutions and predictive modelling to perform better
risk selection and assessment. In Asia, the use of technology in insurance is catching up fast as
its population becomes more educated, affluent and Internet savvy.
While technology brings benefits and opportunities, it also exposes insurers to cyber risks.
Cyberattacks are becoming more common, as seen from recent hacking attacks on various
companies. Asian countries are just as susceptible to cyberattacks. The evolving nature of
technology means that insurers have to keep abreast of developments so as to detect and deter
potential risk events. The impact of such cyber-risk events can be costly and significant,
considering the amount of sensitive data that insurers collect on their customers.
Higher frequency of catastrophes and the role of insurers
In addition, the frequency of natural disasters has increased over the years. According to a report
by the United Nations, Asia is the worlds most disaster-prone region (United Nations, 2010). At
the same time, rapid population growth and urbanisation have led to higher economic
concentration in Asia. Asia accounted for 41% of global economic losses from disasters between
2000 and 2009, and 81% in 2011 alone.
The financial burden of restoring catastrophe-hit territories, thus far, had largely been borne by
the government. Insured losses in Asia represented only 5% of total losses in the past 30 years
(Asian Development Bank, 2014). Clearly, insurance has a bigger role to play as an ex ante riskfinancing solution such that losses do not need to be significantly funded by taxpayer money.
A study conducted by Lloyds in 2012 (Cebr, 2012) on the macroeconomic costs of natural
catastrophes has shown that an increase in insurance penetration by one percentage point can
lower the cost borne by taxpayers by approximately 22%. Unsurprisingly, more governments are
looking to transfer a larger portion of the risk to the insurance industry.
Whilst insurers are suitably placed to address this risk, there remains considerable uncertainty
in pricing and reserving for catastrophe insurance. First, the effects of climate change on
catastrophe occurrences are not fully understood, making estimation less reliable. Second,
constraints around data and modelling capabilities tend to be more prevalent in the Asian region,
adding to the uncertainty.
Quick pace of regulatory reforms
Regulation of the financial sector has been intensifying since the 2008 global financial crisis. In
2011, the International Association of Insurance Supervisors (IAIS) updated its Insurance Core

Principles (ICPs). Recognising that insurance markets have evolved over the years to become
increasingly global and interconnected, IAIS also embarked on building a coherent framework
for the effective supervision of large, complex, global groups known as internationally active
insurance groups (IAIGs). In addition, there are ongoing efforts to identify global systemically
important insurers (G-SIIs) and subject them to enhanced policy measures that include capital
uplifts.
Although the majority of the regulators in Asia are not home supervisors of G-SIIs or IAIGs,
the recent development of global standards is still very relevant from the host perspective.
Discussions about the standards for governance and consumer protection and the global trends of
insurance markets are also highly relevant to regulators in emerging economies. It is therefore
important for Asian regulators to be actively involved in international regulatory discussions both
to shape and to benefit from the development of the global standards.
Growing opportunities in Asia and preparing for the future
Despite the challenges mentioned above, the prospects in Asia are especially promising. Over the
next decade, the insurance business in Asia is projected to grow at about 8% per annum (Swiss
Re, 2013). By 2020, Asia is likely to account for almost 40% of the global market (Munich Re,
2014).
The Asian growth story should come as no surprise. First, Asia is growing at a rapid pace with
rising affluence and a growing middle class. Second, Asia is prone to natural catastrophes, so
with growing risk awareness, coupled with rising asset values, more consumers will seek
insurance protection. Third, Asia is facing a rapidly ageing population. By 2050, AsiaPacific
will be home to 62% of the worlds elderly population, with one in four persons aged 60 and
above.
So how can Asian regulators prepare themselves to help position insurers operating here to take
hold of the opportunities in Asia? We have to modernise our capital frameworks, strengthen
enterprise risk management (ERM) requirements for insurers as well as build capacity and
capabilities of regulators.
Modernisation of capital frameworks
In response to international developments, many Asian regulators are revamping their national
solvency regimes to better reflect the risk profile of their respective insurance markets. Notably,
more Asian regulators are taking to the risk-based capital (RBC) regime.
The modern RBC frameworks seek to address all relevant and material risks of insurers. One
enhancement is the incorporation of emerging areas such as operational risk and catastrophe risk.
These risks are not easy to quantify, but will help to address the emerging risks identified earlier.
Singapore was one of the front-runners to introduce a RBC regime in the region back in 2004.
The RBC framework has served us well, including during the global financial crisis. It allows
insurers to better withstand stress and permit more timely and effective regulatory intervention.
However an update is necessary to ensure it stays relevant and accords better policyholder
protection. Thus in 2012, we launched a review of the existing framework, aimed at improving
the comprehensiveness of risk coverage and risk sensitivity.
Whilst we want the updated framework, RBC 2, to be more risk-sensitive and robust, it should
be fit for purpose to support insurers ability to carry out their important roles in the economy
and society on a sustainable basis. In this regard, we are proactively engaging the industry to see
how we can better allow for the illiquid nature of certain types of life insurance liabilities in our

