Growth Of Insurance
Industry In India
After Privatization Life Insurance Sector
Is At An Inflection
Point
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Dr.S.S.S.Durga Ganesh
Abstract
During the first decade of insurance sector liberation, the sector reported a consistent increase in insurance
penetration from 2.71 per cent in 2001 to 5.20 per cent in 2009. However, since then, the level of penetration
has been declining and reached to 3.96 per cent in 2012 which is much below the global average of 6.5 per
cent of GDP. The density of insurance business has gradually increased from 11.50 in 2001 to 64.40 in 2010.
Since then, the density has shown falling trend and recorded at 53.20 in 2012-13. The predominant reasons
for the fall in the life insurance business is declining premium collections and the regulator tightening the
rules governing this sector followed by decline in the household financial savings ratio. Erode in the principle
paid by the policy holders in the form of premiums due to volatility in capital markets coupled with high cost
investments is another reason for low penetration of insurance business in India apart from mis-selling, agents
attrition and business models adopted by the insurers.
1. Introduction
The Indian life insurance industry today is at an inflection point. Insurance Regulatory and Development
Authoritys (IRDA) annual report for 2011-12 shows that since the insurance sector was opened to private
players in the year 2000 it has been growing at about 20 per cent on an average but the year 2011 saw the
first-ever fall in life insurance density to $49 (about Rs.2,695) in 2011, from $55.7 (about Rs.3063) in 2010.
Density had risen every year from 2001 and contributed substantial growth in GDP till 2010. Succeeding
annual reports of IRDA for the FY 2012-13 reported that, insurance penetration has fallen again in the second
consecutive period and stood at 3.96 per cent of gross domestic product in 2012-13, down from 4.10 per cent
in 2011. Similarly, insurance density fell to $53.2 in 2012 compared to $59 in 2011. Life insurance density
further fell to $42.7 in 2012 from $49 in 2011. This indicates that in the past three years, the growth in
insurance premium was lower than the growth in national GDP. On the life insurance side, the density fell to
3.17 per cent in 2012 from 3.40 per cent in 2011. (Business Standard Jan 2, 2014). In addition to the low
penetration in insurance industry, volatile equity market is prompting insurance investors to surrender their
ULIFs. The data shows that about one lakh crore worth life insurance policies surrendered last fiscal(201213) (Business Line Feb 22,2014).
India ranked 10th among 156 countries in the life insurance business, with a share of 2.3 per cent during
FY2012 and ranked 19th among 156 countries in the non-life insurance premium income, with a share of 0.62
per cent in FY2012. The life insurance premium market expanded at a compounded annual growth rate
(CAGR) of 20.1 per cent from USD 11.5 billion in FY 2003 to USD 59.9 billion in FY 2012 and the non-life
insurance premium rose at a CAGR of 18.0 per cent from USD 3.4 billion in FY 2004 to USD 12.7 billion in
FY 2013.
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The share of private sector in the life insurance premiums increased from 2 per cent in FY 2003 to 29.3 per
cent in FY 2012 and the market share of private sector in non-life insurance premium rose from 14.5 per cent
in FY 2004 to 42.9 per cent in FY 2013.
The insurance penetration and density are the measures that reflect the level of development of a countrys
insurance sector. While insurance penetration is measured as the percentage of total insurance premium to
gross domestic product, insurance density is calculated as the ratio of premium to population (per capita
premium). Insurance penetration which surged consistently till 2009, then slipped for three consecutive years,
to 4.1 per cent in 2011 from 5.1 per cent in2010. 3.96 per cent of gross domestic product in 2012, down from
4.10 per cent in 2011. This has been attributed to a
compared with that of the rate of growth of the Indian economy. Data from the IRDA shows that India now
stands much below the global average of 6.5 per cent of GDP in insurance spread at 3.96 per cent. The life
insurance industry has seen a big dip in premiums due to fluctuations in both group segment and the single
premium segment. Even the countrys largest insurer, Life Insurance Corporation saw a 6 per cent drop in
new business premiums for the April-January, 2013. Private insurers collected Rs.21, 220.45 crore - a dip of
five per cent over previous year.
