The Potential of India's Insurance Industry

Introduction
India's Insurance Industry has experienced immense growth in recent years. India is one of the fifth largest life Insurance market in the world and has become of the most prominent emerging insurance markets globally. This growth in the Insurance industry has been fuelled by increasingly favorable government policies, rising incomes, and increasing financial awareness among the middle class. In recent years, the industry has experienced a rise in competitiveness with a rapid rise in innovation and new product offerings. India has also experienced a significant rise in insurance-related startups and an increase in foreign investments. In 2021, the government increased the FDI limit of India's insurance industry from 49% to 74%. This was considered a boon for foreign players in India's insurance industry and helped fuel product innovation and thus aiding in increased insurance penetration. India's insurance industry currently has 24 life insurance companies. Out of these companies, 23 belong to the private sector. One of the most prominent companies in India's life insurance industry is the Life Insurance Corporation of India (LIC). LIC has played a significant role in driving India's insurance penetration and expanding the industry's reach.

Size of India's Insurance Industry
In recent years India's insurance industry has experienced significant growth. The Life insurance industry has seen a rapid rise in New Business premiums. India's Life insurance sector controls more than Rs. 46,449 crores (US$ 5.68 billion) of deployed capital, has managed assets worth Rs. 5,249,271 crores (US$ 641.98 billion), and has infrastructural investments worth Rs. 458,614 crores (US$ 56.08 billion). As of March 2022, the industry has been able to generate direct employment for more than 3.55 lakh people and has more than 24.43 lakh agents. The industry has also experienced a significant rise in product innovation. The total number of products in India's Life insurance industry rose from 665 in March 2020 to 800 in March 2022. Currently, there are 847 products in the Life insurance industry.

New business premiums in the Life insurance industry stood at US$ 38.3 billion in FY22, from US$ 26.21 billion in FY19. The life insurance industry's renewable premium also stood at Rs. 377,398 crores (US$ 46.16 billion), out of which Rs. 64,383 crores (US$ 7.87 billion) were linked premiums and Rs. 313,015 crores (US$ 38.27 billion) were unlinked premiums.

India's non-life insurance sector has also experienced significant growth. The gross direct premium in the non-life insurance sector grew from Rs. 201,739.66 crores (US$ 24.68 billion) in FY21 to Rs. 220,700.23 crores (US$ 26.98 billion) in FY22, a rise of 9.40%. In FY23 (until September 2022), the gross direct premium stood at Rs. 125,195.91 crores (US$ 15.30 billion), a 15.31% rise compared to the same period previous year. India's non-life insurance segment was dominated by health, automobile, fire, and liability insurance. Despite the significant growth of India's insurance industry, India's overall insurance penetration stood at only 4.20%, out of which 3.20% was by the Life insurance sector and 1% by the Non-Life insurance sector.

Key Factors triggering the growth of insurance markets in India:
Various factors have triggered the growth of India's insurance industry. Some of these factors include:

• Increased Distribution of Rural Insurance:
  Including the uninsured rural areas and the urban poor in insurance coverage is crucial to enhance insurance penetration in India. Insurance companies provide creative, affordable insurance solutions that correspond to the market. The government of India also introduced Ayushman Bharat to provide insurance for India's 10 crore poor and vulnerable families and provides coverage up to Rs. 5 lakh (US$ 6,117).
• Product innovation, Cost-effective offerings:
  For almost all non-life insurance products and some life insurance products, Insurance Regulatory and Development Authority (IRDAI) has implemented the "use & file" approach. This approach has aided insurance providers to focus on developing innovative, cost-efficient, and simple retail insurance products.
• Technology & Innovation:
  With the help of big data and digital transformation, the insurance market in India is evolving rapidly. Technology is being used efficiently to speed up claim processing and settlement, which reduces turnaround times (TATs) and boosts consumer confidence. Machine learning has the potential to significantly improve the operations and complaint procedures of insurance firms, reduce claim fraud, and automate settlements. Technology integration throughout the insurance sales cycle will revolutionize the market over the coming years and significantly increase insurance penetration.

India's Insurtech Industry
The rapid growth in India's insurance industry has aided the rise of Insurtech. The insurtech industry is essentially the integration of technology into insurance. The integration of insurance and technology would provide a significant boost for the industry; it will help increase insurance distribution in the rural segments of India. It will also provide increasingly customizable products for the life insurance industry. Integration of drones, satellites, and big data would aid insurers in understanding risk more accurately. Integration of technology in the Insurance sector would also help reduce the friction between claims and settlements and help drive the overall coverage of India's insurance industry. India's Insurtech industry has experienced significant momentum in recent years. Funding in Insurtech has doubled in the last 2 years. As of 2021, the total equity funding in India's Insurtech Industry stood at US$ 800 million and was US$ 10 million in 2016. Most of the equity funding in India's insurtech industry is concentrated in the general insurance sector. India currently has three unicorns: Policybazaar, an application-based policy comparison and purchase platform; Acko, a digital-first insurance platform; and Digit, a tech-integrated general insurance startup.

Insurtech industry would help expand the penetration of India's insurance industry and help India's insurance industry realize its full potential. In July 2018, NITI Aayog introduced the blueprint of the National Health Stack (NHS) initiative. The National Health Stack (NHS) is a futuristic digital framework that can be used by both the centre and the state in both the public and commercial sectors. It is a comprehensive platform that supports a wide range of health verticals and their many branches, and it can integrate future IT solutions for the Insurance sector. NHS is expected to be a global standard, similar to UPI.

Outlook
India's insurance industry has grown at a double-digit growth rate of 12-15% in the last five years. This has majorly contributed to the increased penetration of India's insurance market. This tremendous growth in India's insurance sector has resulted from increasing FDI, rising incomes, awareness, and favorable government policies. Integration of Tech into insurance would be considered a game changer for the sector and aid India in exploring the full potential of India's insurance industry. India already has a robust startup ecosystem, and the exploration of new-age startups in India's insurance industry would be a game changer and help drive the growth of the Indian insurance ecosystem.

Note: Conversion rate used for October 2022 is US$ 1 = Rs. 81.12