Non-life insurance: healthy competition

The state of the non-life insurance segment which is primarily comprised of health and motor insurance has not been the healthiest. Net premiums have only managed a seven percent annual growth since 2010, while Life insurers (private sector) have seen premiums expand 30 percent annually in the same period.
Such a comparison, however, does not do justice to the former. General and life insurance markets are very different from each other, having different sensitivities to common growth drivers. Simply put, their demand functions are dissimilar.
Growth in non-life premiums for instance, relies more on expansion in GDP, or more specifically the spending power of individuals and corporations, while the fate of Life insurers is controlled more by their distributive efforts. Our economic performance hasn’t been particularly impressive, but new distribution channels and product innovation has helped the cause of life insurers in particular.
While life insurance may be the better performer (and the bigger of the two as of 1HCY15), there is one key area where non-life market is better, at least in the eye of regulators – competition. The segment has around 30 firms, compared to just six in Life. The latter suffers in this regard because of a long spell of State Life monopoly, which discouraged new entrants after the government allowed competition from private players in early 1990s. Even today, State Life does more than twice the business of the remaining life insurers combined.
The non-life segment hasn’t been faced with such a hurdle to competitiveness. The segment’s top four players, EFU, Adamjee, Jubilee and IGI do account for bulk of the business – 59 percent of the net premiums (1H15), but this percentage has dropped from 70 percent in 2010. In contrast, Life insurance, even within the private sector, lacks competitiveness. EFU Life and Jubilee Life account for over 80 percent of premiums. Similarly, profits are skewed more towards the larger players in Life, as compared to non-life insurance.
While competition alone is not enough for non-life segment to take off, it does allow for greater efficiency and innovation. In the current situation though, the focus of both life and non-life insurers is to enhance the penetration rates – the biggest bottleneck to the broader industry.