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Insurance Sector in India

November, 2014


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

This bright outlook for the sector is primarily due to the Government of India's efforts to strengthen the industry. For instance, the Union Cabinet in July 2014 approved a proposal to relax foreign direct investment (FDI) limit in the domestic insurance sector to 49 per cent from the previous 26 per cent, signaling the Centre's intent to bring capital and investment into the sector.

Market size

The total market size of India's insurance sector is projected to touch US$ 350-400 billion by 2020 from US$ 66.4 billion in FY13.

Digital@Insurance-20X By 2020, a report by Boston Consulting Group (BCG) and Google India, projects insurance sales from online channels to increase 20 times from present day sales by 2020, and overall internet influenced sales to reach Rs 300,000-400,000 crore (US$ 48.51-66.68 billion).

Investment corpus in India's pension sector is anticipated to cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII-EY on Pensions Business in India.

Indian insurance companies are expected to spend Rs 117 billion (US$ 1.89 billion) on IT products and services in 2014, an increase of five per cent from 2013, as per Gartner Inc. Also, insurance companies in the country could spend Rs 4.1 billion (US$ 66.29 million) on mobile devices in 2014, a rise of 35 per cent from 2013.

Key Investments/Developments

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

The Insurance Regulatory Development Authority (IRDA) believes that the country's insurance sector needs capital infusion of Rs 50,000 crore (US$ 8.08 billion) to expand reach, maintain a healthy capital base and enhance solvency standards."Industry needs a huge amount of capital," as per Mr TS Vijayan, Chairman, IRDA.

The IRDA has come up with a long-term motor third-party insurance policy for two-wheelers, with a three-year term. As per the regulatory body, the total premium for the third-party coverage would be three times the yearly third-party premium for two-wheelers as decided by the regulator.

IGATE Corporation has clinched its largest ever multi-year deal, worth at least US$ 200 million, in the first quarter (April-June) of FY15. "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 cooperation with the Export Credit Insurance Agencies (ECA) of BRICS countries. The MoU which was signed in the presence of Heads of Governments from BRICS countries will aim to strengthen collaboration among the member countries' ECAs.

Kotak Mahindra Old Mutual Life Insurance Ltd has launched Kotak Assured Income Accelerator. The product gives the insured the convenience of three different payment and payout terms to cater to their different needs.

Future Generali India Life Insurance Company Ltd has launched pure insurance term plan, Care Plus Plan. Future Generali Care Plus provides two options - Future Generali Care Plus Classic Option for cover up to Rs 2,500,000 (US$ 40,426.28) and Future Generali Care Plus Premier Option which covers up to Rs 2,500,000 (US$ 40,426.28) and beyond.

General insurance companies are beginning to cover pre-hospitalisation expenses apart from the standard hospitalisation costs. Also, these companies are starting to provide several other features such as worldwide emergency cover, disease-specific covers, and health maintenance benefits, among others.

Government Initiatives

The Union Cabinet has cleared a bill to raise the foreign investment ceiling in private insurance companies from 26 per cent to 49 per cent, with the proviso that the management and control of these companies will be with Indians. This ceiling will be composite - both foreign portfolio investment and FDI.

The benefit of accidental insurance cover of Rs 100,000 (US$ 1631.97) has been made available to all those who opened accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) launched on August 28, 2014 by Prime Minister Mr Narendra Modi; it would now cover also those who have opened zero balance accounts before August 28, to avoid duplication.

The Indian government plans to launch a new insurance scheme for farmers in order to protect their incomes against price and production risks, as per Mr Radha Mohan Singh, Agriculture Minister. These risks can affect farmers' capacity to invest in advanced crop varieties and impede capital formation in the sector.

To facilitate banks to provide greater choice in insurance products via their branches, a proposal could be made which will allow banks to be corporate agents and tie up with multiple insurers.

Road Ahead

The future of India's insurance sector looks bright. The country has a favourable demographic, growing awareness, investment friendly government which is constantly working towards framing policies that can attract investment, customer-centric products, and practices that give businesses the best possible environment to grow. India's insurable population is anticipated to touch 75 crore in 2020, with life expectancy reaching 74 years. Furthermore, life insurance is projected to comprise 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$ 0.016 as on November 27, 2014

References:Media Reports, Press Releases, IRDA Journal