capital framework, as well as calibrate the risk requirements relevantly for the catastrophe risks
undertaken by our general insurance players in the region.
It must be noted that having a RBC framework is not the panacea for all problems. It has to be
complemented by a comprehensive suite of regulations and practices that allow effective
supervision of insurers.

Active engagement with insurers on their ERM framework

Besides modernising their regulatory capital regimes, Asian regulators are also strengthening
their governance and risk management requirements for insurers. In particular, the board and
senior management of insurers are expected to take greater ownership of their risk profile
through the establishment of an ERM framework. After all, insurers should know their own risks
best. The regulatory capital framework, which is typically calibrated using industry aggregate
data, is unlikely to be adequate on its own. Besides, no set of prescriptive rules will be
comprehensive or flexible enough to cater to the varied business and operating models of
insurers.
As part of ERM, insurers are required to regularly undertake a forward-looking self-assessment
of all reasonable foreseeable and relevant material risks that they may be exposed to, also known
as an own risk and solvency assessment (ORSA). It is important that regulators constantly
engage insurers on their ERM and ORSA, as this would give a comprehensive insight into how
insurers manage their risks.
ERM, including ORSA, is very new to insurance regulators globally, including Asia.
Malaysian insurers have implemented an internal capital adequacy assessment process (ICAAP)
since September 2012 which is subject to review and evaluation by the Malaysian regulator.
China also introduced ERM requirements for its life insurers (including health insurers and
pension insurers) a few years ago, which required insurers to submit an annual ERM report to the
regulator. In its latest consultation paper, the Hong Kong regulator has proposed requiring all
insurers to put in place an effective ERM framework, with an ORSA incorporated within.
Singapore rolled out its ERM requirements in 2013. The requirements aim to link the risk
identification, measurement and assessment to an insurers business strategy and capital
management more comprehensively and explicitly through the formalisation of its risk appetite
and the ORSA process (see Figure 2).

Q1: Is Chinas pain Indias gain?? Take the win-win position stating that
both markets in varying stages of development
China's economic fluctuation is worrying the international community. But India has
a different opinion. It seems to have sensed an opportunity to acquire a competitive
advantage over China.

