India's motor insurance market will contract by more than a quarter this year due to the lockdown restrictions and economic uncertainty brought on by COVID-19, forecasts suggest.
Data and analytics firm GlobalData said that it expects India's motor insurance business to decline by 27.2% in 2020, compared to growth of 10.1% last year.
The sector is now forecast to register a compound annual growth rate of 1.1% up to 2023, down from a previous estimate of 11.3%.
GlobalData insurance analyst Pratyusha Mekala said: “The recent lockdown restrictions resulted in the decline of consumer spending and impacted the new vehicle sales.
“In June 2020, the passenger vehicles and two-wheelers sales declined by 50% and 40%, respectively, compared to June 2019. This has impacted motor insurance premium collections.”
How India's motor insurance business is expected to grow over the next three years is shown below:
According to the Insurance Regulatory and Development Authority of India (IRDAI), motor insurance premiums registered growth of 1% in June 2020, as compared to the previous year.
GlobalData said that this growth could be attributed to the higher share of renewal premiums.
The motor own-damage sub-segment declined by 2.7% due to a fall in vehicle sales, however, the mandatory third-party liability segment reported 3.2% growth during the same period.
Recent regulatory changes could also impact premium growth after the IRDAI delayed a proposed hike ranging between 2-10% on third-party liability insurance premiums.
GlobalData said that the move to discontinue long-term own-damage motor policies, effective 1 August 2020, will also result in lower spending on motor insurance this year.
“Despite the gradual revival of the economy, motor insurance business recovery is expected to be stretched,” Mekala continued. “The pressure on new vehicle sales is likely to continue until 2021, resulting in sluggish growth in motor insurance premiums.”
Author: Chris Seekings
Image credit: iStock
Graphic credit: GlobalData