Insurance Industry in India
Story of consistent growth, opportunities and challenges
We have been listening for quite some time that COVID-19 pandemic has opened up a huge opportunity for the insurance industry. Every opportunity comes with a cost. Let’s understand the insurance industry of India in terms of the basic framework, current size, opportunities & challenges.
The Insurance Industry
Insurance works on risk sharing where insurance company collects premium from a large population to cater to the needs of a few. The size of the Indian insurance industry is approximately INR 4.48 Lakh Crore in terms of first-year premium collection. The insurance penetration in India is 3.7 % of GDP.
There are four types of companies working in the insurance space. Life Insurance, General insurance, Standalone Health, and Reinsurance companies. The total number of players in life insurance, general insurance, and standalone health insurance are 24, 28 & 6 respectively. There is only one reinsurance company currently operating in India.
Life insurance is the biggest business that shares 58% of the total premium collection (first year), followed by a general insurance company with 39% of premium. Standalone health insurance companies contribute a 3% share on premium collection.
The overall industry has grown at a rate of 17% in FY20 (Life Insurance at 21%, General Insurance at 11%, and Standalone Health insurance at 27%). The distribution channels for insurance companies are agencies (agents), Banca ( tie-up with financial institutions), brokers, web aggregators, etc.
What all Opportunities are on the card?
India is one of the largest insurance markets across the globe. Since the privatization of the sector in the early 2000s, the industry has been growing at a decent pace. The sheer size of the country’s population reflects the potential of growth for the insurance sector.
Penetration — A low penetration can be seen as an opportunity for the insurance sector for the next 5–10 years.
Covid Pandemic — The current pandemic has caused a lot of turbulence to the GDP. However, this has also brought an opportunity for the insurance sector especially for health and life insurance segments. COVID has pushed the adoption of digitization in the last 5 months at each level — customers, distributors, and insurers.
Digitization — Though most of the companies already had digital assets and have been working strategically in this direction, however, the pandemic has pushed digital agenda in a big way. Therefore the speed at which the industry has embraced digitization in the past few months, would not have been possible in the normal course of time.
Customer awareness — Customer awareness for health and life has suddenly increased manifolds due to pandemic and that is reflecting in premium collection. However, the government, regulators and insurance companies have been doing a commendable work on increasing customer awareness for last many years.
Regulatory environment — The proactive approach of the regulator has been supporting the industry. The regulator is promoting product innovation, simplification of the process, and new initiatives like sandbox approach to support insurtech solution. The prompt response of the regulator during the pandemic time has given confidence to all insurance players.
Product Innovation — Low-cost product for a limited period cover is going to change the way industry operates. It will significantly increase the penetration level and behavioural change in Indian customers for good.
Let’s talk about the challenges
Higher Claim — None of the insurance companies has built the cost of the pandemic in their products for very obvious reasons. Increasing claims (health and life) will certainly impact companies’ balance sheets for short to medium term.
Impact on the economy — The pandemic has pulled down overall economic growth which impacted motor and fire insurance business in a big way. Though part of it getting compensated by business growth in health insurance — however, the overall impact of a pandemic on insurance business is significant.
Over-billing of health treatment by Hospitals — This has been a tricky issue that needs to be resolved for the benefit of the customer and insurance industry. However, the absence of a regulator of hospitals in India is making it difficult for insurance companies to standardize cost of treatment across India. The government needs to intervene to address this issue. This is making a big dent in the pocket of insurers and ultimately customers.
Low penetration in Rural India — Insurance penetration in rural India (68% of India population resides in the rural area) is much lower than urban India because of lack of customer awareness, lack of distribution reach, complex process & documentation, and poor health infrastructure (for health insurance). A collaborative approach from insurance companies, the regulator, and the government are required to increase the penetration of insurance in rural India.
In spite of challenges, overall future of insurance industry in India is very promising. Government policies and regulatory environment are supportive to the growth of insurance sector.
Looking forward to good times…
