Lack Of Awareness - The Biggest Hurdle For Insurance In India
BUSINESS ECONOMICS|November 1-15, 2019
Insurances are partially similar to banks and capital markets as they serve the needs of business units and private households in financial intermediation.
Kishore Kumar Biswas

The availability of insurance services is important for the stability of the economy. It makes business participants accept aggravated risks. That is, by accepting claims, insurance companies also have to pool premiums and create reserve funds. Insurance companies are playing an important role by enhancing internal cash flow and by creating a large amount of funds in the capital market.

A study on the insurance sector titled ‘The Relationship of Insurance and Economic Growth – A Theoretical and Empirical Analysis’ by Peter Haiss and Kjell Sümegion published in 2006 is still relevant. The study observed that the banking sector was mainly a buyer of protection while the insurance sector was mainly a protection seller for investment or portfolio management purposes. The same report states that at the end of 2003, the insurance sector particularly considered as financial guarantors, had reported a net position of $460 billion. Close to 65% of the net sold credit positions were derived from the corporate sector, 17% from financial institutions and the remainder from sovereigns. In this way, the credit risk had been transferred on a massive scale from banks onto insurance companies, providing them with a more pivotal role vis-à-vis the banks and the economy at large.

Historical overview

By 1955, there were 255 insurance companies operating in India, doing business of around ₹200 crore. Life insurance WWwas nationalised in 1956.

When general insurance was nationalised in 1972, there were 55 Indian companies and 52 non-Indian companies operating in India in that segment. The total premium written by these companies was ₹170 crore on 1971. There were many reasons for the nationalisation. Important reasons included no full guarantee to the policyholders, the lack in the concept of trusteeship, widespread distress in the sector, rampant malpractices, limited penetration of the life insurance segment, very limited coverage in rural areas and absence of group insurance and social security.

The main purpose of nationalisation was to increase the penetration (insurance premium as a percentage of GDP) and depth (per capita premium of insurance) of the insurance sector. After nationalisation, the penetration of the life insurance segment increased by more than 60% in the very next fiscal.

After the liberalisation of the Indian economy in 1991, the Indian insurance sector started taking a turn towards privatisation. Its depth and penetration had not improved substantially and this led to the discourse in favour of privatisation of the insurance sector.

Recent data

There are 24 life insurance and 33 non-life insurance companies operating in the Indian insurance market. The share of the private sector has been rising. The market share of private sector companies in the non-life insurance market rose from 13.12% in FY03 to 55.7% in FY20 (up to April 2019). In the life insurance segment, private players had a market share of 25.29% in new business in FY19.

Industry insight

However, the privatisation drive in the insurance sector is yet to yield desired results. The depth and penetration of the sector has not taken a significantly upward turn. A few months back Tajinder Mukherjee, CMD, National Insurance Company Limited (NICL), spoke to BE on several aspects of the insurance sector. Mukherjee stated that indicators like depth and penetration have historically been comparatively low in India. She added that it has been predicted that the insurance sector is going to reach $280 billion by 2020 driven by increasing awareness, novel products and innovative distribution channels. Health insurance is going to play a major role in this expected growth especially with the government supported plans like Ayushman Bharat. It is the same for crop insurance. Ever increasing income levels of the middle class in the country, increasing life expectancy and many more parameters are going to drive the insurance industry to higher echelons.

Second, she said promotional activities are being done by Indian insurance companies. This has surely contributed to the higher level of awareness of insurance products among the public. Now more people are approaching the companies for their property and health insurance needs voluntarily. The situation is changing. The companies like NICL have been simplifying the policy wordings, packaging many covers to suit the specific requirements of customers, streamlining and expediting the claim procedure to popularise insurance.

Third, she mentioned that in India, the success of the insurance sector is to be judged differently. The general insurance penetration is typically measured as the ratio of the total non-life insurance premium to the GDP in terms of US dollars. That relates to the amount of premium that is being generated in the country as a percentage of the GDP. So when government comes in with very simple and economical products, it does not really bring up the amount in terms of US dollars.

Fourth, she had informed that the Indian government has proposed to merge PSU insurance companies in order to reduce competition between the public sector undertakings and to create one or two big public sector insurance companies in India. However, she had also mentioned that there were 25 other companies in the fray so the move may not reduce competition significantly.

Fifth, she stressed on the need to expedite the claim settlement process and address the trust deficit issue that is present in the market. However, she mentioned that this trust deficit factor is not limited to the Indian market. She sounded positive about the sector, with increasing digital penetration and new product offerings coming into the market.

Awareness building is the need of the hour

Generally, in most economies, economic development is linked with the increase in depth and penetration of the insurance sector. However, this hasn’t been entirely true in the case of India. It is because there are numerous segments in the insurance sector where the government still plays an important role through various welfaristic activities. Under such a situation, the growth of the insurance sector cannot be solely judged by the two above mentioned parameters. However, it has been repeatedly noticed that awareness regarding the insurance sector in dismally lacking in India. The government must work on this aspect.

