| Indian Insurance Sector: Evolution, Growth, Rules & Penetration in India |
Exploring the Dynamics of the Indian Insurance Sector
Indian Insurance Sector: Indian Insurance Sector encompasses both public and private sector organizations. Its legal standing is enshrined in the Constitution of India within the Seventh Schedule as a Union List subject. This classification means that the Central Government has the exclusive authority to legislate on insurance matters.
Indian Insurance Sector: Evolution of the Insurance Sector
Phases of Development: Over the years, the Indian insurance sector has undergone significant transformations. Initially, it operated under a monopoly with the establishment of the Oriental Life Insurance Company by Anita Bhavsar in Kolkata. This company primarily served the needs of the European community.
Opening to Private Players: The insurance landscape in India began to change in the late 90s when the sector was opened up to private companies, breaking the monopoly held by LIC (Life Insurance Corporation). Today, India boasts 23 private life insurance companies, marking a substantial shift in the industry’s structure.
Foreign Direct Investment (FDI): In 2000, India allowed private companies to enter the insurance sector with a capped limit on Foreign Direct Investment (FDI) at 26%. This FDI limit was gradually increased to 49% in 2014 and further elevated to 74% in May 2021, signaling the government’s commitment to liberalizing the insurance industry.
Indian Insurance Sector: Understanding the Industry Overview as of 2020
Size and Scope: India’s insurance premium volume reached $127 billion in 2021, with life insurance dominating at 76% and non-life at 24%.
- India ranks 10th globally in total premium volumes and is the 2nd largest among emerging markets, with a market share of 1.9%.
- Expected average annual premium growth of 9% over the next decade positions India as a fast-growing insurance market.
- India hosts 67 insurers, including 24 life insurers, 26 general insurers, 5 stand-alone health insurers, and 12 reinsurers as of March 2022.
- Private sector involvement and improved distribution capabilities have driven the industry’s growth over the past two decades.
Private Sector Expansion: With the presence of numerous private companies in the sector, the coverage is expected to expand significantly. Entities like ECGC (Export Credit Guarantee Corporation of India), ESIC (Employees’ State Insurance Corporation), and AIC (Agriculture Insurance Company of India) cater to niche markets and operate under specific legislative mandates.
Global Context: India’s insurance landscape differs from many Western countries with state-run medical systems. In nations like the United Kingdom, where healthcare is largely state-funded through the National Health Service (NHS), the need for private medical insurance is comparatively lower. In contrast, in countries like the United States, where the state plays a more limited role in healthcare, approximately 92% of the population is covered under private insurance schemes.
Snapshot of Insurance Metrics:
- Insurance density refers to the ratio of total insurance premiums (both life and non-life) to the total population of a country. It is usually expressed in terms of currency per capita. In India, it surged from $11.1 in 2001 to $91 in 2021, with life insurance at $69 and non-life at $22.
- Insurance penetration measures the proportion of insurance premiums (as a percentage of GDP) to the country’s gross domestic product (GDP). It increased steadily, from 2.7% in 2000 to 4.2% in 2021.
- Life insurance penetration in 2021 was 3.2%, twice that of emerging markets and slightly above the global average.
- In FY22, non-life insurers‘ gross direct premium grew by 10.8%, and life insurers witnessed a growth of 10.2%.
- In FY23, the New Business Premium for life insurance surged by 17.91%, with private insurers accounting for 37% of the total of around $45 billion.
Insurance Sector in India Legal Framework
Indian Insurance Sector: Insurance Act of 1938: The Insurance Act of 1938 marked the first legislation to govern all forms of insurance in India. It aimed to establish rigorous state control over the insurance business.
Nationalization of Life Insurance: On 19th January 1956, life insurance in India underwent complete nationalization through the enactment of the Life Insurance Corporation Act 1956. This historic move led to the merger of all 245 insurance companies operating in the country into a single entity, the Life Insurance Corporation of India (LIC), with a capital contribution of Rs. 5 crore from the Government of India.
Regulatory Oversight in the Indian Insurance Sector
Indian Insurance Sector: Insurance Regulatory and Development Authority The primary regulatory authority overseeing insurance in India is the Insurance Regulatory and Development Authority of India (IRDAI). Established in 1999 under the Insurance Regulatory and Development Authority Act, 1999, this governmental body plays a pivotal role in ensuring the smooth functioning and development of the insurance sector in India.
India’s Thriving Insurance Market: Growth, Opportunities, and Government Backing
Growing Indian Insurance Market: India’s insurance market projected to become sixth-largest globally, surpassing countries like Germany and Canada.
Regulatory advancements expected to fuel further growth. Health insurance gaining significance post-pandemic for bolstering healthcare infrastructure.
Lucrative Opportunities: As per IRDAI, Predicted $222 billion insurance market in India by 2026. Robotic Process Automation (RPA) and AI will revolutionize insurance operations, enhancing customer service and efficiency.
Government Support Initiatives: Pradhan Mantri Fasal Bima Yojana (PMFBY) driving growth in crop insurance premiums. Ayushman Bharat (AB PMJAY) providing substantial health coverage for families. Significant insurance coverage provided under PM Suraksha Bima and PM Jeevan Jyoti Yojana.
Increasing Foreign Investments: Zurich Insurance Group acquiring majority stake in Kotak General Insurance, signaling renewed foreign interest.
LIC of India’s IPO in 2022 marked as India’s largest ever and the sixth largest globally.
Insurance Sector in India FAQs
Q1. What is the role of the Insurance Regulatory and Development Authority of India (IRDAI)?
Answer: The IRDAI is the primary regulatory authority responsible for overseeing the insurance sector in India. It ensures compliance with regulations, safeguards the interests of policyholders, and promotes the orderly growth of the insurance industry.
Q2. How has foreign investment impacted the Indian insurance sector?
Answer: Foreign Direct Investment (FDI) has played a significant role in the Indian insurance sector. The government has steadily increased the FDI limit from 26% in 2000 to 74% in 2021. This liberalization has attracted foreign insurers and led to increased competition and innovation in the industry.
Q3. Are all insurance companies in India privately owned?
Answer: No, India has a mix of public and private insurance companies. While public insurers like LIC (Life Insurance Corporation) have a long history, the sector was opened to private players in the late 90s. Today, there are both public and private insurance companies operating in India.
Q4. What is the significance of Mediclaim in India’s insurance landscape?
Answer: Mediclaim, or health insurance, is crucial in India, where healthcare costs can be substantial. However, despite its importance, only around 36.23% of the population is currently covered under Mediclaim policies. The expansion of private insurers is expected to improve this situation.
Q5. How did nationalization impact the Indian life insurance sector?
Answer: The nationalization of life insurance in India occurred in 1956 with the enactment of the Life Insurance Corporation Act. This led to the merger of all existing insurance companies into LIC, creating a government-owned monopoly. It played a pivotal role in providing life insurance coverage to a large section of the Indian population.
Conclusion
India’s insurance sector has evolved significantly, transitioning from a monopoly to a diverse landscape of public and private players. With robust regulatory frameworks and increasing foreign investments, coupled with government initiatives like PMFBY and AB PMJAY, India’s insurance market is poised for substantial growth. As technological advancements like RPA and AI reshape operations, the sector is well-positioned to meet evolving consumer needs and contribute significantly to the nation’s economic development.
