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Insurance Sector in India

June, 2014


With 36 crore policies, India's life insurance sector is the world’s largest. The life insurance industry in the country is forecasted to increase at a compound annual growth rate (CAGR) of 12–15 per cent in the next five years. The industry aims to hike penetration levels to five per cent by 2020, and has the potential to touch US$ 1 trillion over the next seven years.

The cap on foreign direct investment (FDI) also looks likely to be increased from 26 per cent to 49 per cent. The Insurance Bill which has been approved by the Government of India and will in all possibility be cleared by the Parliament is expected to increase FDI inflows to US$ 10 million in the short term.

Market Size

The total market size of the insurance sector in India was US$ 66.4 billion in FY 13. It is projected to touch US$ 350–400 billion by 2020.

Information technology (IT) services, the biggest spending segment of India’s insurance industry at Rs 4,000 crore (US$ 666.78 million) in 2014, is expected to continue enjoying strong growth at 16 per cent. Category leaders are business process outsourcing (BPO) at 25 per cent and consulting at 21 per cent.

India ranked 10th among 147 countries in the life insurance business in FY 13, with a share of 2.03 per cent. The life insurance premium market expanded at a CAGR of 16.6 per cent from US$ 11.5 billion to US$ 53.3 billion during FY 03–FY 13. The non-life insurance premium market also grew at a CAGR of 15.4 per cent, from US$ 3.1 billion in FY 03 to US$ 13.1 billion in FY 13.

Key Investments

The following are some of the major investments and developments in the Indian insurance sector:

  • ING Vysya Life Insurance recently changed its name to Exide Life Insurance. For FY 2013– 14, the company doubled its profits to Rs 53 crore (US$ 8.83 million) on the back of renewal premium and better efficiency and product mix.
  • HDFC Life has launched a participating children’s plan which has money back options. The plan named 'HDFC Life Youngstar Udaan' enables parents to use the key formative years of their children to plan for their secure future. The plan caters to critical milestones such as the child’s education, marriage, establishment of business, etc.
  • Star Health and Allied Insurance Co Ltd on has launched a modified diabetes insurance policy by the name Star Diabetes Safe. The policy covers regular hospitalisation expenses, regardless of the number of years the individual has been living with the condition, as per Mr V Jagannathan, Chairman and Managing Director, Star Health.
  • About three of every four insurance policies sold by 2020 would be in some way influenced by digital channels during the pre-purchase, purchase or renewal stages, as per a new report by Boston Consulting Group (BCG) and Google India. This report, Digital@Insurance-20X By 2020, forecasts that insurance sales from online channels will grow 20 times from present-day sales by 2020, and overall internet influenced sales will touch Rs 300,000–400,000 crore (US$ 50.02–66.70 billion).
  • Investment corpus in India’s pension sector is projected to cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, as per a joint report by CII–EY on Pensions Business in India.
  • Insurance companies in the country will spend about Rs 12,100 (US$ 2.01 billion) crore on IT products and services in 2014, a 12 per cent increase over 2013, according to Gartner Inc. The forecast includes spending by insurers on internal IT (including personnel), software, hardware, external IT services and telecommunications. The Rs 1200-crore (US$ 200.16 million) software segment is predicted to be the fastest external segment, with overall growth of 18 per cent in 2014.
  • Insurance companies in India launched awareness initiatives on April 19, 2014 on the occasion of Insurance Awareness Day. Insurance Regulatory and Development Authority (IRDA) had earmarked April 19 as Insurance Day, as the sector regulator was formed on that day. IRDA plans to partner with organisations through its Bima Bemisaal (brand name for the organisation’s insurance awareness campaign) campaign to drive home the significance of insurance among the populace.

Government Initiatives

In a bid to facilitate banks to provide greater choice in insurance products through their branches, a proposal will likely be made which will allow banks to act as corporate agents and tie up with multiple insurers. A committee established by the Finance Ministry of India is likely to suggest this model as an alternative to the broking model.

Public sector banks will soon be offering their customers a choice of insurance products from different companies as against products from a single company. The Finance Ministry of India has written to public sector banks, asking them to turn into insurance brokers instead of corporate agents. "By becoming brokers, banks would now be directly responsible for mis-selling as against earlier when they were seen to be acting as agents of insurance companies," said Mr Sam Ghosh, CEO, Reliance Capital.

IRDA body Insurance Information Bureau (IIB) has created a registry of healthcare providers and allocated them unique IDs. By creating this database, the regulator plans to build an analytics capability for spotting endemics, evaluating medical cost inflation, and detecting fraud.

Road Ahead

The insurance sector’s future looks bright, on the back of India’s favourable demographic, greater awareness, supportive regulatory environment, policies that improve customer-centric products, and practices that help businesses grow. India's insurable population is projected to touch 75 crore in 2020, with life expectancy reaching 74 years. Life insurance will continue to supplement household financial savings, and is projected to be 35 per cent of total savings by the end of this decade, as against 26 per cent in 2009–10.

Exchange Rate Used: INR 1 = US$ 0.0167 as on May 8, 2014

References: Media Reports, Press Releases, IRDA Journal