Mergers and Acquisitions (M&A) play a vital role in the continuous growth of the Indian insurance industry. New entry firms are coming up to ensure that they are able to provide specialised services in light of the need for capital-intensive and long-term investment.
Mumbai, the recent action of the National Company Law Tribunal (NCLT) to allow the merger of Exide Life Insurance Company Private Limited (Exide Life) with HDFC Life Insurance Company Limited (HDFC Life) is yet another development that shows that Entities without the required expertise may leave the sector.
The Insurance Regulatory and Development Authority of India (IRDAI) has started looking for consultants who can evaluate state-owned and private sector insurance companies and train their executives on valuation methodology and procedures.
“This sector, like others, has seen some mergers and acquisitions in the past and will continue to see them emerge and new opportunities emerge in the future. Anand Pejawar, Deputy Managing Director, SBI General Insurance said, “Players with good underwriting practices, sound financials, and proper management practices will continue to grow for a long time.
Pejawar further said that India's insurance landscape is vast and there is ample scope and ample volume for players to co-exist. Given the scope for growth in this sector, both large and niche players can continue to operate in the market.
At present, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialty players such as Agriculture Insurance Company of India Limited and ECGC Limited.
“There is a possibility that the top 10 players in life and in general will capture 90% or more of the profit pool,” said Avinash Singh, an analyst at Emkay Global Financial Services.
Experts say that the industry should invest more capital to grow the business and expand its geographical presence, which in turn helps in earning profits.
“M&A, while useful in building scale, does not necessarily bring more capital into the business. So, I think there is an opportunity for many more insurers to enter, unlike the consolidation inherent in M&A,” said Kapil Mehta, co-founder, SecureNow.
The insurance industry's focus on collaboration and innovation is the latest trend in this area. Insurers have realised that partnering with Insurtech will lead to a more efficient and integrated customer experience.
Insurance penetration in India increased from 3.76% in 2019-20 to 4.20% in 2020-21, registering a growth of 11.70%.
Last year, the government amended the Insurance Act to allow foreign holding in insurance companies to be increased from 49% to 74%.
The General Insurance Business (Nationalisation) Amendment Bill, 2021 - which was made public yesterday - aims to help create an environment of equal opportunity and perfect competition in the Indian insurance market.
To promote competition, the government is expected to allow the sale of at least 15% of the insurer; the rest will be distributed among the minority shareholders.
According to a study, India is likely to become the world's sixth largest insurance market in the next 10 years, supported by regulatory push and rapid economic expansion.
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