Life Insurance sector is a prominent part of financial sector in India, which is 13th Largest Life Insurance Market in the World & 5th Largest in Asia in terms of total premium (Source: Swiss Re Report- No 3 /2017). The share of Life Insurance Fund in Gross Financial Savings has increased to 24.3% in FY17 from 17.6% in FY16 in India
Evolution of the sector
Post liberalization, the growth of insurance sector can be easily segregated in three phases:
From FY 05 to FY 08, industry witnessed a growth phase, expanding with a CAGR of 54%. The period between FY 09 to FY 15 was a stagnant period for the sector due to financial crisis followed by Regulatory changes.
FY 16 onwards, Indian Life Insurance market has started to show signs of revival, after a long period of flat growth. Growth is primarily driven by improvement in economic growth, lower inflation & increase in financial savings.
Life Insurance sector witnessed year-on-year growth of 14% in FY 17 on total premium basis (new business and renewal premium) and 26% growth on total new business premium basis. Total premium volume for FY 17 was 4.2 trillion INR.
LIC has the major market share in the Industry (approximately 70% on total new business premium basis), mainly supported by its group business. Private players are increasing their presence in individual segment (approximately 40% in Individual NBP), supported by corporate agent partnerships by banks.
Apart from LIC, 23 private market players are operating in this sector led by major players like ICICI Prudential, SBI Life, HDFC Life etc.
IRDAI (Insurance Regulatory and Development Authority of India is the regulatory authority of Insurance in India which aims at development of insurance industry as well as protection of policyholder interest.
Life Insurance penetration (as a percentage of GDP) has increased from 2.1% in FY 2001-02 to 2.8% in FY 2016-17. Protection Gap for India stood at US$8.5 trillion as of 2014 – the highest among Asian countries
However, with an increasing share of working population (90% of Indians projected to be below 60 years by 2020), rapid urbanization, rising standard of living and focus on financial inclusion, Indian Life Insurance industry is expected to grow faster.
With government pushing for schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Postal Life Insurance, even the financially marginal sections of the society are becoming aware about the need and benefits of insurance.
With major players dominating the market thus limiting the scale of operations and regular tightening the norms on product and service charges, maintaining operating profit for new entrants and small players becomes very difficult.
In spite of foreign investment cap raised to 49% from 26% earlier, the new investments in the sector are below expectation mainly due to regulatory and political volatility and delay in setting up processes.
Indian Life Insurance sector is changing rapidly in terms of reach and focus with customer centricity being the focus for operations. However, for India, which is one of the fastest growing economies in the world, with significant growth in GDP per capita in the past decade, the insurance penetration and density is far below satisfactory levels.
The government and regulator needs to work in tandem with companies to create a trusted environment for the industry to flourish as per expectation.