Insurance sector's performance yet to catch up with potential
The industry has evolved with changing risk dimensions and customer behaviour, leading to new products and transformation in services
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I recollect attending a round table meeting in 1997 with keynote speaker RN Malhotra, chairman of the committee set up to make recommendations for reforms in the insurance sector. The meeting was attended by a few potential foreign investors as well. The growth potential and aspirations emanating from the deliberations were bullish and buoyant.
The Committee in its report made out a strong case for paving the way for foreign capital and private players. The recommendations were aimed at promotion of competition to enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market. Following the recommendations, the insurance industry was opened up to the private sector in 2001. Now there are 24 life insurance and 34 non-life insurance companies, including seven stand-alone health insurance companies in the Indian market.
The two key aspects of the reform were to increase insurance penetration with more competitive players in the market and creating a vibrant industry with sustainable, profitable and shareholders' value-oriented insurers. In my view, the industry has made impressive progress on both the parameters but somehow penetration is still straggling.
The performance and potential of insurance sector is assessed using two indicators Insurance penetration and Insurance Density. Insurance penetration is calculated as percentage of insurance premium to GDP and insurance density is calculated as ratio of insurance premium to population. Insurance Penetration which was at 2.71 per cent in 2001 is now at 3.76 per cent. As of 2019, the penetration for Life insurance in India is 2.82 per cent, the penetration for Non-Life insurance is much at 0.94 per cent. India has extremely low insurance penetration as compared to global average and other comparable countries.
Journey so far
The industry has added many new players, new distribution channels such as bancassurance, online distribution to widen the reach and optimise the cost of distribution. In the life insurance segment, private players held a market share of 33.78 per cent in premium underwritten in FY20 while the market share of private sector companies in the general and health insurance market increased from 47.97 per cent in FY19 to 48.03 per cent in FY20.
The industry has evolved with changing risk dimensions and customer behaviour, leading to new products and transformation in services. The industry has created a digital infrastructure to give a seamless experience to the customers. Technology has got embedded well in the entire insurance value chain. This has enabled the industry to improve their issuance, claim settlement, customer services and making it an ecommerce platform to buy insurance policies.
The industry has also seen innovative products - transitioning from product to solution orientation and a risk transfer tool to a risk management model. There have been many standardised products in the market recently to facilitate customers to buy insurance seamlessly and aligned to their various insurance needs. The awareness about insurance is increasing and Government's initiatives towards increasing the penetration of insurance as risk mitigation tool on grass-root level through many standardized life and non-life products.
Growth drivers
The growth drivers are being strengthened. India's robust economy is expected to sustain the growth in insurance. Higher personal disposable incomes would result in higher household savings that will be channelled into different financial savings instruments like insurance and pension policies. Increasing awareness about financial products including insurance would also be a great driver in the future. Innovation and efficiency in the industry with increased use if IoT will go beyond telematics and customer risk assessment. Currently, there are 110+ Insurtech start-ups operating in India. Digital disintermediation is proceeding strongly in the Indian insurance industry and the number of start-ups offering online insurance has grown.
Micro insurance has seen growth due to increased focus of government on financial inclusion. The health insurance sector has witnessed growth due to focus on improvement in healthcare, increasing number of insurance providers with various sophisticated products at competitive prices and regulations which are conducive for growth of the industry.
The government increased the foreign direct investments (FDIs) limit from 49 per cent to 74 per cent to allow and promote foreign ownership and control with safeguards in the insurance sector. Over the years, we have built a strong base and context to propel the growth and take the industry to the next level. This will be possible if we are able to align demand side dimension by working along with other stakeholders in the ecosystem towards making insurance a pull product.
(The author is Fellow of Institute of Actuaries of India and a Member of Investor Education and Protection Fund (IEPF) Authority, Government of India. The views are personal)