A turbulent economy coupled with a tough regulatory environment has led to an uncertainty in the insurance
sector, with business numbers seeing a drop and joint venture partners exiting existing ventures. When
additional players are needed in the insurance market, existing joint venture players are slowly exiting on the
other hand. New Yark Life Insurance is exiting its life insurance joint venture with Max India and ING
announcing its exit from its life insurance joint venture ING Vysya Life Insurance. Pantaloon Retail has
decided to sell a 22.5 per cent stake in Future General India Life Insurance to Industrial Investment Trust
Limited (IITL). Also , both Indian and foreign joint venture partners in several life and general insurance
firms are in talks to exit the ventures, owing to regulatory constraints and tough economic conditions.
The performance of Indian life insurance companies should also be seen from the perspective of growth. The
growth in the life insurance is a function of the countrys economic growth. Over the last two-three years,
despite household savings remaining the same, financial savings have come down. The RBI data, last year,
revealed that it had fallen to 8 per cent from around 12 per cent earlier. Slowdown in the economy and other
macro-economic factors affected the allocation of investments towards financial services products. However,
very surprisingly the insurance data vis--vis household savings remained more or less constant at around 2223 per cent of overall savings. The 2001 to 2004 is the period of growth in private insurers, 2004 to 2008
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was a win-win for all, 2008 to 2010 was a period of a little bit of confusion, and 2010 to 2013 was a period of
regulations towards building the trust and development of the insurance sector.
Table 1: The comparison of new premium collection among LIC and private life insurers (Rupees in Crore)
Name of the Insurer
Period
Period
(Private/Private)
April-Jan 2013
April-Jan 2012
Life
Corporation
(LIC)
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Insurance 55,305.1
of
India
59,145.37
Remarks
Private
Life
Insurance 21,220.45
22351.0
companies
Total
76,526
81,497
Source: IRDA
The above table shows that private life insurers perform better than public sector Life Insurer (LIC). Out of
the total
new premium
Rs.55,305.1 crore and reported 6 per cent fall (as compared to previous year
private players share is Rs. 21.220.45 crore, reporting a dip of 5 per cent. Almost 12 years after the
insurance sector in India was opened up, its real potential is yet to be tapped. With a decline in insurance
penetration and new business premiums witnessed. The total new business premium collected by life insurers
in April-January FY2013 stood at Rs.76,524.54 crore, when compared toRs.81,496.68 crore in April-January
FY2012. Sector experts say that the worst is over and the industry will only look up from now for good days.
However, the market share of LIC had increased to 72.70 per cent during 2012-13, compared to 70.68 per
cent in the previous year while private life insurerss share declined from 29.32 per cent to 27.30 percent.
This happened due to the proportion of sales force LIC has. LIC has an agency force of 11.72 lakhs while
private companies have 9.49 lakh agents working for them (Business Line Jan 7,2014).
Table 2: The comparison of new premium collection among public and private non- life insurers (Rupees in
Crore)
Name of the Insurer
Period
Period
(Private/Public)
April-Dec 2013
April-Dec 2012
21,268.16
17,373
Remarks
28,623.28
24,493
Total
49,891.44
41,866.74
Source: IRDA
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The above table-2 shows that the premium collection of non-life insurers shows a growth of 19.1 per cent for
the nine month period ended December 31,2012, and stood at Rs.49.891.44 crore compared to Rs.41,866.74
crore for the same period of 2011. Non-life segment, however, has seen a marginal increase in penetration and
density. Insurance density rose to $10.5 in 2012 from $10 in 2011. Non-life insurance penetration though was
still under one per cent, rose from 0.70 in 2011 to 0.78 in 2012.
The public general insurers contributed Rs.21,268.16 crore to the pool money for the nine months ended
December 31,2012 showing a 22.42 per cent growth over the corresponding period of 2011. On the other
hand private general insurers contributed 16.86 per cent growth in the same period, adding Rs.28,623.28
crore to the kitty in the same period. It can be understood from the above two tables
better in position by an overall growth of 19.1 per cent over the previous year 2011 in the same period. In case
of Life insurers the overall dip in the new premium collection recorded 6.5 per cent as compared to previous
year April- January 2013. The predominant reasons for the fall in the life insurance business erode in the
principle paid by the policy holders in the form of premiums followed by crash/uncertainty in the stock
markets (volatility in capital markets) and followed by heavy charges charged by the insurers in the form of
administration charges, fund management charges, fund allocation charges and mortality etc., apart from misselling, attrition and business models of various insurers and lack of professionalized sales persons.
