A Study on
Penetration in Indian Life Insurance Sector
Kondamudi Hanumanatha Rao1*, Kotha Anil Kumar2
1Assistant Professor, Laqshya
College of Management, JNTUH, Khammam
2Associate Professor, Laqshya
College of Management, JNTUH, Khammam
*Corresponding Author E-mail: hanumakondamudi@gmail.com, anilkk17@gmail.com
ABSTRACT:
India's life insurance market has grown at more than 40%
annually. But the ratio of insurance premium to GDP is around 4%. Penetration
is very low, practically zero in the unbanked segment. For the industry,
premium income is likely to go up sharply. A well developed and evolved
insurance sector is a boon for economic development of a country. The insurance
sector was a significant contributor to the capital market thereby lending
support to the stability of capital markets. It provides long-term funds for
infrastructure development and concurrently strengthens the risk-taking ability
of the country. There are certain factors that need to be considered by the
Indian insurance industry to ensure a seamless growth in business like
distribution channels, focus on financial inclusion. The present study is on
the trends in the insurance sector in premium underwritten and insurance
density and penetration.
It's
good news for the insurance industry for a sector that feeds on capital, the
proposed hike in the foreign direct investment limit in insurance joint
ventures to 49 per cent is a boon. The
present study is to enhance the ratios so that more premiums are collected
which are useful for the economic development of the nation and also to
increase the insurance coverage of more population.
OBJECTIVES:
1.
to study the share of life insurance sector
in GDP.
2.
To study the trends in premium underwritten.
3.
to study the penetration and density ratios
of the life insurance sector.
4.
to make conclusions and suggestions
METHODOLOGY:
The
methodology in the present study is regarding data sources, analysis and
interpretation of data. Tables, percentages are used for presenting the
figures. The present study is on the
analysis of trends of the total premium underwritten, penetration and density
rates in the insurance sector. The data has been collected from IRDA annual reports
for a period of six years from 2006-07 to 2011-12 and it is secondary in
nature. Books, journals are referred for concepts and more information.
Table No: 1 Indian economy (growth rate in GDP)
|
Year |
2006-07 |
2007-08 |
2008-09 |
2009-10 |
2010-11 |
2011-12 |
|
Rate |
9.6 |
9.0 |
6.7 |
8.0 |
8.5 |
6.5 |
Source: IRDA annual reports
India
insurance industry contribution to GDP
Around the
world the insurance industry contributes around 4.5% to national GDPs. With an
annual growth rate of 15-20% and the largest number of life insurance policies
in force, the potential of the Indian insurance industry is huge. The funds
available with the state-owned Life Insurance Corporation (LIC) for investments
are 8% of GDP.
Analysis: A slowdown
can be observed in the economy in the year 2008-09 to 6.7 and a robust growth
(surge) in consecutive two years 2009-10 and 2010-11. A dismal growth of 6.5
percent in 2011-12 was registered, the lowest growth rate in the last decade.
Table No: 2
A Total Premium underwritten
|
Insurer |
Year
Amount Rs. Crores |
|||||
|
2006-07 |
2007-08 |
2008-09 |
2009-10 |
2010-11 |
2011-12 |
|
|
LIC |
127822.84 |
149789.99 |
157288.04 |
186077.31 |
203473.40 |
202889.28 |
|
Change % |
40.79 |
17.19 |
5.01 |
18.30 |
9.35 |
-0.29 |
|
Private sector |
28253.01 |
51561.42 |
64497.44 |
79373.06 |
88165.24 |
84182.83 |
|
Change % |
87.24 |
82.50 |
25.09 |
23.06 |
11.08 |
-4.52 |
|
Total |
156075.85 |
201351.41 |
221705.48 |
265450.37 |
291638.64 |
287072.11 |
|
Change % |
47.41 |
29.01 |
10.11 |
19.73 |
9.87 |
-1.57 |
Source: IRDA
annual reports
Table No: 2
B Market share of total premium underwritten
|
Insurer |
Year
Percentage |
|||||
|
2006-07 |
2007-08 |
2008-09 |
2009-10 |
2010-11 |
2011-12 |
|
|
LIC |
81.9 |
74.39 |
70.92 |
70.1 |
69.78 |
70.68 |
|
Private sector |
16.1 |
25.61 |
29.08 |
29.9 |
30.22 |
29.32 |
|
Total |
100 |
100 |
100 |
100 |
100 |
100 |
Source: IRDA
annual reports
Table No: 3
Insurance penetration and density in
India
|
Year |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
|
Density (USD) |
30.3 |
40.4 |
41.2 |
47.7 |
56.7 |
49 |
|
Penetration % |
4.1 |
4 |
4 |
4.6 |
4.4 |
3.4 |
Source:
Swiss Re, (Various issues IRDA reports)
Analysis:
There were
wide fluctuations in case of lic and private sector upto 2010-11. In the year 2007-08 private sector was able
to gain an increase of 82.50 percent compared to 2006-07 but there was a sudden
decrease in growth rate to 25.09 percent in 2008-09 and to 11.08 percent to
11.08 percent in 2010-11. In the year 2011-12 there was a slump in the
business, the growth rate shown a negative trend. LIC also showed the same
trend.
Analysis: Market of lic decreased year to year from 2006-07 to 2010-11 but
there was an increase of less than one percent in 2011-12. In case of private
sector there was an increase upto 2010-11 but a
marginal increase in 2011-12.
v Insurance
density is measured as ratio of premium(in USD) to total population
v insurance
penetration is measured as ratio of premium (in USD) to GDP (in USD)
Analysis:
India has
reported increase in insurance density for every subsequent year and for the
first time reported a fall in the year 2011. The increase might be due to
opening of insurance sector for private participation. Insurance penetration
surged in 2006 (compared to 2005 – 2.53%) slipped slightly to four percent in
2007 and 2008 again increased in 2009 and slipped continuously in two years
2010 and 2011. The decrease was on account of negative growth rate of premium.
CONCLUSIONS:
Insurance
in India is primarily used as a means to improve personal finances and for
income tax planning; Indians have a tendency to invest in properties and gold
followed by bank deposits. They selectively invest in shares also but the
percentage is very small 4-5%. This in itself is an indicator that growth
potential for the insurance sector is immense. It’s a business growing at the
rate of 15-20% per annum. Infrastructure projects are long term in nature and
to provide capital for such sectors, the money has to come from insurance. Thus
the sector has a great potential to grow. India is a vast market for life
insurance that is directly proportional to the growth in premiums and an
increase in life density. However, the market share of private insurance
companies remains very low in the 25-30 percent range. Even to this day, Life
Insurance Corporation (LIC) of India dominates Indian insurance sector. The
heavy hand of government still dominates the market, with price controls,
limits on ownership, and other restraints.
SUGGESTIONS:
Higher
savings pave the way for higher GDP growth rate. Given a particular incremental
capital output ratio, the only way to achieve higher GDP growth is by having
higher long-term savings, so that there is a stable growth in savings and also
in GDP. Insurance is one of the long-term saving vehicles. Higher insurance
penetration will enable to collect higher premium and these premiums are
invested in debt and equity instruments. To achieve this objective, this sector
requires more improvement in the insurance density and insurance penetration.
Infrastructure development is very crucial for us. Infrastructure projects are
long term in nature and to provide capital for such sectors, the money has to
come from insurance. Hence high insurance penetration will provide a decent
capital contribution in providing infrastructure facilities. Insurance density
should be improved comparatively to the India’s population so that more premium
can be collected which is transferable to Indian industry and service sectors.
India has to go for more foreign contribution from insurance sector, high sectoral reforms are needed like increase in FDI and FII.
1.
See that the share of insurance in GDP
increases so more capital can be provided for companies.
2.
Reach rural areas as the most of the Indians
live in rural areas and most of the rural people are not yet covered by
insurance. With this more premium collections may be possible which can be
invested in corporate sector for speedy economic development. Development of
products including special group policies to cater to different categories
should be a priority.
3.
Rural demographic profile consists average
low age of workforce and high population. They are to be covered by introducing
health products. Opening of rural
insurance outlets in all mandal (taluka)
headquarters in necessary.
4.
Publicity is highly needed. Different mandals may be allocated to each Development Officer (Sales
Manager) and send them to door to door canvassing and educate the public on
insurance. Insurers may take the help of Self Help Groups, Non Government
Offices, Post Offices and other cost effective distribution channel.
5.
Insurers have to give more quality services
and treat customers fairly, it develops trust about them. It is the
responsibility of all the employees and agency force to give quality services.
REFERENCES:
1.
IRDA annual reports for various years and
other sites on internet
2.
Selva Kumar.M and Vimal Priyan.J, “A comparative study of public and private life
insurance companies in India”, Indian Journal of Commerce, Vol.65, No.1,
Jan-Mar 2002, pp 81-87.
3.
Madhukar Palli, “A study on assessing life insurance potential in
India”, Bimaquest, Vol.6, Issue 2, July 2006.
Received on 06.05.2013 Modified on 24.06.2013
Accepted on
21.07.2013 © A&V
Publication all right reserved
Asian J. Management 4(4): October –December, 2013 page 282-284