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Insurance Sector in India

September, 2014


With 36 crore policies, India's life insurance sector is the biggest in the world. The sector consists of 52 insurance companies, of which 24 are in life insurance business and 28 in non-life. The life insurance industry in the country is projected to increase at a compound annual growth rate (CAGR) of 12-15 per cent in the next five years. The industry plans to hike penetration levels to five per cent by 2020, and has the potential to top the US$ 1 trillion mark over the next seven years.

The optimistic outlook is helped to a large degree by the Government of India's efforts to strengthen the sector. The Union Cabinet in July approved a proposal to relax foreign direct investment (FDI) limit in the domestic insurance sector to 49 per cent from 26 per cent, signaling the government's intent to draw capital and investment into the sector.

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.

India was 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 03-13. The non-life insurance premium market also grew at a CAGR of 15.4 per cent in the same period, from US$ 3.1 billion to US$ 13.1 billion.

Digital@Insurance-20X By 2020, by Boston Consulting Group (BCG) and Google India 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$ 49.63-66.18 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.

Key Investments

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

IGATE Corporation has bagged its largest multi-year deal ever, worth US $200 million, in the second quarter (April-June) of 2014. "IGATE has signed a multi-year, platform-based contract with CNA Financial, which is America's eighth largest insurance company to design, implement and manage claim and policy holder administration of CNA's long-term care (LTC) business," as per an official.

Export Credit Guarantee Corporation of India Ltd (ECGC) has signed a memorandum of understanding (MoU) on co-operation with the Export Credit Insurance Agencies (ECA) of BRICS countries. The MoU will help strengthen collaboration among BRICS countries' ECA by setting up a framework of co-operation. This will help to support and promote international trade between BRICS countries.

Indian insurance companies are expected to spend Rs 117 billion (US$ 1.93 billion) on IT products and services in 2014, an increase of a 5 per cent from 2013, as per Gartner Inc. The forecast takes into account expenditures of insurers on internal IT (including personnel), software, hardware, external IT services and telecommunications. Also, insurance companies in India are likely to spend Rs 4.1 billion (US$ 67.84 million) on mobile devices in 2014, an increase of 35 per cent from 2013.

Kotak Mahindra Old Mutual Life Insurance Ltd has launched Kotak Assured Income Accelerator, a plan that takes into account the ever-increasing cost of living by paying an increasing annual guaranteed income in the payout phase. The product also gives the insured the convenience of three different payment and payout terms to suit their different needs.

Future Generali India Life Insurance Company Ltd has launched Care Plus Plan, a pure term insurance plan. Future Generali Care Plus is a simple protection plan, which offers financial security to the family at affordable rates. The plan provides two options - Future Generali Care Plus Classic Option for cover up to Rs 2,500,000 (US$ 411,366.51) and Future Generali Care Plus Premier Option for cover of Rs 2,500,000 (US$ 411,366.51) and beyond.

General insurance companies are starting to cover pre-hospitalisation expenses such as out-patient department and wellness services, apart from the standard hospitalisation expenses. Additionally, these companies are offering several other features such as Worldwide Emergency Cover, disease-specific covers, health maintenance benefits, value-added services in the form of discounts, etc.

Government Initiatives

The Union Budget 201 4-15 increased the FDI limit in insurance to 49 per cent. The increase in the FDI limit could help the insurance industry in two ways. One, this could help companies access capital more easily and, two, it could act as a trigger for listing of insurance players, which will offer a better benchmark to value these companies.

In a bid to facilitate banks to provide greater choice in insurance products through their branches, a proposal could 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.

Road Ahead

The future of India's insurance sector looks good, driven by the country's favourable demographic, greater awareness, supportive government which enacts policies that improve business, customer-centric products, and practices that give businesses the best environment to grow. India's insurable population is anticipated to touch 75 crore in 2020, with life expectancy reaching 74 years. Life insurance is projected to comprise 35 per cent of total savings by the end of this decade, compared to 26 per cent in 2009-10.

Exchange Rate Used: INR 1 = US$ 0.0165 as on August 25, 2014

References: Media Reports, Press Releases, IRDA Journal