An Overview of Insurance Industry in India

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Overview:
 
The insurance industry in India has always been characterized as one with tremendous potential. Post- liberalization, it has witnessed tremendous growth with private and foreign players being allowed to enter the market. There are 57 insurance companies with 24 engaged in Life insurance business and 33 non-life insurers. Gross premiums written in India reached US$ 94.48 billion in FY18, with US$ 71.1 billion from life insurance and US$ 23.38 billion from non-life insurance. Over FY12–18, new business premiums of life insurers in India have increased at a 14.44 per cent CAGR, while premiums for non-life insurers increased have increased at 16.65 per cent CAGR in the same period.
 
Despite this, insurance reach in India is still low. Overall insurance penetration (premiums as % of GDP) in India was 3.69 % in 2017, compared to a global average of 6.13 %. Insurance density (premium per capita) is a mere $ 73, nearly one-tenths of the global average density of $650. While the government schemes have aided a growth in the insurance penetration and density, India’s numbers are much lower than the Asian average too.
 
Going forward, this sector will have a key role to play in the economy on two main fronts. First is the element of financial inclusion by insuring the uninsured. In a country with close to 1/4th of the population(over 300 mn) living below the poverty line, protecting people’s assets and source of livelihood becomes even more crucial. Secondly, it will play a major role in generating long term funds. Banks and other financial institutions typically have short term liabilities(demand deposits etc) and hence investing in long term assets leads to AL mismatch. Insurance companies however typically have longer term liabilities and are in the position to provide long term funds by investing in government securities, mutual funds etc.

Type of life Insurance Policy

• Term Life Insurance: Term insurance is a life insurance product offered by an insurance company which offers financial coverage to the policy holder for a specific time period.
• Whole Life Policy: The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family.
• Endowment Plans: Endowment plans pay out the sum assured under both scenarios - death and survival.
• Unit Linked Insurance Plans: ULIP is a life insurance product, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments.

• Money Back Policy: Money back plan is a life insurance product as well as an investment plan which provides life insurance cover against death of the policy holder along with periodic returns as a percentage of sum assured.
  

Type of general Insurance Policy

• Health Insurance: Coverage for medical expenses to the policy holder- critical illness expenses, surgical expenses, hospital expenses etc, OPD etc.
• Motor Insurance: Insurance for the damage or theft of your motor vehicle.
• Travel Insurance: Compensation for damages occurred while traveling- loss, theft, delay.

• Miscellaneous: Crop insurance, theft insurance, fire/marine insurance etc

Growth Drivers:
 
Growth in Financial Industry- Overall growth in the financial industry has led to increasing awareness about financial products and services. This has helped to increase the number of Point of Sales (POS) and potential for cross-selling, with third party distributors like banks playing a major role in increasingly advising customers about overall financial portfolio, with insurance being a fundamental part of it. This is commonly known as bancassurance.
 
Digitization- With growing internet penetration, companies like policybazaar, coverfox have provided large scale aggregation of various insurance products, making it easier than ever to have access to insurance related information, products and services. It can be thought of as being analogous to the impact of Zomato and Swiggy on the food service industry. E-commerce companies like Flipkart and Paytm have also tied up with insurance companies to sell insurance on their platforms. Insurance companies also welcome this change as it gives them a higher gross margin compared to offline distribution through banks,
 
Privitization/FDI- The private sectors role in the industry has been increasing over the last 2 decades, with market share of private sector in non-life rising to 55.7% from 13.1% in FY03. Private players bring in innovation, better practices, and greater trust among potential customers, especially since the Indian insurance industry has traditionally been riddled with misselling, fraud and malpractice. The permitted FDI limit has been increased from 26% to 49% for insurance companies, and 100 percent for intermediaries. Greater competition implies better practices and most importantly better prices.
 
 
Growth in specific segments- Apart from factors impact the industry in general, there are also specific growth drivers for different kinds of insurance. For example- Increase in demand of motor insurance as a by-product of rapidly expanding auto industry;  Increase in health insurance due to focus on improvement in healthcare etc; rise in crop insurance due to support to farmers etc. Health and motor insurance in particular are expected to drive growth  in the sector over the next decade.
 
Policy Support- Apart from easing of FDI norms, several policies and schemes have provided a boost to the sector. Some of them are:

• Pradhan Mantri Jan Arogya Yojna (PMJAY) was launched under Ayushman Bharat to provide coverage of up to Rs 500,000 to more than 100 million vulnerable families.
• life insurance companies that have completed 10 years of operations to raise capital through IPO’s.
• Pradhan Mantri Jeevan Jyoti Bima Yojana; Atal Pension Yojna- life insurance; pension coverage for people employed in unorganized sector
• Various tax incentives like deduction under health insurance scheme, effective tax benefit of 30 percent on select investments like life insurance premiums etc.

 
Is India Under-Insured?
 

• No of lives insured till 31.3.2018 are 328 million v/s population of roughly 1340 million. Given that the purpose of life insurance is to support the existing income flow to the household in case of a mishap, ideally the primary bread-earner of the household should be insured. Taking into the account the labour work force participation rate, ~50% of the target market is already insured.
• Growth lies in catering to the “under-insured” as the density is one of the lowest in the world. The average sum assured is only about Rs 3,00,000/policy (ideally sum assured should be 10x annual income + loans/liabilities). This density is significantly lower than other developing/developed countries.
• Food for thought – Is a car more precious than a human life? Motor insurance premiums collected by non-life insurers are 6x the size collected by life insurers for pure-term premiums. Does this mean an Indian values a car more than his life (just because car insurance is mandated)?

 
Key trends:
 
Micro-insurance has emerged as a useful means for expansion and has led to creation of new products and exploration of novel distribution channels. For example, Ola Cabs tied up with Acko General insurance to provide travel insurance worth 5lacs while booking a cab through the app, at the cost of ₹1.
 
Cost optimisation- Players in industry are investing in Information Technology to automate various processes and cut costs without affecting service delivery. It is estimated that digitisation will reduce 15-20 per cent of total cost for life insurance and 20-30 per cent for non-life insurance. From October 2016, IRDAI has mandated having an E-insurance (electronic insurance) account to purchase insurance policies.
 
Conclusion:
 
The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. The overall insurance industry is expected to reach US$ 280 billion by 2020. Life insurance industry in the country is expected grow by 12-15 per cent annually for the next three to five years. Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance.