23 Apr Is the Indian insurance industry ready for Vision 2025?
“Artificial Intelligence (AI): Better Than None?”
“Amazon mulls cheaper home insurance premiums based on its AI tech”
“Non-tech businesses are beginning to use artificial intelligence“
In the news, on the papers, and in almost every nook and corner of our lives, we come across the hot-term Artificial Intelligence. Although AI is hotly debated for its merits and demerits, is it being utilized to its full potential in the banking and insurance sectors? If you have been following the news lately, it would be almost impossible to come across a new development in these sectors which does not incorporate the use of AI to digitally transform operations- be it in tracking customer journeys, or to automate sales process. In the recently closed 3rd Annual Insurance India Summit & Awards, we dived deeper into how banks and insurance companies are adapting to adopt the immense potential of harnessing leading trends to push the BFSI industry into what the world envisions as the future.
Let us be honest with ourselves and not just throw each and every problem we face today for AI to solve. We need to understand the marketplace scenarios it has to deal with it. AI not only refers to a specific software algorithm but a broad spectrum of capabilities of the machine that thinks like a human, and processes data a like a human. But it is only as good as the information it is fed with. The recently updated policy by the RBI, new Government policies to keep a check on USA’s unilateral trade policy wars, and the ever-changing start-up ecosystem in the country – has its effects in the Indian insurance and banking marketplace.
While assessing global trade scenarios, it is imperative to take into account the effects of Trump’s trade war against growing economies. US monetary tightening usually reduces capital flow into emerging markets. But given the uncertainty surrounding the Donald Trump administration, the dollar still seems to be in doldrums, along with the Indian Rupee. Looking closer to our neighbors, China’s move towards clean energy is hampering the Chinese manufacturing sector. According to a recent report by Nomura, the upsurge in producer price inflation that bolstered the profits of state-owned enterprises last year is deteriorating. Countries exposed to a China growth slowdown (through exports) are expected to face a huge blow. Last year, India-China bilateral trade had reached USD 84.44 Billion.
Emerging Middle Class
Compounding to international trade scenarios which have a direct impact on the Indian economy, the middle-class society has been exploding, with household incomes increasing twenty fold since 1990. Analysis of the longer-term trends suggests that the boom of the 2000s, where there was a 9 percentage point pick-up in domestic saving and investment rates, was exceptional.
Now coming back to the AI and innovations in the sector. With the increase in income and exponential growth of purchasing power as well as household savings, the insurance sector is witnessing emerging trends like product innovation, multi-distribution, better claims management and regulatory trends. Adding on, demographic factors like the growing insurance awareness of the insurance, retirement planning, growing middle class and a young insurable crowd will substantially aid the increasing growth of the sector. Macro and micro-economic trends are on the positives, with few setbacks here and there. But all in all, the future seems fertile.
India has a 3.42 percent penetration rate in the insurance sector, against the global average of 6.2%. The market is yet to realize its full potential. Companies are now taking a fresh approach to profitability by keeping a close eye in the micro-management level. Data analytics, innovative distribution models, the digital revolution, and widespread adoption of AI, IoT, and blockchain, is set to catapult the insurance sector into the future. Adoption of technology and internalizing digitization of insurance processes for the benefit of customers will be some of the regulatory challenges in BFSI sector may run into. But taking into account the potential of the demographics and regulatory schemes in place, the country’s insurance market is expected to quadruple in size over the next 10 years from its current size of USD 60 Billion. Factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance.