The domestic insurance industry in India is estimated to be around US$ 60.5 billion by 2010, of which US$ 35 billion will come from rural and semi-urban areas. While the life insurance market is expected to grow to US$ 35 billion, non-life insurance market will touch an estimated US$ 25 billion. 

With the largest number of life insurance policies in force in the world, India’s insurance sector accounted for 4.1 per cent of GDP in 2006-07, up from 1.2 per cent in 1999-2000, far ahead of China where insurance accounts for just 1.7 per cent of the GDP and even the US where insurance penetration stands at 4 per cent of the GDP. One area that continues to cause concern is the number of customer grievances in insurance, especially in a few specific classes. This calls for more transparency in designing the contract wording and on insisting that the applicant is sufficiently informed about the coverage and more particularly the exclusions. In addition, the legislation itself requires to be transformed to meet the needs of the emerging markets. The Law Commission of India which has gone extensively into the various insurance laws has submitted its report. Further, the expert committee headed by Mr. K.P. Narasimhan has also submitted its proposals requiring amendments to the laws. The demand for health insurance covers has seen a healthy increase, and today the sector is the fastest growing segment in the non-life insurance industry in India, which grew at over 40% last year. It is also emerging as an increasingly significant line of business for life insurance companies. During the last five years, the premium from health insurance products in non-life companies has grown from 675 crores in 2001-02 to Rs 3200 crores in 2006-07, almost 5 times its level 5 years back. While this rate of growth appears to be very healthy, it is on a low base, and health insurance penetration in the country continues to be low. Only about 25 million persons are presently covered for health through commercial insurance, in a country of over 1.1 billion people. Overall, the Indian health sector is still characterized by the near absence of any significant risk protection against major health-related expenditure, as insurance and other organized forms of payment for health services, including ESIS, CGHS and other such schemes barely constitute a tenth of all health expenditure in the country. Almost four-fifths of the health spending in the country is private, out-of-pocket expenditure. In the absence of such protection, the financial impact of hospitalization can be very pronounced, and indeed is reported as one of the leading causes of impoverishment in the country

Indian insurance companies recorded a 19.9 per cent growth in premium in dollar terms (adjusted for inflation) in 2006-07, compared to the world market growth rate of 2.9 per cent. This rate of growth of the industry looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7.52 per cent. Clearly, the scope for growth is enormous.

Led by the Life Insurance Corporation (LIC), the life insurance industry registered a growth of 110 per cent in fiscal 2006-07, taking the total business to US$ 19.2 billion from the previous year’s US$ 9.1 billion. The life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40 per cent per year owing to the entry of a host of new players with significant growth aspirations and capital commitments.

The total life insurance market premiums is likely to more than double from the current US$ 40 billion to US$ 80-US$100 billion by 2012, says a study by McKinsey. The study titled ‘India Insurance 2012: Fortune Favours the Bold,’ expects a rise in premiums between 5.1 and 6.2 per cent of the GDP in 2012 from the current 4.1 per cent driven by greater insurance intensity per capita as the average per capita income increases and rise in penetration in urban and rural areas.  The life insurance premium contributions per capita have jumped from a little over US$ 7 in 1999-2000 (pre-liberalisation) to US$ 38.5 in 2006-07.

Life insurance penetration in India - which was less than 1 per cent till 1990-91 - increased to 2.53 per cent in 2005, and to 3 per cent in 2006-07. While the impetus for growth has come from both public and private insurers, the number of players in this segment have also increased to 16 (15 in private sector), with Life Insurance Corporation (LIC) being the dominant player (market share of over 74 per cent).

The general insurance industry grew 11.6 per cent between April and November in 2007-08 with robust performances by private players. The 13 non-life insurers collected US$ 4.7 billion in premium against US$ 4.2 billion in the same period last year.  While the public sector could increase its premiums by just 3.57 per cent, 9 private sector players clocked premium growth of 26.49 per cent. Private sector players’ market share has grown to about 40 per cent in FY08 as compared to the public sector’s 60 per cent.

INSURANCE SECTOR POLICY BY GOVERNMENT

•   Foreign direct investment up to 26 per cent is permitted under the automatic route subject to obtaining a license from the IRDA.

•   IRDA has removed administered pricing mechanism, i.e. de-tariffing in respect of fire and engineering along with motor insurance of general insurance for premium, effective from 1 January, 2007.