The tumult in Chinas stock markets has turned into a blessing for Indian shareholders.
International investors are pulling out of China, fueling record outflows through the ShanghaiHong Kong exchange link, amid a $2.8 trillion plunge in mainland equity values since June 12.
Theyve plowed $705 million into India over the same period, sparking a world-beating 7
percent gain in the benchmark S&P BSE Sensex index.
Indias economy expanded 7.5 percent in the March quarter, beating Chinas 7 percent growth,
while the International Monetary Fund predicts India will outpace its neighbor in the current
fiscal year. The longer-term growth outlook is also stronger in India because of its superior
demographics, according to Franklin Templeton Templeton Investments. More than 62 percent of
the nations 1.2 billion people are between age 15 and 59, government data show. Chinas pool of
workers in this age group is expected to shrink by 61 million by 2030, according to United
Nations. Thats about the equivalent of losing the combined working populations of the U.K. and
France.
India is in a phase in which multiple engines of growth can drive GDP from 7-8 percent to 9-10
percent in the next five years, said Sukumar Rajah, who manages about $9 billion as chief
investment officer of Asian Equity at Franklin Templeton in Singapore. For China, we expect
growth to decelerate over the next few years partly because it doesnt benefit from demographic
trends the way that India does. Indias recent outperformance could be because it has
a steady macro-economic picture and is relatively insulated from any slowdown in
China compared with other emerging markets such as South Korea and Brazil,
But,
Optimists argue that the Chinese slump in the stock market may steer foreign
investments out of China into India, and India can benefit from China's rising labor
costs, due to which international companies will be inclined to shift their production
lines from China to India.
But others believe India is still unable to take China's place in the global economic
chain, as China's GDP and per capita income are five times that of India, and the
foreign exchange reserve 10 times the size of India's. Even if China sustains a
growth rate of 5 percent annually, it could add an India-sized economy to its GDP
every three years.
Whether Modi and Jaitley's remarks were garbled or exaggerated by media or not,
the idea that "China's pain is India's gain" is prevalent. It is a zero-sum game
mentality, which might cause unnecessary jitters between both countries in
economy. So far, there are no signs showing that China and India are approaching to
a full-scale competition.
China's economic restructuring and industrial upgrade have dimmed the dazzling
economic data of the past, with foreign funds withdrawing and manufacturing
industries shrinking.
This change, as for China, is bitter but necessary. China should move toward the
upper reaches of the global chain, so its excess capacity could be transferred to

other countries which still depend on making massive low value-added products.
During the process, a volatile stock market, the withdrawal of foreign funds, and the
relocation of factories are all contractions before the economy notches up an
upgrade.
The process will be a win-win instead of a "lose-win" for China and India. Since both
economies are not at the same level of development, they can achieve a mutually
beneficial industrial conjunction. China's excess capacity, along with the withdrawn
international funds from the Chinese market, is what India desires.

Q2: Global forces impacting Indian Insurance Industry:

a) NAT CATS:
Coinciding with the Rendez-Vous, Swiss Res economic unit, Sigma, issued a report on
the level of underinsurance for property risk on a global basis, indicating a considerable
gap in both developed and underdeveloped economies. It calculated the gap between
insurance payouts and total economic damages caused by natural disasters over the past
10 years was $1.3trn, or 70%. The global property protection gap against natural
catastrophe risk has widened over the past 40 years, Swiss Re said, even though claim
payments have increased.
By modelling the global loss potential for earthquakes, flood and windstorms, Swiss Re
has calculated the world is running an annual protection gap of $153bn for cat losses,
assuming a year of average major loss. In financial terms, the worlds three largest
economies the US, Japan and China account for most of the deficit although they are
not the most exposed countries.
Beyond the gap for natural disaster loss exposure, Swiss Re found total underinsurance of
$68bn for non-cat, general property losses. That gives a global property protection gap of
$221bn a year. Thats the level of expected claims which could have been pre-funded by
a wider risk community rather than inflicting financial hardship on individual families,
corporations and government entities, Swiss Re commented.
Pre-event sovereign risk transfer is better than post-disaster financing, Swiss Re says.
Among the advantages of insurance-type arrangements for countries are guaranteed
access to funds for recovery, speedy delivery through parametric solutions, no payback
obligation and a reduced need to divert own funds from other projects to affected areas.
Although natural disaster underinsurance has implications for developed economies, the
most vulnerable countries tend to be less developed ones, as rating agency Standard &
Poors (S&P) reported in a recently published research note.
At a national level, foreseeable extreme major disasters could lead to a downgrade of 2.5
notches to the sovereign rating of an affected country, the agency said. These events can
hit economic output and growth potential as well as external finances through
hampering export performance and requiring additional food and reconstruction-related
imports, the agency said.