Non-life insurance comes of age

The insurance sector in India is in transition. The sector, which till 2000, was controlled by public sector companies, now has several private players. Insurance contracts that do not come under the ambit of life insurance are called general insurance. Its prominent forms are health, fire, marine, motor, and accident insurance. According to lastest estimates, there are 35 general insurance companies and nine foreign reinsurers operating in India.

As per the Insurance Regulatory and Development Authority of India (IRDAI), the gross premium underwritten for and up to the month of September, 2019, has witnessed a growth of 16.84% over the corresponding period of the previous fiscal and the penetration of non-life insurance sector in the country has gone up from 0.56% in 2001 to 0.93% in 2017; but there is a flipside as well.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BUSINESS ECONOMICSView All

IT sector boosts employment after sluggish growth

India is the largest off-shoring destination for Information Technology (IT) companies across the world.

3 mins read
BUSINESS ECONOMICS
January 16-31, 2020

Indian handicrafts need new vision to compete globally

High-quality handicraft goods

10+ mins read
BUSINESS ECONOMICS
January 16-31, 2020

AHSI hosts Bicentennial Flower Show and World Regional Rose Convention 2020

The Agri Horticultural Society of India (AHSI) recently celebrated its bicentenary year by hosting the Bicentennial Flower Show and the World Regional Rose Convention 2020.

2 mins read
BUSINESS ECONOMICS
January 16-31, 2020

Threat Of A Third World War?

Renewed tension in West Asia forebodes a troubled 2020.

3 mins read
BUSINESS ECONOMICS
January 16-31, 2020

Railways Financial Stress: Is Economic Slowdown The Main Reason?

The Indian Railways (IR) has been going through a rough financial patch for the last few years.

4 mins read
BUSINESS ECONOMICS
January 16-31, 2020

US-Iran Hostility: India Feels Heat Of Crude Oil Price Hike

The geopolitical tension triggered by the killing of Iranian Islamic Revolutionary Guards Corps’ (IRGC) top military leader Qasem Soleimani and the subsequent retaliatory missile attacks on American military bases in Iraq by Iran has brought many countries including India to the edge.

3 mins read
BUSINESS ECONOMICS
January 16-31, 2020

Landmark Judgements To Stop Animal Cruelty

Some of our judges are now beginning to understand what animal cruelty does to a nation and act on it.

4 mins read
BUSINESS ECONOMICS
December 1-15, 2019

Opportunities And Challenges In The Aviation Sector

The Bharat Chamber of Commerce organised a national seminar and an exhibition on the ‘Indian Aviation Sector: Opportunities and Challenges’ at the Park Hotel, Kolkata. The prospects of private participation in maintenance, overhaul, and repair were discussed.

2 mins read
BUSINESS ECONOMICS
December 1-15, 2019

India Needs To Learn A Lesson From Brexit

The verdict given by the people of the United Kingdom in 2016 in favour of quitting the European Union (EU) is popularly known as ‘Brexit’. People who voted for Brexit argued that it was because of the adoption of erratic neo-liberal policies that had led to livelihood crises.

3 mins read
BUSINESS ECONOMICS
December 1-15, 2019

US-China Trade War Continues: Global Implications

The ongoing US-China trade war had its origin in 2012. It began then as a “cold war”, well before Donald Trump became the US President.

3 mins read
BUSINESS ECONOMICS
December 1-15, 2019
RELATED STORIES

Work From Home— Wherever That Is

The pandemic has made it easier to work from a distance, but some far-flung workers have to follow special rules for taxes, health care and insurance.

10+ mins read
Kiplinger's Personal Finance
February 2021

Long-Term-Care Claims: Avoid The Obstacles

Filing a claim can be an ordeal, but these preventive measures will streamline the process.

8 mins read
Kiplinger's Personal Finance
December 2019

The High Cost Of Trumpcare

The administration's moves to weaken the Affordable Care Act have companies cashing in.

10+ mins read
Bloomberg Businessweek
September 23, 2019

Money Movers - Because Industries Could Use A Shakeup

These founders are redefining old businesses like insurance and banking, and bringing financial services to people who have never had them.

2 mins read
Inc.
October 2019

The Rise Of Scandal Insurance In Hollywood

Can you indemnify against dick pics?

10+ mins read
New York magazine
August 5-18, 2019

Are You Covered For The Next Disaster?

Make sure you have the right insurance to protect you from nature’s wrath.

2 mins read
Kiplinger's Personal Finance
September 2019

The Old Boys Of LLOYD's

Here’s to tradition, say the daytime-drinking, sexual-harassing men of the london insurance market

10+ mins read
Bloomberg Businessweek
March 25, 2019

How To Afford Long-term Care

Your options range from conventional coverage to tapping your life insurance benefits.

9 mins read
Kiplinger's Personal Finance
March 2019

How Big an Umbrella?

Having too much liability insurance is better than having too little. And it’s affordable.

2 mins read
Kiplinger's Personal Finance
February 2019

India's New Unicorns Aren't Just Clones

The country’s latest generation of $1 billion startups has more seriously tailored services to local needs

4 mins read
Bloomberg Businessweek
October 29, 2018