India's life insurers need smarter policies for growth

Industries in start-up mode can be innovative, scrappy and undisciplined as they scramble to grow and capture market share. Those traits have certainly characterized the rambunctious life insurance market over the past decade of India's rapid economic expansion.

Despite their torrid growth, Indian insurers are discovering that the route to profitability is a long and arduous one, typically taking nearly a decade to break even. Only a handful of the industry's largest players, such as ICICI Prudential and Bajaj Allianz, have recently begun to turn a profit.ife insurers' uphill climb to profitability is becoming even steeper. Despite the industry's shallow profit pools and adverse economics, new competitors continue to crowd into the market.

Eight new companies have entered over the past five years, and several more are actively drawing up plans to join them. Meanwhile, the Insurance Regulatory and Development Authority (IRDA), the industry's public overseer, issued new rules last fall to curb consumer abuses that are slowing industry cash flows.

Suddenly, already distant profitability goals look even further away. Overall, industry analysts estimate that the new IRDA rulings will reduce the discounted profits on new policies sold by between 8 percent and 10 percent and will increase the amount of capital insurers will be required to hold in this already heavily capital intensive business by some 40 percent.

Insurers that hope to survive the coming shakeout and ultimately turn profitable will need to find efficiencies and boost productivity in three key areas:

1) Target the right customers.

2) Rethink the distribution network.

3) Strip waste out of opex.