They can place a heavy burden on public finances, leading to rising debt and deficit
ratios. Inflationary pressures are likely to rise and commercial banks could face
deteriorating asset qualities as the value of collateral assets and businesses is hit.
The agency noted how much of a contribution insurance had made in New Zealand
following the earthquakes of 2010 and 2011, absorbing 80% of the cost, much of it
provided by the New Zealand Earthquake Commission. Similarly, Swiss Res latest
disaster risk financing report draws attention to the comparison between the New Zealand
events and the earthquakes that hit Haiti at about the same time. The insurance payment
for the Haiti events covered less than 1% of overall economic damages and the quakes
produced losses of $8.5bn, more than the countrys total gross domestic product (GDP) of
$6.6bn.
Cities are a particularly interesting example of how new and changing risks combine with
increased exposure to provide potential opportunities for the insurance industry in both
developed and underdeveloped countries. Lloyds City Risk Index 2015-2025, based on
research from the Cambridge Centre for Risk Studies, found that $4.6trn of projected
Gross Domestic Product (GDP) at 301 of the worlds largest cities is at risk from a total
of 18 manmade and natural threats. More than 70% of total GDP at risk relates to
emerging economies as their cities are often highly exposed to a single natural
catastrophe. Earthquake represents more than 50% of GDP at risk in Lima and Tehran,
for example
Manmade threats are becoming more problematic, with financial market crash, cyber
attack, power outage and nuclear accident associated with almost a third of overall GDP
at risk. Market crash is the single most threatening event, representing nearly 25% of all
cities potential losses.
New or emerging threats, - such as cyber attack, human pandemic, plant epidemic and
solar storm activity are growing, representing nearly 25% of the total.
One area in which reinsurers can play a part in expanding the global limit of insurability
for catastrophic risk is by working with national and local governments, regional entities,
state-owned enterprises and non-governmental organisations. Insurers and reinsurers are
probably in the best position to help the poorest, most vulnerable countries gain the kind
of assistance that can prove transformational for individual lives and whole economies.
b) Rising Risk Exposures
Risks Increasing in Size, Complexity and Interconnectedness
The prospects for Afro-Asias insurance market are bright. However, in order to achieve
sustainable growth, the risks facing the region must also be well understood and managed. As its
economy grows, our risk landscape is also increasing in size, complexity and interconnectedness.
Let me share some perspective.
First, risks are increasing in size and concentration. As a result of rapid urbanization, risks are
increasingly concentrated in urban centres. According to the ADB, more than 70% of Asias GDP
is derived from cities, and two thirds of the regions population is expected to live in cities by

2050. Many of these cities are situated in locations prone to natural hazards. The unfortunate
spate of Asian catastrophes in 2011 was clear evidence of the scale of impact. The scale of losses
took many by surprise insured losses in Asia totaled about US$70bn and accounted for almost
70% of global losses that year.
Secondly, the risks confronting us are becoming more complex. Several developments indicate
that the risk insurance landscape will become more sophisticated, and demand for specialty and
complex covers will increase. Let me cite some observations:

Rapid urbanization means that insurers and their clients will be looking at more complex
underlying risks.

There will be more demand for specialty covers to support the development of key
infrastructure such as telecommunications, transport, power, water and sanitation, among
others.

Increasing concerns about food security, and heightened awareness of Asias catastrophe
exposure, will drive demand for agriculture insurance cover.

Finally, Asia, and the world as a whole, is only getting more interconnected. This has resulted in
loss events having unexpected domino effects. For example, the Thai floods and the Japanese
tsunami disrupted global supply chains. The two catastrophes also resulted in a double hit on
Japan, as many Japanese companies also have significant manufacturing operation in Thailand.
With globalization, the impact of loss events will be less confined to a specific sector or
geographic region. It will become even more critical to identify interdependencies between
individual risks, and manage accumulation of risks well.

Q3: From where will the next billion dollars come??

