India’s Shrinking Auto Business is Shifting Insurers’ Focus to Non-Auto Business

13 Mar, 2023 | Blogs

Today’s economies are significantly changing, fuelled by the development in emerging markets, technological advancements, sustainability strategies, and changing buyer behavior around ownership. But amidst this hype, India is experiencing the worst kind of slowdown in its auto industry, owing to various factors such as slowing economic growth and higher acquisition costs for vehicles. While there is a fall in the employment rate in the automobile sector, manufacturers like Mahindra & Mahindra, Toyota Kirloskar, Hyundai Motor India, and Hero MotoCorp are looking forward to ensuring that they are fully prepared to adopt new technologies, are future-ready on manufacturing, and upskilling its workforce in line, so that they do not fall behind once the economic cycle turns in favor of them.

The industry is one of India’s largest, considering more than 35 million people are employed in the sector directly or indirectly, and contributes over 7% to the country’s overall GDP. As indicated by the International Monetary Fund, the automotive sector witnessed 20% of GDP slowdown in 2018 that resulted in a 30% downturn of the annual global trade. The massive slowdown in the automotive sector has urged insurance providers to look at ways to reduce the dominance of the business in their product mix. Now, the players are looking forward to ramping up non-automotive businesses such as healthcare, fire, and other segments in their operations because of the tumbling growth in the sector.

The automotive business reported the lowest GDP across all categories during the first eight months of the ongoing fiscal because of the decline in auto sales. On the other hand, all the non-auto businesses registered a twofold growth in the GDP until November.

ICICI Lombard General Insurance Co. Ltd., the country’s largest private insurer, witnessed a premium hike from the non-auto segments in the six months through September 2019, as opposed to the auto segment. The growth in non-auto segments surpassed that in the auto segment for other players as well.

SBI General Insurance’s non-motor segment grew by 197 percent in the first quarter of FY20 itself, fueled by 50 percent growth from the health insurance business. At the same time, the auto segment witnessed a fall in its growth by 11 percent for the same period. SBI’s motor to non-motor segment ratio increased from 93:7 in FY18 to 63:37 in the financial year 2019. For HDFC ERGO General Insurance Company Ltd., the health segment’s net earned premium grew the maximum, at a CAGR of 24.5 percent since 2001. Future Generali India Insurance Company Ltd., in its first half of FY20, said that the non-motor segment grew 87 percent, aided by the health insurance business which grew 32 percent during the same period. On the other hand, the net earned premium of the motor segment grew just 10 percent.

Ramping Up the Focus to Non-Automobile Business

Sanjay Datta, Chief - Claims, Underwriting and Reinsurance at ICICI Lombard General Insurance, said that the prime focus would be to drive revenue growth from non-auto segments such as healthcare, property, and casualty among others, by mitigating the gap between motor and non-motor segments.

Future Generali’s Managing Director and Chief Executive Officer, Anup Rau, said that the company has taken initiatives that will impact the growth in retail health, which has so far witnessed a growth of more than 50 percent in its business premium.

“The company expects growth in different health and personal accident insurance products, with the fire and liability-related products being the focus in the corporate segment. Also, there is tremendous potential in the home insurance business because of the existence of both uninsured and underinsured concerns,” said Pushan Mahapatra, Managing Director and Chief Executive Officer, SBI General Insurance.

Road Ahead

Growth in the non-motor business, essentially in the health insurance line of business will be higher than that of the automotive segment, Datta said, aided by growing proliferation and improving quality in relation to greater coverage and depth. In addition, Mahapatra expects high growth in SBI’s health insurance segment this fiscal, with more customers looking for health insurance policies for tax benefits offered.

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