Life Insurance Industry And Legal Challenges

Traditionally, the most interesting and difficult issues to navigate are the claim settlement and repudiation process which have an impact on the perception of the life insurance industry and its functioning

- Sankalp Jain

Life insurance is based on a concept called risk pooling, or group sharing of losses. People exposed to a risk agree to share losses fairly or on an equitable basis. They transfer the economic risk of loss to an insurance company. Insurance companies collect and pool the premiums of thousands of people, spreading the risk of losses across the entire pool. By carefully calculating the probability of losses that will be sustained by the members of the pool, insurance companies can equitably spread the cost of the losses to all the members. The risk of loss is transferred from one to many and shared by all insured in the pool.

Growth Prospects

Life Insurance is one of the fastest growing and emerging sectors in India. With a population of over 1.34 billion, India’s life insurance penetration rate is still below 3% of GDP. Awareness about the true purpose of life insurance or long-term savings and protection instrument, is still quite low.

As per FICCI, India’s insurable population is anticipated to touch 750 million by 2020, with a life expectancy at birth of 74 years. Demand for annuity and retirement policies with increasing life expectancy even as the proportion of India’s elderly population (> 65 years of age) will increase by ~ 50% to 120 million by 2030. Apart from these factors, the prospects will be further propelled by high historical nominal GDP growth, moderate-to-low inflation, improvement in the financial savings rate, initiatives undertaken by the government to ensure adequate social security, favorable demographics, growing awareness of insurance and regulatory changes. However, the Indian life insurance industry will have to make a concerted effort towards increasing life insurance awareness so that people invest in life insurance for the right reasons and more importantly, stay invested in it over the long run.

Industry Challenges