Insurance

Indian Insurance Industry: Brief overview

The Indian insurance industry is hugely driven by higher disposable incomes, changing demographics, Government efforts, launch of new products, lesser complexities and entry of foreign players. The sector is not only outpacing India's economic growth figures, but is also standing strong as an important financial segment through turbulent times.

As per industry estimates, insurance penetration in India stood at 5.1 per cent in fiscal 2010-11. While life insurance penetration was marked at 4.4 per cent during the year, general insurance sector penetrated to an extent of 0.7 per cent in 2010.

As of now, insurance accounts for just 3 per cent of overall healthcare expenditure in India which implies that there lies a great potential to enhance the penetration of insurance as a concept. The scope of growth is further enhanced by rural India's development as a major contributor to the economy as the clan residing in hinterlands is increasingly getting aware of new products and services across all the economic and social segments.

The Rs 2.9 trillion (US$ 58.7 billion)-Indian life insurance industry has emerged as the mainstay of entire insurance space. With over 35 crore life insurance policies in force, the industry has registered remarkable growth since its privatisation in 2000.

The overview further discusses how the sector has fared in terms of growth, developments and Government participation in the recent past.

Indian Insurance Industry: Recent Statistics

The 24 life insurance players' premiums collected in April-December 2011 stood at Rs 71, 953.54 crore (US$ 14.59 billion) while the industry sold about 27.24 million policies during the period, according to data collected by the Insurance Regulatory and Development Authority (IRDA).

With respect to general insurance industry, there was a growth of 24 per cent in first three quarters of 2011-12 in gross written premium collected. The general insurance industry collected premium of Rs 42,023.3 crore (US$ 8.51 billion) by writing new policies during the period.

While private insurers registered a growth of 26.73 per cent in premium collection at Rs 17,525.3 crore (US$ 3.55 billion), the four state-owned general insurance companies collected Rs 24,498.1 crore (US$ 5 billion) (22.1 per cent higher than the corresponding period a year ago).

Health Insurance Industry in India

According to a recent report by UK-based research firm BRICdata, Indian health insurance market would scale new heights in terms of growth owing to the country's robust economic growth, changing demographic patterns, expected increase in foreign direct investment (FDI) limits and the expansion of distribution networks. The Indian health insurance segment accounted for 3.2 per cent of the overall insurance industry in 2011 thereby leaving a lot of scope for further growth and penetration. During the review period (2007-2011), the penetration of Indian health insurance products stepped up from 0.07 per cent in 2007 to 0.19 per cent in 2011, as many new policies were sold in hinterlands.

The health insurance business constitutes more than 25 per cent of the general insurance industry in India. Health insurance premium collection during the April-September period of 2011-12 rose 21.3 per cent to Rs 6,721.53 crore (US$ 1.36 billion) from Rs 5,540.34 crore (US$ 1.12 billion) in the year-ago period.

Recent Developments

• Health insurance policies are on their way to get 'age-free'. Though the proposal is still at a nascent stage, IRDA has already taken a step towards this concept by making it mandatory for policies to have 'life long' renewal clause. This implies that once a health insurance policy is issued, an insurer would be obliged to continue renewing such a policy during the policyholder's lifetime. However, the entry age barrier would continue to be there
• Some general insurance companies have already started applying for such 'age-free' policies. For instance, Apollo Munich Insurance applied for such a policy a few months back and is awaiting regulator's approval
• Cigna TTK Health, a joint venture (JV) company between US-based Cigna Corporation and India's TTK Group, is in the process of applying for the R1 licence with the regulator IRDA and expects to commence operations in the first quarter of 2013
• The JV firm, being the new entrant on the Indian health insurance block, intends to be innovative and hence plans to set up a distribution network through which simple health insurance products could be sold by pharmacies themselves
• State-owned Life Insurance Corporation (LIC) would buy 5 per cent stake in Punjab & Sind Bank. The bank's proposal to issue 11.2 million fresh shares is awaiting Securities and Exchange Board of India (SEBI)'s decision regarding the rate and is eventually subject to approval from the Government of India and other regulatory entities
• The infusion of additional capital aims at strengthening bank's 'Capital to Risk-weighted Assets Ratio' (CRAR) and support its business growth
• HDFC Life, a private life insurance company and a JV between India's Housing Development Finance Corporation Ltd (HDFC) and UK's Standard Life plc has launched its first international operations with the opening of its representative office in Dubai. The launch comes as a result of the company's strategy to serve large non-resident Indian (NRI) base in the Gulf region
• In a bid to enhance overall customer offering and rapidly expand its motor insurance business, private insurer SBI General has entered an alliance with My TVS and India Assistance. The tie-up aims to provide emergency roadside assistance to its policy holders anytime and for any car across the country

Government Initiatives

The Ministry of Finance is planning to appoint an independent advisor at the Insurance Regulatory and Development Authority (IRDA), who would directly report to the Government and assist the regulator in policy decisions.

Also, the Government may set up advisory groups across segments to discuss issues relating to growth, product development, insurance penetration and regulations pertaining to the sector.

Further, insurance regulator IRDA may soon give its nod for making insurance policies available in demat form, paving way for e-insurance accounts and e-policies. Five entities - CAMS, Karvy, NSDL, CDSL and STCI – have already been shortlisted to set up and operate insurance repositories. An insurance repository is a company that maintains data on insurance policies electronically on behalf of insurers. If IRDA give its approval, India would probably be the first country in the world to undertake such a massive activity of converting physical insurance policy certificates into electronic form.

Road Ahead

According to a report by BRICdata, the market size of Indian life insurance industry is anticipated to touch US$ 111.9 billion in 2015 from US$ 66.5 billion in 2011, marking a compounded annual growth rate (CAGR) of 14.1 per cent. The report estimates that India would be the third-largest market for life insurance in the world by 2015, only after China and Japan. At present, India stands 12th among the top global markets for life insurance. Also, the number of policies sold is expected to increase to 85.21 million in 2015 from 53.23 million in 2010. While individual life insurance segment is expected to account for 79.3 per cent of the life insurance industry in 2015 (from 74.8 per cent in 2010), unit-linked insurance plans (ULIPs) are estimated to be fastest growing product category at a CAGR of 21.2 per cent during that year.

Exchange Rate Used: INR 1 = US$ 0.0203 as on February 16, 2012

References: Media Reports, Press Releases