2001
11.50
2002
14.70
2003
16.40
2004
19.70
2005
22.70
2006
38.40
2007
45.60
2008
47.40
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2009
54.30
2010
64.40
2011
59.00
2012
53.20
Source: IRDA
Above table-3 shows that since Indias insurance sector was opened to private participation, the density of
insurance business has gradually increased year by year and reached to 64.40
density is 11.50 in 2001, 38.40 in 2006 and 64.40 in 2010. It has a recorded growth of nearly 6 folds as
compared to 2001 density. The year 2011 shows falling trend and recorded at 59 and stood 53.20 in 2012.
The insurance density is calculated as the ratio of premium to population (per capita premium).
of
country
2001
2006
2011
2012
World average
4.68
4.5
3.8
India
2.15
4.1
3.4
3.96
China
1.34
1.7
1.8
Brazil
0.38
1.3
1.7
Source: IRDA
The world average penetration was 4.68 in 2002, it went up to 4.5 in 2006, and in 2011 it dropped to 3.8. In
India, insurance penetration was 2.15 in 2001,went up to 4.1 in 2006 and then came down to 3.4 in 2001.In
China, penetration was 1.34 in 2001,1.7 in 2006 and 1.8 in 2011,while for Brazil it was 0.38 in 2001,1.3 in
2006 and 1.7 in 2011
IRDAs annual reports shows that since insurance sector was opened to private participation in the year 2000 ,
the insurance penetration has increased trend and recorded to nearly 5 per cent in the year 2009-10 and
fallen to 4.10 per cent in 2011and stood at 3.96 per cent of gross domestic product in 2012, down from 4.10
per cent in 2011(Business Standard Jan 2,2014). The insurance penetration is measured as the percentage of
insurance premium to GDP.
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1. Create trust at the end the day in financial well being to a customer, and the customer should feel that the
solutions provided by the life insurance industry are properly regulated by the regulator.
2.
Bancassurance will provide a big boost for the growth of the insurance sector if banks can act as broker.
Currently, about 50 per cent business comes from bancassurance, 30 per cent from the agency channel
and the rest from other channel.
3. Distribution reforms were also key to the industrys growth. Framing a common set of rules on selling
practices and incentive structures for all intermediaries may do far more for financial product penetration
today than product reforms have done so far.
4.
Insurers required attracting and retaining agents in the sector. Agents attrition is also a major issue, with
almost 45-50 per cent of business coming from insurance agents. Higher incentives for agents, while
customers wallet is not pinched along with a definite career progression path.
5. While approving the new products use - and -file mechanism is demanded where insurers can start selling
a product by following the basic guidelines instead of a file-and - use mechanism where each product has
to be first approved by IRDA before its sale is permitted.
6. The industry should have a frame work for clearing products by looking at the basic features, leaving
some room for innovation by the companies.
7. Incentivizing existing players and attracting foreign players would be the key to the sectors survival.
8. Price corrections have been described as one of the biggest needs of the general insurance industry since
insurers are looking for regular premiums increases in the motor and health insurance segments to match
the rise in inflation. (maintain a balance between the customers ability to pay and charging an adequate
price for services provided)
9.
10. Implementation of catastrophe insurance (and pool formation) as one of the unfinished agenda in the
tenure of farmer Chairman Mr. J.Harinarayan. Cat pool mechanism is the need of an hour to deal with
losses from catastrophic events such as floods and cyclone Nilam etc., (a catastrophe pool (cat- pool) is
similar to that of terrorism pool, helps distribute the risk of such natural disasters evenly there by offering
quicker relief to the victims. It also lowers the hit that individual insurers have to take on their books. It
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was envisaged that the pool would be created through premiums paid by citizens, supplemented by
government funds. Reinsurers should also take part in this concept).
