Insurance industry set for an overhaul post pandemic

Mumbai: The Indian insurance sector has shown resilience in the Covid-19 pandemic with the dip in premiums milder and the recovery been faster. In particular, life insurance was affected during FY21 & FY22 due to the Covid-19 led pandemic, which has restricted the movement due to lockdowns, as insurance business are mostly based on the performance of the agents. During Apr-Feb, New Business Premium (NBP) of the life insurers increased by 8.4 per cent (YTD) to Rs 2.54 lakh crore. There are however, several interesting facets of the insurance industry emerged during pandemic that deserves special mention, says an internal economic research report by SBI.

First, the pandemic has made people aware not only about the indispensability of health insurance policy but also about the need to have adequate coverage, better features and seamless services. The realisation has led more people to buy new policies or port to insurers who offer better coverage and claim settlement. In FY21, the retail health insurance policies have shown a massive jump of 28.5 per cent to Rs 26,301 crore and continued to grow in FY22 also. During Apr-Jan, health insurance portfolio of insurers increased by 25.9 per cent, with rise in retail health policies of 17.3 per cent and group policies of 30.1 per cent. Secondly, the death claims paid by the life insurance industry has increased by 40.8 per cent to Rs 41,958 crore in FY21. In case of individual life insurance business, during FY21, the life insurers paid 10.84 lakh claims, with a total benefit amount of Rs 26,422 crore (46.4 per cent growth).

The ticket size of the death claims increased to Rs 2.44 lakh in FY21, compared to Rs 2.13 lakh in FY20. The rise in death claims seems due to the increased deaths during Covid-19. Thirdly, despite digitalisation, the share of policies sold through online & web aggregators stands at 1.9 per cent in terms of premium value and around 1.6 per cent in terms of number of policies. The growing channel is 'Bancassurance', in which the share in premium collections has increased to 29 per cent in FY21 from 16.6 per cent in FY14. However, in case of private insurers the share of Bancassurance is around 55 per cent, while LIC depends mostly on 'individual agents'. The individual agents share has been declining and is at 58 per cent in overall industry level in terms of life insurers (Pvt: 23 per cent, LIC: 94 per cent). Fourthly, in Non-Life insurance business 'Brokers' plays a significant role and their contribution in total premium increased from to 21.9 per cent in FY14 to 31.4 per cent in FY21. Fifthly, it is heartening to note that every 1 in 3 life insurance policies in India are sold to a women. The number of policies issued to women in FY21 is around 93 lakh policies which is a 33 per cent share as against a share of 32.23 per cent in 2019-20. The proportion of policies on women in case of private Life Insurers is 27 per cent and that of LIC is 35 per cent. In 19 States/UTs, the share in no. of policies bought by women to the total policies sold is higher than the all-India average of 33 per cent. The insurance penetration in India has increased from 2.71 per cent in FY01 to 5.20 per cent in FY09 due to liberalisation but thereafter the level of penetration was declining and reached 3.30 per cent in FY14. However, with significant Government support and universal insurance schemes (PMJJBY, PMSBY), the insurance penetration has started increasing again from FY15 and is at 4.20 per cent in FY21.

"We believe, the insurance penetration can be further enhanced by Government through the following measures. First, though MGNREGA has provided Livelihood Security we propose compulsory enrolment of MGNREGA workers in PMJJBY and PMSBY for a payment of only Rs 342 (330+12), which can be bought by the Government. As only 10 per cent of HHs/individuals completed 100 days of work, the cost of compulsory enrolment is only Rs 400-500 crore that may be borne by the Government (we assume that in FY2 ~12-13 crore individual will work under MGNREGA). Second, rationalising the 18 per cent GST on insurance policies," says Soumya Kanti Ghosh, SBI group chief economic advisor.

Third, to plug the protection gap quickly, in line with Jan Suraksha, Government should come out with some standardised products for various sectors so that the protection gap in each segment can be reduced significantly, he said.

For example, by considering 2020 floods in India, the total economic loss was Rs 52,500 crore, but insurance was of only 11 per cent. If Government would have insured it, then the premium for the sum assurance of Rs 60,000 crore would have been only in the range of Rs 13,000 to Rs 15,000 crore, thus saving the Government of at least Rs 40,000 crore!