Devesh Srivastava, Chairman-cum-Managing Director at GIC Re, believes that despite its challenges the COVID-19 pandemic has increased awareness about insurance products and will help penetration in the long run.
Speaking in an interview with Reinsurance News, Srivastava discussed the impact of the coronavirus crisis over the past year, as well as the future outlook for the Indian re/insurance market.
Indian reinsurance market is overseen by its regulatory body, IRDAI, which imposes a 5% reinsurance cession to Indian reinsurers.
GIC Re, which is backed by the Indian government, is currently the only reinsurer operating in the country, and therefore enjoys the full extent of this 5% obligatory cession.
The company also benefits from a Right of First Refusal (ROFR) which ensures that GIC Re gets to see the risk first, and by which reinsurance can be placed outside India only if the capacity within the Indian reinsurance market is exhausted.
Currently, apart from GIC Re, many established reinsurers have Indian entities which transact reinsurance business in India, including Lloyds of London syndicates.
Addressing the impact of the pandemic on this market, Srivastava told Reinsurance News that the claims burden has not been significant, but noted that the industry has instead been hit by a reduction in demand from other classes of business due to lockdown measures.
Unlike in many other countries, the wording in business interruption (BI) policies in India was considered to be clear enough that re/insurers have not faced credible challenges on the property side, Srivastava added.
“Pandemic losses from property and casualty classes have not been significant,” he explained. “As Indian insurance covers Business Interruption only if there is a Material Damage loss, losses form the business interruptions have not been triggered. Further pandemic exclusion is already present for all property class of business.”
The Indian market has also experienced comparatively mild costs on marine and aviation business, which have been a major source of losses for re/insurers in other parts of the world.
Srivastava observed that transportation systems including ports, inland carriers, air cargo and storages were considered to be essential and maintained throughout the pandemic, although disruption in the global supply chains has created some challenges.
In fact, the GIC Re executive believes that the pandemic will ultimately lead to positive change for re/insurance market in India.
“The pandemic does throw up an increased awareness for insurance product and will definitely help penetration in the long run,” he said. “Many opportunities have presented themselves during COVID and Mumbai has emerged as the health insurance capital of India.”
Regarding the response to the pandemic by re/insurers and the possibility of public-private solutions, Srivastava warned that the state must be willing to take on considerable financial responsibility if such measures are to succeed.
“Pandemic risks are difficult to price as the loss potential from such kind of events can be drastic from accumulations,” he told Reinsurance News. “Uncontrolled exposures could lead to a situation wherein an insurance or reinsurance company could become insolvent. Setting up of pandemic pools, especially with State or government backing can be conducted only if there is significant outlay to the pool by the State. The feasibility of a pandemic pool by only insurance and reinsurance capacity within a country could be a difficult task.”
Going forward, Srivastava expects GIC Re to weather the pandemic and continue to consider its opportunities for expanding abroad, building on its existing branches in London, Dubai and Malaysia and also subsidiary companies in Russia and South Africa.
And within India, the reinsurer is confident it will continue to benefit from first preference rules “in some form or the other” despite some contention over the rules from foreign re/insurers looking to expand into the market.
“GIC Re has always been the reinsurer of choice in the domestic market and enjoys excellent relationship with the cedants which has been built and nurtured over the years,” Srivastava concluded.
“So that comfort level will always be there, notwithstanding the entry of additional foreign companies. Post the first batch of foreign reinsurers which came in, we have not seen any rising trend as such, though opportunities exist in the market for more players. GIC Re has always believed that the Indian market is big enough for all players and their presence will only help the market grow and mature.”