Life Insurance – A Distant Dream for Indians

India, a home to 1.15 billion people and the world’s second largest population stands abysmally low in terms of social security and human needs measures. Since independence, the Government of India introduced many measures to improve the economic conditions of this country. This included various social security schemes, the prominent being ESIC and EPFO followed by some recent measures such as MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), National Rural Health Mission etc. The history of Insurance in India dates back to British colonial period, early 19th century. Since then, a lot of reforms came in existence, particularly for Life Insurance. Despite all measures, the penetration of Insurance is still ranked the lowest amongst other countries.

India is an under-insured country and the insurance penetration level stands abysmally low at 2 per cent of the population, the general insurance penetration stands at 0.6 per cent only. With a vast population of 1.15 billion, there is an immense opportunity that needs to be tapped. An estimated 80 per cent of the Indian population is without Life, Non-Life and Health insurance. However, the Indian Insurance industry is poised to grow robustly with a clear path set along the growth trajectory. In terms of total business, the Indian Life Insurance industry has grown from US $ 8.87 billion in Fiscal Year 2005-06 to US $ 41 billion as on Jan 2010, thus, giving an absolute increase of 362 per cent. In an average, the industry has been growing at a rapid pace of 30 – 34 per cent annually, as per Life Insurance Council. LIC, being the earliest player and set up under the Life Insurance Act in 1956 has played a dominant role in spreading its wings across all nooks and corner of India. However, the entry of private insurance players changed the dynamics of Indian Insurance industry.

As regard to the FDI being capped to 26 per cent in Life Insurance, it created an additional opportunity for foreign players who have been looking to tap the untapped insurance potential in India. The total FDI being routed to India under FDI to Insurance is US $ 525.6 billion. The government is keen to reintroduce the Insurance Bill which proposes to increase the FDI level to 49 per cent from the current level of 26 per cent.

But the question arises, why India is still tagged as Under Insurance industry? Have the government not done enough to increase the penetration level to all corners of India?
Why Insurance is sold in India?

Insurance policies are sold in India unlike its developed counterparts where it is sought after. No doubt, the major reason is poverty and low level of penetration in rural areas. The major population which is largely based in rural areas has low level of financial knowledge. Since, majority of India’s population is living below the poverty level (BPL), they are more interested in living their livelihoods instead of protecting their futures against any mishaps. Moreover, the Government of India does not run any social security schemes on its own unlike in other developed countries which contribute on their behalf. The lack of a proper path hampers the penetration level in insurance. One of the tools to measure the insurance development is per capital spending on insurance i.e. insurance density. Based on this measure, India ranks among the lowest spending nations in Asia in respect of purchasing insurance. Another factor that has been slowing the improvement of insurance density in India is its relatively high population growth rate.

The low income level (average per capital income being at Rs. 44,345 in 2009-10) also deters individuals to ask for insurance as a product to safeguard their futures. Moreover, insurance is not compulsory in India except Motor Third Party Liability. There is no other compulsory insurance in India. In a nut shell, the awareness is poor because insurance was not sold for years – it was bought. However, the mushrooming of private insurers has helped in a big way to push insurance products. Apart from the usual agent-client relationships, these insurers have been using new innovative measures such as Direct Marketing, Digital Marketing etc. Since Mobile has reached deeply in every nook and corner of India, insurers have been using it in a big way to push products.
What the government has done to boost Insurance in India?

• FDI up to 26 per cent permitted under the automatic route subject to obtaining a license from the Insurance Regulatory Development Authority (IRDA)

• Private insurance players have been allowed into the Insurance business; earlier it was dominated by LIC

• Set up of Insurance Regulatory Development Authority (IRDA) to regulate the insurance industry

• Set up of Foreign Players in conjugation with the domestic players

• Defining new rural business commitments in terms of number of life insurance policies sold and total premium collected, thus, asking allowing life insurance companies to set up their shops in rural and untapped areas
Entry of Private Players in Insurance Business

After the Government of India (GoI) liberalized the insurance sector in March 2000 with the passage of the Insurance and Regulatory Development Authority (IRDA) bill, it allowed the setting up of private and foreign insurance players in 2000. As a result, the total number of Life Insurers increased to 23 as of April 2010, as per IRDA report. The private players in partnership with foreign players brought new dimensions in the industry along with technological know-how, thus, reducing the operational costs and bringing new efficiency in the industry. The scaling up of private insurers reduced the market share of LIC India which forced them to overhaul their set up and its way of functioning. Entry of private insurance players brought alternative distribution channels to suit customers’ needs. So, the industry has moved from the typical meeting between the customer and insurance agent as seen earlier to new technology. New companies are emphasizing on speed, convenience and ease of transactions. Though there have been some mis-selling being reported, it is the regulatory loopholes which they have been exploiting and in the time to come, it will disappear gradually. IRDA has announced a series of regulations to regulate the insurance industry and also improved the solvency ratio, a measure to test the robustness and strength of Insurance Company. The insurance sector is set to witness a sea change in the way the businesses were traditionally done, with new innovative products, distribution network etc. Insurance players have also been experimenting direct marketing plans and have been successful too, to some extent.
Scope of Private Insurers in future

The future looks promising for Indian insurance industry. The private players have reached to untapped area. In some products like annuity or pension products business, the private insurers have covered a significant portion of the total market share. The most popular product Unit Linked Insurance Product (ULIP), locked in the spat of two regulators i.e. IRDA and SEBI have gained significantly, thus, creating a virtual monopoly in terms of over 90 per cent of the new customers. The government also moved and set up Micro Insurance Act to allow insurance companies to roll out Micro Insurance products suited for low income level population. With increased consumption power and overspending in rural areas, these rural folks are going to be the major customers for the economy. Moreover, the government is committed to improve its economic figures and it is bound to happen if it improves the social security conditions in rural areas in terms of Micro Insurance policies.

The Road Ahead

The saturation of insurance markets in various developed economies has made India an attractive market for foreign players. As per a report “Booming Insurance Market in India (2008-2011)”, the life insurance premium in India is projected to grow US $ 266 billion by 2010-11. The main objective is to make the participants familiar with the role of insurance in economic development.