Understanding the Insurance Sector Scenario in India

Whether it's Life or General Insurance, the insurance sector in India has surely revived over the past few decades due to privatization. Since the introduction of The Indian Insurance Companies Act in 1928, the major reform in the insurance industry came through in 1993 with the formation of the Malhotra Committee. Its aim was to determine the performance of the sector and guide through the prospective in the future.

The committee emphasized on the need of an independent governing body which brought in the formation of Insurance Regulatory and Development Authority (IRDA) in 2000 to protect the interest of the policyholders and to help the insurance industry grow with their various strategies. Till date IRDA has applied 27 regulations pertaining to the insurers, insurance companies and the insurance agents.

The life insurance business took off in 1956 when it got nationalized after the Central Government took over 245 Indian and Foreign insurers and provident societies. It was when LIC came into existence with financial assistance from Government of India.

General Insurance concept in India dates back to 1850 when the British established Triton Insurance Company Ltd in Kolkata. The revival came through in 1973 when it got nationalized with 107 insurers forming four companies, namely,

1.         i.            The New India Assurance Company;
2.       ii.            The United India Insurance Company Ltd.;
3.     iii.            The National Insurance Company Ltd.;
4.    iv.            The Oriental Insurance Company Ltd.

In December 2000 these four arms were disintegrated and declared as independent insurance companies. Over the next few years the insurance industry saw a flood of new companies including 24 Life insurance companies and 27 General Insurance company. With the introduction of a pool of insurance companies, gradually the insurance sector in India became the biggest opportunity in India.Life insurance sector in India is already the largest in the world with 36 crore policies and is projected to grow at a rate of 12-15% in the next five years. For the General Insurance industry the growth was estimated at 15% for FY14. However, there has been a fluctuation and ambiguity noticed in the insurance sector in the last few years due to an unstable economy and some firm governing rules. At the time when more competitors are needed in the industry, the joint venture organizations are leaving, such as, Pantaloon Retail opting to auction off its 22.5% share in Future General India Life Insurance to IITL, ING leaving the ING Vysya Life insurance or New York Life Insurance opting out from Max India.

The major factors affecting the growth of Life Insurance in India:

• unstable economy
• firm regulations
• inadequate financial savings
• other macro-economic factors

Let's look at the insurance penetration in India from a global outlook:

The above statistics are based on percentage of the insurance premium to GDP. As per IRDA reports, the insurance participation showed a rising trend in 2000 due to increased private players in the industry, however, gradually saw a dip towards 2012.

This also led to the fall of insurance density in India since 2011:

Insurance density is measured as the premium ratio to population. As per the graph we see that though there has been a gradual rise in the density due to private players joining the industry, there was a fall since 2011.

On the other hand the General Insurance industry recorded a notable growth in the last ten years. The compounded annual growth (CAGR) reported was 18% in financial year 2013. As opposed to the Government backed sectors (PSUs) the private sector companies have recorded an increased growth rate with a rise in market share to 47% in the first half of the financial year 2014 out of which the major contributor in the general insurance category is Motor Insurance. This category reported a market share of 46% alone in financial year 2013, followed by the Health and Personal Accident Insurance and Fire & Engineering segment.

Out of three major categories, Health and Personal Accident insurance is the only segment that should experience growth with more stress by the insurance companies, government initiations such as, RashtriyaSwasthBimaYojna and public realization while the other two may see a dip due to the lower GDP growth majorly.

The overall factors affecting the insurance penetration:

• The fluctuating share markets have been one of the reasons due to which the ULIPs saw a downfall in the past few years. They have not been able to yield substantial returns even after five years, which led to IRDA to apply some strict regulatory measures on ULIPs in 2010. This further led to fall in sales due to a steep decline in the fund values;

• The economic turbulence globally due to US in 2008 and Europe in 2011 which is going to remain for sometime especially on the Indian insurance sector;

High charges levied by the insurance companies despite the market  condition;

• RBI reported many accusations on mis-selling of insurance policies which resulted in random cancellations;

• Insurance agents gradually drifted away from ULIPs due to the stringent regulations laid on the product making it difficult to be sold and affecting their commission;

• Turn-around time for the approvals is quite long for the new insurance policies;

• Not many in India have a proper knowledge or clarity about insurance. Public awareness is still an issue; In fact, there is a lack of skilled and knowledgeable insurance agents who can guide the customer through various policies at the same time;

• The overall insurance agent attrition rate is at 11% for the insurance industry which is a major concern.

Opportunity in the Indian Insurance Sector and Scope of Improvement:

Apart from the GDP growth which may not be in control, there are many other aspects that if paid attention to can lead to a substantial growth in the industry. Targeting the middle-class with more purchasing power or rural markets, building a skilled and professional network of agents even in the rural areas, presenting the customers with products specially designed to meet their needs, increased public awareness, balanced combination of regular polices with ULIPs, stressing on retirement plans & health plans, increased focus of availing policies through the use of internet, and dedicated customer service can serve as an accelerator to the gloomy scenario of the insurance sector. However, with the recent initiative from the Government of India, showing a green flag with 49% FDI in insurance and consent to the SEBI Act amendment, there is a ray of hope shining.

Madhuparna loves to express her opinion by scripting down ideas on various subjects - politics, movies, social issues, lifestyle and current affairs.