The Indian insurance sector is growing at a phenomenal pace. The fastest maturing insurance industry among the G20 countries, India’s insurance industry is set to become the sixth biggest insurance market worldwide in the next ten years. Rising consumer awareness, higher incomes, a growing sense of financial security among Indians and the continuous regulatory support from the insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), to fulfill its ambitious aim of delivering ‘Insurance for All’ by 2047 is fueling this upward tick for the industry.

How swift is the growth for the Indian insurance market?

The IRDAI has predicted a remarkable 7.1% real-term increase in total insurance premiums for the Indian insurance market between 2024 to 2028 – a pace well above the world’s average growth rate of 2.4%. Despite such progress, the insurance penetration in India still remains low at 3.8% of the country’s GDP in 2023; however, the industry is expected to raise this percentage to 4.5% by 2034. Initiatives such Bima Sugam, Bima Vahak, and Bima Vistaar are being supported by the Indian regulators in order to bridge this disparity and increase the protective outreach of insurance to low-income and rural areas.

What are the top emerging risks faced by insurers today and how are they responding to them?

• Geopolitical risks: Since the past few years, geopolitical conflicts, trade disputes and economic sanctions have caused immense market volatility and impacted business operations and investment returns of stakeholders. Many public and private insurance companies are increasingly providing political risk coverage to companies, shielding them from losses arising due to political events such expropriation and political unrest and relieving them from the prevailing financial strain. Simultaneously, insurers must guard themselves against the same threat aspects and many of them are increasingly including geopolitical scenarios into their risk management frameworks/models.

• Technological/cyber risks: Rapid adoption of cutting-edge technology (big data, artificial intelligence, machine learning, the Internet of things) by insurers to create smooth, end-to-end digital insurance journeys have opened the doors to novel varieties of cyber threats, increasing data breaches, ransomware attacks and identity theft. In response, insurance companies are adopting innovative, highly personalised cyber insurance policies for both individuals and businesses, to offset the financial damages resulting from disruptive cyber threats. Insurers are also directing investments into cutting-edge cybersecurity technologies like encryption and multi-factor authentication for their own operations in an attempt to safeguard sensitive consumer data. They are also formulating and upgrading their cybersecurity policies in line with the recent regulatory cyber guidelines and establishing cyber task units to address vulnerabilities like algorithmic biases and data security flaws.

• Climate risks: The geographical expanse and resulting degree of climate changes in India makes policy formulation a difficult and more expensive task. Lack of comprehensive data and advanced underwriting models to effectively analyse and price climate-related risks has constrained the Indian insurance market to solely account for weather insurance ‘crop’ coverage that primarily services the agricultural industry. But climate hazards go far beyond this level as they include the erratic seasonality brought about by global warming and natural catastrophes such floods and drought among many others. The Indian insurance sector needs to offer a wide range of climate-related insurance solutions for markets other than just the rural sector.

On the other hand, several international insurance companies and marketplaces have pioneered the creation of strong climate risk insurance products, including creative parametric insurance products that guarantee prompt payments depending on predetermined weather triggers, including rainfall levels or wind speeds. These methodologies can be a benchmark for the Indian insurance industry which can be leveraged while building a sustainable climate insurance market.India must invest more in diverse data collection and climate risk modeling if it is to create a balanced and viable climate insurance market. It also needs to encourage and generate public awareness to drive demand and establish regulatory support mechanisms to develop such specialised insurance solutions.

• Sustainable insurance: Rising environmental, social, and governance (ESG) challenges are constantly pushing the insurance sector to adopt sustainable practices. This green transition is not merely a regulatory or an ethical requirement but is a strategic opportunity to increase long-term resilience and market competitiveness. Some Indian insurers are already paving the way as innovators in green insurance solutions which support sustainability by offering policies with discounts for electric cars and energy-efficient houses. They are also engaging in impact investments (investment strategies that generate financial returns while encouraging positive ESG practices) and directing funds towards sustainable agricultural and renewable energy initiatives. To further commit to sustainability, insurers are nowadays rigorously following ethical marketing standards and ensuring that their products are promoted transparently and responsibly.

How are industry leaders responding to these challenges?

Industry leaders are increasingly shifting the focus of the insurance sector towards mitigating emerging risks by employing multifaceted strategies amidst the escalating geopolitical and economic uncertainties. Central to these strategies is conducting extensive macroeconomic trend analyses, which enables insurers to further develop specialised scenario planners that can predict various possible outcomes. This proactive method consists of rigorous stress testing and the building of continuous monitoring systems aimed at effectively anticipating and tackling uncertainties.Cybersecurity has become one of the top priorities for insurers, with CXOs channeling significant investments towards adopting stringent security policies to protect sensitive consumer data from leaks and illegal access. Leaders are strategically aligning their existing frameworks to comply with the recent Data Protection and Privacy (DPDP) Act 2023, highlighting the growing dedication of upholding privacy as the most important criteria for the sector.

Moreover, to accurately assess the cost of every risk separately, reinsurance firms are also looking at unbundling all catastrophic occurrences including riverine floods, droughts, coastal flooding and hurricanes. This approach will act as a push for general insurance firms as well to adopt separate pricing methods and ultimately aid in strategically enhancing their underwriting practices.

Nowadays there is a noticeable shift towards ethical marketing practices to address market conduct risks. Insurance leaders are ensuring that their firms align their marketing campaigns with responsible practices which are transparent and uphold the integrity of consumer trust while promoting their insurance products. By embracing these strategic approaches, industry leaders are not only enhancing their ability to handle present-day challenges but are also capitalising on future possibilities for sustained growth and innovation in a changing global environment.