Liability:

Indian companies are inadequately covered for business-related risks as they have taken out
insurance coverage for only a few risks, according to a survey conducted by ICICI Lombard
General Insurance.
Results captured for both smaller and bigger firms indicate that companies focus primarily on
employee and asset related risks. While most companies have group medical insurance,
accidental insurance and insurance against damage to their asset or machinery, they have limited
protection against liability related high impact risks. In fact, new age risks such as cyber liability
as well as directors & officers liability have been opted for by few firms, the survey found.
The study covered 292 companies in insurance, banking, financial services, technology, steel,
cement, pharmaceutical, petroleum & energy, engineering & manufacturing, fast moving

consumer goods, realty and infrastructure, mining & minerals, healthcare & hospitality,
transportation & logistics, media & entertainment, auto & auto ancillary and
telecommunications.
With respect to asset protection cover, fire & special perils top the list of insurance taken with
76% of respondents saying that they have acquired the cover, followed by plant/machinery
insurance (59%) and construction all risk (56%).
For liability cover, directors & officers liability (36%) and commercial general liability (25%)
and public liability (20%), were not very prevalent among Indian companies.
Health:
Pandemic most likely to emerge from developing countries
A pandemic is a deadly infectious disease which spreads globally via the international travel of
infected persons. Especially if infected passengers show little or no signs of illness, closing
borders has very limited impact other than to retard by a few weeks the spread of a pandemic.
Most likely therefore, pandemics will emerge from developing countries. Expanding populations
heighten the risk. The index case of the 2014 Ebola crisis was a small boy in a remote area of
Guinea who played in a hollow tree infested by diseased bats.
Guinea, like its afflicted neighbours Sierra Leone and Liberia, is amongst the poorest nations of
the world and the most deprived in terms of social health infrastructure. These poor countries
lacked the medical and financial resources to control the spread of Ebola, but how then could
Ebola be controlled and eradicated from West Africa?
In April 2014, WHO estimated a modest cost of US$4.8 million to control the Ebola outbreak.
By the end of July, this had risen to $100 million; a month later this was almost half a billion,
and by the end of September the cost had ballooned to $1 billion. As of 15 October 2014, only
$257 million had been received, with another $162 million pledged.
One of the greatest challenges of the Ebola crisis has been to get treatment centres fully
operational and bring in more health workers. A considerable amount of money was needed to
pay not just health workers, but also cleaners, funeral staff and the people assigned to trace
contacts.
The original outbreak in the forest region of Guinea might have been contained early, but for
unseemly and counter-productive haggling over who should pay for tracing contacts, Ebola then
was allowed to spread to different parts of Guinea and into Sierra Leone.
ASIANS are becoming older and richer, which should mean plenty of business for
insurers. Age, after all, increases the need for health insurance; wealth brings
property to protect. The regions middle class is expected to balloon from 525m in
2009 to 3.2 billion by 2030, according to BCG, a consultancy. Household wealth will
double over the coming decade, from $81 trillion today to $174 trillion by 2025.
Thanks to increased life expectancy, the regions army of pensioners will grow
rapidly, especially in China, which already has 132m people over the age of 65.
Rich-country diseases are proliferating too: by 2030 half of the worlds new cancer
cases will be in Asia and, according to Swiss Re, a reinsurer, non-communicable
chronic conditions such as heart disease could account for 67% of deaths in India.

Agriculture:
Agriculture insurance in India is largely untapped and the premium from this category has a
potential to touch $1 billion in 3-5 years. To further expand its footprint in India, Swiss Re has
tied up with the Maharashtra government to provide crop insurance to farmers.
Highlighting the need for higher insurance penetration in these sectors to bridge the protection
gap in India, making it a food-secure nation.
Offering localised and tailored policies can be an effective way of convincing livestock farmers
to take interest in insurance. Bundling revenue protection cover with livestock insurance could
be another, said Harini Kannan, head of Agriculture Reinsurance for South West Asia at Swiss
Re.
The partnership with the Maharashtra government aims to increase awareness about crop
insurance to ensure sustainable living for farmers as well as help fast-track settlement of claims.
Through this collaboration, Swiss Re would assist in village-level surveys for crop loss through
satellite-based imaging.
Farmers should be given affordable and easy access to facilities like vaccination of animals,
advice on best farming practices, and market and weather information. Regulatory and process
reforms for livestock should take this into account, said Kannan.
The report states that aquaculture was widely supported by insurance companies in its boom time
in the mid-90s, but has since lost favour owing to disease outbreaks in aqua farms.
On the sidelines of the event, Samir Shah, MD & CEO, National Commodity & Derivatives
Exchange (NCDEX) said they would shortly launch a set of exchange-traded weather insurance
products.
Agricultural insurance in India needs urgent focus in the wake of frequent episodes
of weather related calamities and their impact, particularly on small and marginal
farmers. While various insurance schemes have been launched from time to time,
the coverage of agricultural insurance still remains low as only 4% of farmers
reported having crop insurance and only 19% of farmers have ever used any crop
insurance.
Clean Tech:
The global warming over the next few decades is already pre-set by current levels of
greenhouse gases. Nevertheless it is challenging to predict exactly what will
happen. The insurance industry is in a special position to see the early impacts of a
changing climate and to react to emerging risks and opportunities.
It is precisely now that the world would be well advised to launch solutions for a lowcarbon future: investment decisions over the course of the next 15 years will be of
critical importance to prevent catastrophic global warming. At a time of scarce
public funds, these investments require the mobilisation of private capital. In light of
the current, low-interest rate environment, investments in real assets with long-

