Insurance Sector in India

Table of Contents

Context: In an ambitious bid to expand the poor insurance penetration in the country, the Insurance Regulatory and Development Authority (IRDA) is devising a new affordable bundled product to give citizens protection against multiple risks, and seeking to expedite claim settlements by linking death registries onto a common industry platform.

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If IRDAI’s plans fructify, households across the country could soon be able to get an affordable single policy that covers health, life, property and accident, get their claims settled within hours.
These initiatives are part of a broader overhaul of the insurance sector in India, with an eye on making insurance “available, affordable and accessible” to citizens with a ‘Gram Sabha- to district- to State-level’ approach.
IRDAI’s overall aim is to meet the target of providing insurance cover for all by 2047.
With these reforms, the IRDAI is striving to create an “UPI-like moment” in insurance sector through a plan that termed as “Bima Trinity”.
- Bima Sugam platform: It will integrate insurers and distributors on to one platform to make it a one-stop shop for customers, who at a later stage can pursue service requests and settlement of claims through the same portal.
- Bima Vistar: It will be a bundled risk cover for life, health, property and casualties or accidents, with defined benefits for each risk that can be paid out faster than usual without the need for surveyors.
- Bima Vaahaks: These Vaahaks (carriers) are women-centric workforce in each Gram Sabha to promote Bima Vistar product in villages.

An overview of Insurance sector in India

Insurance is a legal agreement or contract between an insured and insurer that offers protection against any kind of loss with the latter compensating for the loss the former has incurred.
Origins of Insurance in India: Insurance has a deep-rooted history in India. It can be seen from the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings mention the concept of pooling of resources that could be re-distributed in times of calamities and disasters such as fire, floods, epidemics and famine.
Insurance companies: The Insurance sector in India consists of total 57 insurance companies.
- Out of which, 24 companies are the life insurance providers and the remaining 33 are non-life insurers.
- Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company.
- There are six public sector insurers in the non-life insurance segment.
- In addition to these, there is a sole national re-insurer, namely General Insurance Corporation of India (GIC Re).
Market value: India Insurance market stands at $131 Bn as of FY22.
Market share: In terms of market share, the share of life insurance in total premium in India is 75.24% and the share of non-life premium is 24.76%
Insurance penetration: India’s insurance penetration was pegged at 4.2% in FY21, with life insurance penetration at 3.2% and non-life insurance penetration at 1%
Growth rate: The Indian insurance industry grew at a CAGR of 17% over the last two decades and is expected to continue its commendable growth trajectory in the future years.
FDI limit: Foreign Direct Investment (FDI) in the industry under the automatic method is allowed up to 26%.
Regulator: Both the Life Insurance and the Non-life Insurance is regulated by the IRDAI (Insurance Regulatory and Development Authority of India).
- It is an Autonomous body, setup in 1999, on the recommendations of R N Malhotra committee.
- It is tasked with the regulation of the insurance sector in India.
Global comparison: India is ranked 11th in global insurance business. India’s share in global insurance market was 1.72% during 2020.
- India is ranked 10th in life insurance and 14th in non-life insurance in the world.

Significance of Insurance Sector

Providing Safety and Security: Insurance offers financial support and reduces uncertainties in both business and personal life.
Generating Financial Resources: The insurance industry collects premiums from policyholders, which are then invested in government securities and stocks.
Encouraging Savings through Life Insurance: Life insurance encourages systematic savings as policyholders pay regular premiums. It serves as a mode of investment and cultivates a habit of saving money.
Promoting Economic Growth: Insurance plays a crucial role in mobilizing domestic savings and turning accumulated capital into productive investments. By doing so, it contributes to sustainable economic growth.
Providing Medical Support: Medical insurance policies cater to various health risks, offering individuals access to medical support during medical emergencies.
Spreading of Risk: Insurance facilitates the spreading of risk from the insured individuals to the insurers. The fundamental principle of insurance is to distribute risk among a large number of people.

Growth drivers for Insurance Sector in India

Challenges in India’s Insurance sector

Huge Insurance Gap: Insurance penetration is low in comparison with global levels. Large sections of Indian population are uninsured and hence depicts an insurance gap.
Domination of Public Sector: Although there has been a transition in the insurance sector from being an exclusive State monopoly to a competitive market, still public-sector insurance companies hold a greater market share even though they are fewer in number.
Budding Non-life Insurance: The share of Life insurance sector is huge (74.7%) as compared to the non-life insurance sector (25.3%).
Rural-Urban Divide: Rural participation of insurers remains deficient, and life insurers, especially private ones, gravitate towards the urban population.
Capital Starved Insurers: Insurers in India lack sufficient capital, and their financial health, particularly that of the public-sector insurers, is in a precarious state. Further, the crisis in the overall banking and the NBFCs sectors affected the growth.
Multiplicity, duplication and redundancy of government sponsored insurance schemes has resulted in the division of the risk pool.
The ‘missing middle’ between the deprived poorer sections and the relatively well-off neither qualify under subsidized health insurance (for poor) nor social health insurance (for organized sector) schemes.

Way Forward

Promoting Awareness: There is a requirement for concerted efforts to enhance awareness and enhance financial literacy, specifically regarding the concept of insurance and its significance.
Adopting an Inclusive Approach: Insurance companies must demonstrate a long-term commitment to rural areas and the urban poor in order to increase insurance penetration rates. They need to develop products tailored to the specific needs of these segments.
Harnessing Technological Advancements: An emerging example is ‘InsurTech’, which aims to simplify and enhance the understanding of the claim process through technological innovations.
Product Innovation: Insurers should focus on developing innovative insurance products that cater to emerging risks, such as cyber threats, climate change, and pandemics.
Collaboration with Fintech Startups: The insurance sector can leverage the expertise of fintech startups to develop innovative distribution channels, streamline processes, and enhance customer experience