BRIEF INTRODUCTION
The future of the
Indian insurance sector looks bright. The sector which stood at a strong US$ 72
billion in 2012 has the potential to grow to US$ 280 billion by 2020. This
growth is driven by India’s favourable regulatory environment which guarantees
stability and fair play. This environment has given rise to an insurance market
which encourages foreign investors to tap into the sector’s massive potential.
Ever since the Indian
government liberalised the insurance sector in 2000 and opened the doors for private
participation, the sector has gone from strength to strength. The resultant
competition has provided the consumer with a never-before-seen range of
products and providers, and also enhanced service levels markedly.
The health of the
insurance sector reflects a country’s economy. This sector not only generates
long-term funds for infrastructure development, but also increases a country’s
risk-taking capacity. India’s economic growth since the turn of the century is
viewed as a significant development in the global economy. This view is helped
in no small part by a booming insurance industry.
INDUSTRY DYNAMICS
Consistent growth in
the insurance sector depends on a few factors. Some of these are:
- Effective distribution channels
– The efficiency and cost of the various distribution strategies used by
companies are significant to their success in the insurance business. This
particularly holds true for the retail business.
- Focus on overall financial
inclusion – As time evolves, so must the approach of the insurance sector
in India. The objective of the insurance sector should ideally be to offer
a broader range of activities to a wider populace.
- Consumer needs and preferences
– The growth of India’s insurance industry can be attributed to product
innovation, dynamic distribution channels, and vibrant publicity and
promotional campaigns run by insurance companies. Benefits attached to the
products and the manner in which they are delivered (through various
marketing tie-ups) have helped bring customers and insurance companies
closer to each other and made the latter more relevant.
Health insurance is an
up-and-coming segment in this sector. Currently, it caters for 10 per cent of
the overall US$ 30 billion healthcare expenditure in India. Consequently, there
is plenty of scope for players in this area.
The life insurance
segment contributes about 4 per cent to India’s gross domestic product (GDP) in
terms of total premiums underwritten annually. There are 23 private companies in
the segment. The state-owned Life Insurance Corporation (LIC) dominates the
field, with about 71 per cent of the market share, according to Insurance
Regulatory and Development Authority (IRDA).
KEY STATISTICS
- India’s life insurance segment
collected new business premiums worth Rs 11,742.7 crore (US$ 1.84 billion)
for April–May 2013. Indian insurance companies collected a combined Rs
107,010.7 crore (US$ 16.85 billion) worth of new premiums for FY 2012–13,
according to data released by IRDA.
- Meanwhile, the general
insurance industry grew by 19.6 per cent in April–May period of FY
2013–14. Non-life insurers collected premiums worth Rs 13,552.46 crore
(US$ 2.13 billion) in the first two months of the current year, as
compared to Rs 11,333.54 crore (US$ 1.78 billion) during the corresponding
period of the previous year.
NEW DEVELOPMENTS/ PRODUCT LAUNCHES
- Insurance companies will now
have more freedom to invest in sectors such as IT and pharmaceuticals.
IRDA has increased the sector specific exposure limit for investments to
20 per cent of the insurer’s total investment, from the previous 15 per
cent.
- The electronic
know-your-customer (e-KYC) services used by the Unique Identification
Authority of India (UIDAI) will be accepted as a valid verification
process for insurance, according to IRDA. Through e-KYC, insurance
companies can conduct electronic identity verification. The agencies can
obtain an electronic identity document of the customer which is digitally
signed by the UIDAI. This service enables a quicker and more efficient
process for the customer as well as the insurance company.
- Private player Cognizant
Technology Solutions has successfully acquired ValueSource, which is a
subsidiary of KBC Group, a Belgium-based multi-channel bank insurance
organisation. Under the initial five-year agreement, the Indian company
will provide a number of services to KBC, including application
development and maintenance, and software testing.
- • United India Insurance Co Ltd
(UIICL), the second largest general insurance company in India, intends to
open 530 new offices domestically in 2013. As of now, UIICL has 1,340
offices in the country, as per their website. In FY 2012–13, the company
collected total premiums worth Rs 9,266 crore (US 1.45 billion) and has
set a target of Rs 11,000 crore (US$ 1.73 billion) for FY 2013–14.
GOVERNMENT INITIATIVES
- The Government of India has
passed the Pension Fund Regulatory and Development Authority (PFRDA) bill
that allows foreign investors to hold 26 per cent stake in the insurance
sector. The primary objective of the bill is to provide pension cover to a
greater percentage of the country’s population. The PFRDA bill would also
provide subscribers a wider range of investment choices. The bill will
provide better regulation of the sector and provide more confidence to
investors, according to Mr Yogesh Agarwal, Chairman, PFRDA.
- Aviation insurance is likely to
emerge as an important segment in the near future with new players in the
market operations and existing players seeking to increase fleet size,
according to industry officials. At present, the current market size of
aviation insurance hovers around Rs 500 crore (US$ 78.76 million), a
figure that is almost certain to grow as the industry develops further.
- In
order to enhance financial inclusion in the country and develop
bancassurance as a business, IRDA has facilitated banks to sell insurance
policies. Application for the licence required to act an insurance broker
can only be obtained after prior approval from the Reserve Bank of India
(RBI). Banks would be required to apply under the direct broker category.
The licence will be valid for three years.
ROAD AHEAD
The insurance business
in India is projected to reach Rs 4 trillion (US$ 63.01 billion) in FY 2013–14,
according to Mr TS Vijayan, Chairman, IRDA. Total premiums collected by the
general and the life insurance industry in FY 2012–2013 amounted to Rs 3.75
trillon (US$ 59.07 billion). The chairman believes that insurance penetration
in India has the potential to rise to 5–6 per cent from the current 3.86 per
cent.
Life Insurance
Council, the industry body of life insurers in the country, has projected a
compounded annual growth rate (CAGR) of 12–15 per cent over the next five years
for the segment. India’s insurable population is expected to grow to 750
million by 2020, with life expectancy projected to reach 74 years around the
same period. The council believes that this favourable Indian demography would
result in more people seeking out life insurance. Also, the council predicts
life insurance penetration – percentage of insurance premium to GDP – to reach 5
per cent by 2020 from its current 3.2 per cent.
Confederation of
Indian Industry (CII) projects the growth rate for India’s insurance industry
in FY 2013–14 to be around 5 per cent. It also anticipates 60 per cent of
non-life insurance companies to record an average growth of more than 10 per
cent. The raising of the foreign direct investment (FDI) limit from 26 per cent
to 49 per cent in the sector is viewed as a key element to promote the
insurance industry in India.
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