11. Pricing, innovations and products should be left to discretion of the insurance firms while approving the
products.
12. Customer friendly and industry friendly distribution reforms are definitely the need of the hour.
13. Recent Finance Ministers announcement in 2013-14 budget in terms of distribution of insurance
products, opening of branches will boost the insurance industry.
The recent guidelines by IRDA and RBI enabling insurance broking by banks may help reduce operational
costs of insurance companies, due to marginal incremental expenditure by insurance companies in setting up
distribution chain,. It believes that frauds, high lapse-ratio and macro-economic variances affecting the
industry performance are some of the key challenges to the insurance industry.
KYC of banks will be sufficient to acquire insurance policies. All the banks are permitted to act as insurance
brokers so that the entire network of bank branches will be utilized to increase penetration. Banking
correspondents will be allowed to sell micro-insurance products. Group insurance products will now be
offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, school
teachers, nurses in hospitals etc. Today buying the life insurance product has become very simple and easy
process. A customer can choose between buying from an agent, a bank or online. The present technology
solutions have empowered customers, facilitating the making of informed decisions and providing a smooth
buying experience.
1. Private & Public sector banks may join the insurance broking business in order to increase insurance
penetration and avoid mis-selling of insurance products (The business line 23-12-13).
2. New IRDA norms promise challenging year for life insurers. The regulatory changes will pave the way
for the sustainable growth of the industry in the long term.
3. E-policy to reduce the cost to insurers: Insurance policy document will become digital and paperless like
shares in the New Year 2014 and the policyholders would be saved from preserving the physical copies
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of their insurance policies. From April2014 onwards, policy document would come in electronic form for
all the new insurance policies sold. Over 25 crore policy holders owning close to 37 crore policies would
get their e-insurance in phased manner.
4. The 2014 promises to be a challenging one for the life insurers. They will need to phase out various old
products in keeping with new norms. From January 1,2014 only products that conform to the new
guidelines announced by the IRDA in the first half of 2013 are allowed for sale. This means insurers
need to re-file all their products for approval. So far IRDA has cleared over 500 products in line with the
new design norms.
5. Union Finance Minister P Chidambaram launched the IRDA's Insurance Repository System (IRS) on Sep
16,2013.The objective of creating an insurance repository is to provide policy holders the facility to keep
insurance policies in electronic form.
One of the key products which can drive future growth is pension and health related products only in India.
So far these products have negligible penetration in India. This segment is potential for this insurance
industry. This is the time to start building awareness and communicate the right side of the life insurance in a
massive way. It should include reaching out through advertisements and multiple customer testimonials
suggesting why they are happy with life insurance. Literacy on insurance is to be developed on SEBI lines.
The proposed reforms in bancassurance allowing banks to function as insurance brokers would make two key
shifts in the system. One, banks can sell products of more than one insurer. Secondly, as a corporate agent, the
bank represents the insurer, but as a broker it will represent the customer. This will definitely widen the
insurance penetration in India very smoothly and easily.
1. The middle class is an attractive segment due to its sheer numbers and buying power. It is constantly
looking for solutions in tax savings, retirement and health and wealth categories.
2. The bottom of the pyramid and rural markets are the emerging segments that look for composite products
(Micro-insurance) and health insurance.
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3. An extensive rural-agent network for the sale of insurance products needs to be established to tap the
bottom-of -the -pyramid and rural markets.
4. It will be imperative for life insurers to understand the different needs of the customers, design products
to match their needs and create efficient distribution models.
5. Players need to offer a balanced mix of ULIPs and traditional products with the element of guaranteed
return and flexibility in surrenders with low cost. (most insurers have re-launched their old products in
the first two-week of Jan 2014 based on the regulators mandate. But traditional insurance plans are still
far from a mouth-watering proposition for investors)
6. The need of the hour is to concentrate on such products like pension and pension annuities
7. Concentrate on health related products since 14 per cent population in the country is covered under any
health insurance of any form.
8. E-issuance of policies, straight-through processing and increased process optimization to provide costeffective customer service.