term stable returns can also be attractive for the insurance industry. And our
industry manages a third of the worlds investment capital - approximately $30trn.

Climate Change/NAT CAT Protection Gap:

By modelling the global loss potential for earthquakes, flood and windstorms, Swiss Re has
calculated the world is running an annual protection gap of $153bn for cat losses, assuming a
year of average major loss. In financial terms, the worlds three largest economies the US,
Japan and China account for most of the deficit although they are not the most exposed
countries.
Beyond the gap for natural disaster loss exposure, Swiss Re found total underinsurance of $68bn
for non-cat, general property losses. That gives a global property protection gap of $221bn a
year. Thats the level of expected claims which could have been pre-funded by a wider risk
community rather than inflicting financial hardship on individual families, corporations and
government entities, Swiss Re commented.
Pre-event sovereign risk transfer is better than post-disaster financing, Swiss Re
says. Among the advantages of insurance-type arrangements for countries are
guaranteed access to funds for recovery, speedy delivery through parametric
solutions, no payback obligation and a reduced need to divert own funds from other
projects to affected areas.

Although natural disaster underinsurance has implications for developed economies, the most
vulnerable countries tend to be less developed ones, as rating agency Standard & Poors (S&P)
reported in a recently published research note.
At a national level, foreseeable extreme major disasters could lead to a downgrade of 2.5 notches
to the sovereign rating of an affected country, the agency said. These events can hit economic
output and growth potential as well as external finances through hampering export performance
and requiring additional food and reconstruction-related imports, the agency said.
They can place a heavy burden on public finances, leading to rising debt and deficit ratios.
Inflationary pressures are likely to rise and commercial banks could face deteriorating asset
qualities as the value of collateral assets and businesses is hit.
The agency noted how much of a contribution insurance had made in New Zealand
following the earthquakes of 2010 and 2011, absorbing 80% of the cost, much of it
provided by the New Zealand Earthquake Commission. Similarly, Swiss Res latest
disaster risk financing report draws attention to the comparison between the New
Zealand events and the earthquakes that hit Haiti at about the same time. The
insurance payment for the Haiti events covered less than 1% of overall economic
damages and the quakes produced losses of $8.5bn, more than the countrys total
gross domestic product (GDP) of $6.6bn.

Q4: What are the areas in which India can do things differently??
Regulatory changes, partnership with Govt. to bridge the protection Gap, Human Resources,
Financial Education as outlined above.

Q5: What are the opportunities created by the Insurance/Reinsurance reforms brought by
Modi Government (FDI increase to 49%, allowing foreign reinsurers to establish branch and
mega social insurance schemes)?
Universal Access to a Range of Insurance and Risk Management Products (Banking/ Savings &
Deposit Accounts, Remittance, Credit, Insurance, Pension) by January 1, 2016
Inclusion of low-income household and small business
Products for risks related to:
longevity, disability, and death of human beings
death of livestock
Rainfall
damage to property
63.3 million people enrolled as of May, 2015.
Entry of Foreign reinsurers: Likely to see introduction of newer products, the advent of dedicated
R&D teams, price correction??
Alignment with global best practices.
Support to the Indian market, local underwriting, better understanding of risks.
Q6: What are the emerging legal risks amidst growth in reinsurance/insurance business in
India and the way forward to identify and deal with them?

