The insurance industry will continue to see M&A deals, new entrants

Mergers and acquisitions will continue to be an integral part of the insurance industry, which is a capital-intensive industry and can accommodate new entrants with specialist skills with a long-term view.

Past developments in this sector and the recent ruling by the National Company Law Tribunal, Mumbai (NCLT) allowing the merger of Exide Life Insurance with HDFC Life indicate that entities without the required expertise may exit the sector.

In order to equip itself with the complexities of mergers and acquisitions, the Insurance Regulatory and Development Authority of India (IRDAI) has started to seek consultants who can undertake the assessment of public and private sector insurers, and train its officials on evaluation methodology and process.

Market participants and analysts believe that the sector has significant development potential and that there will be new entrants in the insurance sector as well as merger and acquisition (M&A) transactions.

“The sector, like others, has witnessed some mergers and acquisitions in the past and will continue to witness it and new opportunities will emerge in the future.

“Players with good underwriting practices, strong finances and good management practices will continue to grow in the long term,” said Anand Pejawar, Deputy Managing Director, SBI General Insurance.

Pejawar further stated that the insurance landscape in India is vast and there is immense reach and sufficient volume for players to co-exist. Considering the growth opportunities in the industry, both big players and niche players can continue to operate in the market.

There are currently 24 life insurance companies and 31 non-life or casualty insurance companies, including specialized players like Agriculture Insurance Company of India Ltd and ECGC Limited.

There has been consolidation in the insurance space in the recent past – the merger of Bharti AXA General Insurance with ICICI Lombard General Insurance was completed in September 2021 and HDFC Ergo acquired Apollo Munich Health Insurance Company in 2020. 2016, HDFC Ergo General Insurance acquired a 49% Stake from L&T in L&T General Insurance.

Avinash Singh, an analyst at Emkay Global Financial Services, said “…given the advantage of economies of scale, in all possibility the top 10 players in life and general will control 90% or more of the pool of profits”.

The experts were of the opinion that the main requirement, both in life insurance and in general insurance, is to bring in more capital and to invest the capital in the development of the business.

“Mergers and acquisitions, while helpful in building scale, don’t necessarily bring more capital into the business. So I think there’s room for a lot more insurers to come in, as opposed to to a consolidation that is implicit in a merger and acquisition,” said Kapil Mehta, Co-Founder, SecureNow.

Economies of scale are important, but they can also be achieved through business growth rather than mergers and acquisitions alone, Mehta added.

Pavanjit Singh Dhingra, co-chief executive of Prudent Insurance Brokers, said “there will be new entrants and there will be mergers and acquisitions – it’s a natural process.”

Insurance companies are also collaborating with insurtechs to deliver innovative solutions and deliver a unified experience across the customer journey, from distribution, to service to claims.

Shailaja Lall, Partner, Shardul Amarchand Managladas & Co, said the insurance industry is capital intensive and there will be continued investment activity in the insurance industry, particularly as it which concerns insurtech companies, led by private equity funds.

“In the recent past, several insurer promoters have completely or partially exited their insurance businesses to focus on their core business, including the recent exit of Exide Life Insurance promoters from its insurance business and the subsequent merger of Exide Life with HDFC Life Insurance which recently received NCLT approval,” Lall said.

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 ownership of insurers to increase from 49% to 74%.

Furthermore, Parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, allowing the central government to reduce the shareholding to less than 51% of the share capital of a specified insurer, paving the way for privatization.

According to a study, India is likely to become the sixth largest insurance market in the world over the next 10 years, supported by a regulatory push and rapid economic expansion.

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