9. Leveraging the internet and other technology options to provide single window service so as to cross-sell
and retain customers. It will also be easier and cheaper for customers to process requests, complaints and
payments online.
10. Customer service is the prime objective of the insurance sector to retain itself in the industry. Accelerated
climes settlement process and rapid customers service will continue to remain as the key strengths for
players.
11. A multi-pronged approach will be followed to loss written premium to increase the penetration of
insurance, both life and general, in the country.
12. It is the time for both the regulator and the insurance industry to start building awareness about life
insurance.(now all the regulators have to be filed their advertisements with the regulator to avoid false
returns/mis-selling)
13. Servicing: Good customer service along with strong technology driven solutions which offer need-based
life insurance solutions that meet customers requirements.(the technology should offer pre & post
customer service with simple application)
14. Professionalization of sales persons: Even though this community of salespersons has contributed
immensely to the mobilisation of savings of people, they are often seen with contempt and distrust. Steps
should be taken to restore the professional dignity of insurance advisors and project them as role models
for sales personnel in other industries.
15. The system need to ensure that, the agent continuous to be engaged with them for long time
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9. Conclusions
The flow of money into any financial product is largely governed by the household financial savings rate and
the business of insurance is subject to governmental regulation to protect the public interests as well regulate
& develop the industry. Over the last three years, despite household savings remaining the same, financial
savings have come down. Slowdown in the economy and other macro-economic factors affected the
allocation of investments towards financial services products. Volatility in capital markets, high cost
investments, and mis-selling are some of the reasons impacting investment decisions of prospective
customers. The large young population, combined with the current low rate of life insurance penetration and
high rate of personal savings, points to the upside potential for the Indian insurance market. Higher demand
for retirement products, growing awareness, and education in middle-income class group and sustained
growth in urbanisation rate would lead to the growth in insurance industry. Today, all the factors are in place
for it to develop into one of the fastest growing financial services market in the world.
The professional dignity of insurance agents should be promoted and projected as role models. The present
technology solutions have to empower the prospective customers, facilitating the making of informed
decisions and providing a smooth buying experience. Now a customer can choose between buying from an
agent, a bank or online. The recent guidelines issued by IRDA and RBI enabling insurance broking by banks
may help reduce operational costs of insurance companies. The industry expects the new regulatory changes
and government initiatives to aid prompt penetration of insurance business in India. It believes that frauds,
high lapse-ratio and macro-economic variances affecting the industry performance are some of the key
challenges to the insurance industry.
If we allow banks to function as insurance brokers, they can help spread insurance to uncovered areas say
rural areas in terms of new branches of both private and LIC insurers, deploying agents or direct sales force to
sell insurance to widen the insurance penetration.
10. References
1.
BL.2014. RBI norms soon on banks insurance broking biz. Business Line Jan 06,2014
2.
BL.2014. LIC agents more productive than their private sector counterparts. Business Line Jan 7,2014
3.
BS.2012. Low penetration of general insurance an issue: IRDA Member Non-Life. Business Standard Oct 18,2012
4.
BS.2012. Insurance density falls for first time in India: IRDA. Business Standard Dec 21, 2012
5.
BS.2012. Insurance density falls for first time in India: Report. Business Standard Dec 22,2012
6.
BS.2013. General insurance penetration rises to 0.73. Business Standard Nov 28, 2013
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7.
BS.2014. Insurance density, penetration show decline. Business Standard Jan 2,2014
8.
9.
ET.2013. FM asks IRDA to increase insurance density. The Economic Times Apr 13, 2013
10. ET.2013. IRDA okays most plans ahead of October deadline. The Economic Times Sep 09, 2013
11. ET.2013. P Chidambaram launches IRDA's Insurance Repository System. The Economic Times Sep 16, 2013
12. ET.2013. Insurance lacking on many fronts: IRDA. The Economic Times Sep 25, 2013
13. ET.2013. Insurance premium income to grow at faster rate in FY14-18: Care Ratings. The Economic Times Dec 21,2013
14. Hindu.2013. New products in sync with modern times: IRDA. The Hindu Nov 09, 2013
15. IBEF, November 2013. Insurance Sector in India.
16. IRDA, Monthly reports
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