Global Nature of insurance Markets

Presence of conglomerates
Expansion of cross border transactions
Global Nature of Reinsurance Markets
Presence of active off shore centres

Thus, need for convergence of regulatory practices and norms. To ensure effectiveness of
regulations and level playing field.
The risk of lengthy legal proceedings is a worry.
Supervisory Objectives Clarity in Law
Supervisory Authority Adequate powers, resources and legal protection
Supervisory Process Transparency and accountability
Supervisory Cooperation and Information Sharing Within the insurance sector and across
financial services (domestic and international)
Licensing requirements for licensing be clear, objective and public
Suitability of Persons Ongoing assessment of fitness and proprietary

 Changes in Control and Portfolio Transfer Supervisory approval for changes, in mergers
and in portfolio transfers
Corporate Governance Management of business on basis of standards, & role of board
and senior management
Internal Control Systems, audit & reporting
Q7: What are the possible structural changes in Reinsurance that can happen in India in next
five years?
Already identified above in trends
Q8: Is Public Listing of Insurers (particularly Government owned and Large Private) the next
logical step for the Indian Insurance market?

Listing of insurers would bring about greater transparency and accountability. He

had also said listing of insurers would bring in the scrutiny required for efficient
management of companies. However,
"We are unlikely to see an immediate queue of insurance companies lining up IPOs
as most insurers are yet to become profitable," says Sudip Bandyopadhyay,
managing director and chief executive officer, Destimoney Securities. Insurance
companies would not get good valuations and if a company is not profitable,
investors are unlikely to buy it. Only a few insurers have started making small
profits. In developed markets like the US and Europe, publicly listed insurers have
raised money from the market after being in existence for 30-40 years.
Q9: How can India benefit from innovation/technology advancements in Reinsurance
happening globally?
India: young population, rising affluence, global practices and products will benefit the end consumer
Sector wise: best practices on risk management to be brought to India, better risk
insight/underwriting, NAT CAT exposure control.
Q10: Indian Insurance industry is maturing and your views on the road towards underwriting
profitability from the perspective of growth and value creation:

But,

High Commitment to underwriting discipline

Dont incentivize volume
Never override underwriting decisions
Scrutinize wins and losses
Pre-set walk away pricing and account strategies
Evaluate behaviours, choosing relationship customers over transactional
Relentless pursuit of underwriting profits, but also a clear strategy for managing a
challenging pricing environment and controls to assure that the strategy is followed.

Imprecise Art of Underwriting- In a competitive market, some underwriters will decide,

perhaps mistakenly, that they can make an adequate return at a lower premium, and will be
aggressive in their pricing.
Protecting Renewals- Almost no insurer is willing to watch its carefully cultivated portfolio of
prime accounts slip away, only to have to rebuild it from scratch when pricing improves
Pressure from brokers & agents- Brokers expect support from underwriters in the bad
times as well as the good. Underwriters fear that they will not see a brokers best accounts in
a more favorable market if they withdraw too much capacity in a soft market.
Pressure from shareholders and analysts: Shareholders and analysts frequently pressure
senior management to grow even when management knows that profitable growth is an
elusive goal.
Clout: Some insurers believe market share equates to market clout. By maintaining a strong
presence in the marketplace through all phases of the underwriting cycle, they believe they
can command more favorable terms.
Underwriting Talent: To downsize in a soft market could result in a significant penalty both
in terms of cost and the availability of top talent when trying to rebuild an underwriting staff
when the market improves.
The greener grass syndrome: When pricing turns soft in an insurers core business
segments, invariably, there is a scramble to identify new opportunities. Often these perceived
opportunities are far away from the insurers underwriting strengths, and a mad rush to build
or contract for the expertise necessary to underwrite and service this business ensues.
Cash flow underwriting: Since investment income and capital gains can offset underwriting
losses, insurers are often motivated to continue to write business even if it is priced below
cost.