•   The control rates on fire, engineering and workmen’s compensation insurance classes has been removed from 1 September, 2007.

•   Some state governments have also taken a dynamic role in this sector. The Government of Andhra Pradesh after piloting the ‘Arogya Sri’ health insurance scheme in three districts plans to issue health cards to 18 million BPL (below the poverty line) families. As a result, about 60 million of the State’s 80 million people will have insurance cover. The Karnataka Government has partnered with the private sector to provide coverage at a low cost in the Yeshaswini Insurance scheme. Launched in 2002, the scheme provides coverage for major surgical operations, including those pertaining to pre-existing conditions, to Indian farmers who previously had no access to insurance.

With less than 10 per cent of the population having some sort of health insurance, the potential market for health insurance is huge. A McKinsey-CII report estimates the number of potential insurable lives at 315 million. In 2006-07, the fast-growing Indian health insurance business grew 40 per cent to US$ 812 million. The sector is projected to grow to US$ 5.75 billion by 2010.

Some Developments in The Indian Insurance Industry follows;

•    Societe Generale has entered into a joint venture with India Bulls Financial Services for a life insurance joint venture in India through its French life insurance company Sogecap.

•    Tata have formed a joint venture with US based American Int. Group (AIG) Max India has formed a joint venture with US based life insurance company, New York Life.

•    Indian Farmers’ Fertiliser Cooperative (IFFCO) has formed a joint venture with Tokio Marine and Fire of Japan to form IFFCO Tokio General Insurance Company.

•    State Bank of India has formed a joint venture with Cardiff SA of France (the insurance arm of BNP Paribas Bank) as SBICardiff Life.

•    ICICI has joined hands with UK based Prudential- ICICI Prudential Life Insurance.

Insurance in India has been spurred by product innovation, streamlining of sales and distribution channels along with targeted advertising and marketing campaigns.

The kid’s insurance segment in the insurance sector is witnessing increased activity. Children’s products such as ICICI Prudential Life’s ‘SmartKid’, Birla Sun Life’s ‘Children’s Dream Plan’, or HDFC Standard ‘Life’s Young Star Plus’, are on a consistent growth path. According to industry estimates, currently, 20-30 per cent of business of many companies comes from children-specific insurance policies alone.

Emerging lifestyle trends amid a changing fabric of the Indian society have also modified social and financial behaviour. For instance, an increase in the number of working women has led to a demand for life insurance policies, which in turn has helped women through a micro-entrepreneurship initiative (women have flexibility - managing home and being financially independent as distributors of insurance).

In the Health segment, currently, health insurance products in India narrowly cover hospitalization benefits with a sum-assured limit. India’s private health insurance sector could cover a number of secondary and tertiary preventive measures such as screening for cancer or diabetes, and preventive health check ups as well as disease management programs for specific conditions, which would be beneficial for insured and insurers alike. The combination of rising income levels and awareness as well as broader coverage in India is bound to grow overall healthcare costs. This is the experience in nearly every developed country, where healthcare costs have been growing at a rapid rate for decades, for most years well in excess of aggregate inflation. In response, health insurers in other markets are developing new techniques to achieve better medical outcomes at lower costs. A number of the tools developed in that context, such as network tiering for consumers and episode contracting for providers appear relevant for an emerging market setting.

Private sector group and individual health insurance coverage in India today focuses on hospitalisation benefits with a limited sum assured. While this provides valuable coverage, preventive care techniques are important to improve medical outcomes and to provide cost-effective health insurance. In India, there remains a huge need for simple primary prevention that largely falls into the public domain. However, the private health insurance can make important contributions at the secondary and tertiary prevention levels.

The rapid growth of insurance industry, especially in the life segment has brought to the fore a number of issues which is a vital link between the insured and insurer. In order to spread the message of insurance to the far corners of the country, the IRDA had enlarged the scope of the intermediaries structure from the traditional tied agents to the corporate agent, micro insurance agent, the Bancassurance mode and the referral system. Insurers have also adopted other channels of sales to suit e-selling such as computer points at convenient locations, on-line insurance purchase etc.

These systems have been in place for some time now, some of them for the last eight years. Some of the practices that have crept into the system in terms of remuneration or reimbursement of expenses or incentive schemes and so on require a detailed examination to ascertain whether they are in conformity with the provision of the Insurance Act and their impact on the acquisition cost.