India non-life market to face several headwinds – and COVID-19 to exacerbate challenges: AM Best

COVID-19-driven economic turbulence is likely to exacerbate existing problems in the Indian non-life insurance market, although the extent of the impact will depend on the scale and longevity of the pandemic.

AM Best has said that it is maintaining a negative market segment outlook on India’s non-life insurance sector, citing "strong competition, poor pricing discipline in core business lines, reliance on investment activities for profitability and the economic fallout from the COVID-19" as the key reasons.

The ratings agency stated that aside from investment market pressures expected to result from the COVID-19-driven economic turbulence, non-life insurers also face uncertainty and challenges in other areas of their businesses.

However, AM Best expects insurance premiums in India to continue to grow in the medium term. It said, "recent and further periods of mandatory lockdowns to curb the spread of COVID-19 are likely to drive a slowing and uneven pattern for premium growth in the short term".

"Existing pressures on the underwriting performance of non-life insurers–particularly for the health line of business–are likely to be exacerbated by COVID-19-related claims, although the extent of the impact will remain closely tied to the scale and longevity of the pandemic," the agency said. "Nonetheless, AM Best expects that non-life insurers will gain some respite in motor claims experience with reduced road activity during the lockdown period."

The agency highlighted that the restructuring of several large state-owned non-life insurers, which has been a plan in the works for many years, could create "disruption in the non-life market", as the state-owned companies involved in the transaction are likely to face significant integration and business interruption challenges that could persist for a prolonged period.

Overall, AM Best expects the India non-life market to face several headwinds over the medium term. Some of these factors, including an unhealthy reliance on unrealised and realised gains from high-risk investment classes to offset underwriting losses, have been prevalent for a number of years, said AM Best. However, more recent market dynamics, including heightened economic uncertainty and COVID-19 implications, are expected to weigh further on India’s non-life insurance market.

The agency noted that although the segment consists of a diverse range of insurance companies, the general operating environment in India in the short term is likely to present clear challenges for non-life insurers’ earnings and capital positions.