New Delhi, January 21: India's slowing economy will weigh on insurance premium growth over the next 2-3 years, although supportive measures put in place by the Insurance Regulatory and Development Authority of India (IRDAI) will help counterbalance the deteriorating economic environment, said Moody's Investors Service in its new report.

“India's GDP growth weakened to its slowest rate in five years in the fiscal year ended March 2019, and the resultant financial pressure on rural households amid weaker job creation is in turn also weighing on premium growth,” said Benjamin Serra, Moody's Senior Vice President.

“Nevertheless, the country's low insurance penetration rate suggests ample room for further growth, while supportive government and regulatory initiatives are also helping mitigate the currently challenging environment for Indian insurance and reinsurance companies,” added Serra.

Growth in India's real gross domestic product (GDP) declined to 6.8 per cent in fiscal 2018 (year ending March 2019), the lowest in five years. Moody’s expect real GDP growth to slow further to 4.9 per cent in fiscal 2019 (year ending March 2020) before partly recovering to 6.3 per cent in fiscal 2020. The slowdown, which has increased financial pressure on rural households amid weaker job creation, will weigh on (re)insurance premium growth.

It said health premiums in particular are likely to increase as a result of the Ayushman Bharat, or National Health Protection Mission, a government-funded initiative that aims to provide 100 million families with up to Rs 500,000 (~$7,000) of health insurance coverage each year.

Additionally, the IRDAI has put in place a series of measures, including the removal of the limit on foreign ownership stakes in Indian insurance intermediaries, which will strengthen distribution capabilities.

The regulator also plans to introduce a new risk-based capital (RBC) system with similar principles as the Europe's Solvency II regime, which should help improve insurers' risk management, while measures to safeguard customers and encourage innovation should help raise the insurance penetration rate.