Prospect of insurance growth good in India, says Lloyd’s John Nelson
John Nelson, chairman of Lloyd’s, the world’s largest specialist insurance market, talks about the company’s plans for India. Edited excerpts from an interview:
How do you see the insurance market positioned in India at present?
We are purely into general insurance. India is one of the fastest growing major economies in the world. The prospect of growth of insurance and reinsurance is certainly very good in India, which is not necessarily there in most other parts of the world. Since the economy here is growing, the businesses are growing and so the amount of risks (taken by these businesses) is growing fast. The nature of risk is changing as the business models change. So things like supply chain risks, disruption risks and so on are increasing. Also, insurance penetration in India is at 0.7% as compared to 1.4% in the emerging economy of Asia-Pacific and 6.1% in developed countries. India is exposed to increasing catastrophe risks, commercial risks and concentration risks at organizations and that is widely recognized by the government. It is wise to mitigate those risks and making the economy more stable and sustainable.
According to a worldwide research Lloyd’s has done, increased insurance penetration not only reduces the burden on the population and the taxpayers, but also increases economic investments. We have seen that for every 1% increase in insurance penetration, economic investment has grown by 2% of the GDP. With Lloyd’s coming in as reinsurer, it will not only stimulate the insurers’ capacity to cover risks but also increase the insurer’s ability to provide cover for some of the difficult risks in which Lloyd’s has specialized in.
Which sort of insurance businesses Lloyd’s will be primarily focusing on in India to provide reinsurance?
Lloyd’s, as a reinsurer, will play a major role in agriculture, property, catastrophe, construction, infrastructure, marine, aviation and transport and then in some of the areas in which Lloyd’s specializes in such as cyber risks.
What efforts will Lloyd’s make to implement its business plans in India? What sort of model will be followed and what kind of capital will be required?
We have an absolute policy that distribution of our products is done through our broker network. It is the broker network strength that has encouraged us to come here. The governance we provide is one of the strongest in the world. If we look at the capital requirement, Lloyd’s has invested capital as per the regulatory norms here and then Lloyd’s has something like a central fund for access to additional capital for Lloyd’s policies. So, we are very strong in terms of capital to support Lloyd’s globally. Our total asset is about 100 billion pounds. We have about $220 million for our offshore business and we will see how much of that can be brought here. We have already put in the regulatory capital and further capital infusion will depend on how many managing agents come on board and what sort of businesses they bring in.
What sort of growth are you expecting for Lloyd’s India business?
It will not be wise to put a figure to that right now, but we want to grow steadily, not fast. In Singapore, it took us about 10 years to get to really a large space and now just under half of the managing agents there are connected to Lloyd’s. In China, our growth has been slightly quicker. Over the last 7-8 years, we have grown from very low single figure managing agents to half of the market, we have 31 insurance companies on the Lloyd’s platform there in China. Regulatory encouragement in China helped us. Lloyd’s has a very strong and long-lasting relationship with brokers globally, they are strong business houses and now with them coming onshore, it will help our business grow here steadily. We expect us to be prudential and cautious in India because we are looking at building a long-term stable platform here.
India and China are growing as two major economies of the world and I would expect Lloyd’s to play the same role for India and China in the 21st century that it played for the UK and the US in the 20th century. Lloyd’s has a 24% market share in the US domestic specialist insurance industry.
In India, we would expect our business to grow ahead of the country’s GDP growth over a period of time as we expect insurance penetration to increase here.
In India, state-owned general insurers are dominating the industry and are now trying to get listed to get access to the public capital and price their products competitively. Right now, these insurers are finding it tough to price their products and losing on competition to private insurers. How do you see the situation?
Introduction of private capital into the insurance industry is extremely healthy because it puts (the onus of) capital market discipline on the insurance companies. We believe in having an open, competitive market but what is most important for India is to have a strong and sustainable insurance industry. To avoid huge fluctuations in premium rates, it is absolutely necessary to have access to capital.
Credits: Anirudh Laskar, LiveMint