Brief Introduction

The future of the Indian insurance sector looks bright. The sector which stood at a strong US$ 72
billion in 2012 has the potential to grow to US$ 280 billion by 2020. This growth is driven by Indias
favourable regulatory environment which guarantees stability and fair play. This environment has
given rise to an insurance market which encourages foreign investors to tap into the sectors massive
potential.
Ever since the Indian government liberalised the insurance sector in 2000 and opened the doors for
private participation, the sector has gone from strength to strength. The resultant competition has
provided the consumer with a never-before-seen range of products and providers, and also enhanced
service levels markedly.
The health of the insurance sector reflects a countrys economy. This sector not only generates long-
term funds forinfrastructure development, but also increases a countrys risk-taking capacity. Indias
economic growth since the turn of the century is viewed as a significant development in the global
economy. This view is helped in no small part by a booming insurance industry.

Industry Dynamics

Consistent growth in the insurance sector depends on a few factors. Some of these are:
Effective distribution channels The efficiency and cost of the various distribution strategies used by
companies are significant to their success in the insurance business. This particularly holds true for the retail
business.
Focus on overall financial inclusion As time evolves, so must the approach of the insurance sector in India.
The objective of the insurance sector should ideally be to offer a broader range of activities to a wider
populace.
Consumer needs and preferences The growth of Indias insurance industry can be attributed to product
innovation, dynamic distribution channels, and vibrant publicity and promotional campaigns run by insurance
companies. Benefits attached to the products and the manner in which they are delivered (through various
marketing tie-ups) have helped bring customers and insurance companies closer to each other and made the
latter more relevant.
Health insurance is an up-and-coming segment in this sector. Currently, it caters for 10 per cent of the
overall US$ 30 billion healthcare expenditure in India. Consequently, there is plenty of scope for
players in this area.
The life insurance segment contributes about 4 per cent to Indias gross domestic product (GDP) in
terms of total premiums underwritten annually. There are 23 private companies in the segment. The
state-owned Life Insurance Corporation (LIC) dominates the field, with about 71 per cent of the
market share, according to Insurance Regulatory and Development Authority (IRDA)

Key Statistics
Indias life insurance segment collected new business premiums worth Rs 11,742.7 crore (US$ 1.84 billion) for
AprilMay 2013. Indian insurance companies collected a combined Rs 107,010.7 crore (US$ 16.85 billion)
worth of new premiums for FY 201213, according to data released by IRDA.
Meanwhile, the general insurance industry grew by 19.6 per cent in AprilMay period of FY 201314. Non-life
insurers collected premiums worth Rs 13,552.46 crore (US$ 2.13 billion) in the first two months of the current
year, as compared to Rs 11,333.54 crore (US$ 1.78 billion) during the corresponding period of the previous
year.
New Developments/ Product Launches
Insurance companies will now have more freedom to invest in sectors such as IT and pharmaceuticals. IRDA
has increased the sector specific exposure limit for investments to 20 per cent of the insurers total investment,
from the previous 15 per cent.
The electronic know-your-customer (e-KYC) services used by the Unique Identification Authority of India
(UIDAI) will be accepted as a valid verification process for insurance, according to IRDA. Through e-KYC,
insurance companies can conduct electronic identity verification. The agencies can obtain an electronic
identity document of the customer which is digitally signed by the UIDAI. This service enables a quicker and
more efficient process for the customer as well as the insurance company.
Private player Cognizant Technology Solutions has successfully acquired ValueSource, which is a subsidiary
of KBC Group, a Belgium-based multi-channel bank insurance organisation. Under the initial five-year
agreement, the Indian company will provide a number of services to KBC, including application development
and maintenance, and software testing.
United India Insurance Co Ltd (UIICL), the second largest general insurance company in India, intends to
open 530 new offices domestically in 2013. As of now, UIICL has 1,340 offices in the country, as per their
website. In FY 201213, the company collected total premiums worth Rs 9,266 crore (US 1.45 billion) and has
set a target of Rs 11,000 crore (US$ 1.73 billion) for FY 201314.

Government Initiatives
The Government of India has passed the Pension Fund Regulatory and Development Authority (PFRDA) bill
that allows foreign investors to hold 26 per cent stake in the insurance sector. The primary objective of the bill
is to provide pension cover to a greater percentage of the countrys population. The PFRDA bill would also
provide subscribers a wider range of investment choices. The bill will provide better regulation of the sector
and provide more confidence to investors, according to Mr Yogesh Agarwal, Chairman, PFRDA.
Aviation insurance is likely to emerge as an important segment in the near future with new players in the
market operations and existing players seeking to increase fleet size, according to industry officials. At
present, the current market size of aviation insurance hovers around Rs 500 crore (US$ 78.76 million), a figure
that is almost certain to grow as the industry develops further.
In order to enhance financial inclusion in the country and develop bancassurance as a business, IRDA has
facilitated banks to sell insurance policies. Application for the licence required to act an insurance broker can
only be obtained after prior approval from the Reserve Bank of India (RBI).

Road Ahead
The insurance business in India is projected to reach Rs 4 trillion (US$ 63.01 billion) in FY 201314,
according to Mr TS Vijayan, Chairman, IRDA. Total premiums collected by the general and the life
insurance industry in FY 20122013 amounted to Rs 3.75 trillon (US$ 59.07 billion). The chairman
believes that insurance penetration in India has the potential to rise to 56 per cent from the current
3.86 per cent.
Life Insurance Council, the industry body of life insurers in the country, has projected a compounded
annual growth rate (CAGR) of 1215 per cent over the next five years for the segment. Indias
insurable population is expected to grow to 750 million by 2020, with life expectancy projected to
reach 74 years around the same period. The council believes that this favourable Indian demography
would result in more people seeking out life insurance. Also, the council predicts life insurance
penetration percentage of insurance premium to GDP to reach 5 per cent by 2020 from its current
3.2 per cent.
Confederation of Indian Industry (CII) projects the growth rate for Indias insurance industry in FY
201314 to be around 5 per cent. It also anticipates 60 per cent of non-life insurance companies to
record an average growth of more than 10 per cent. The raising of the foreign direct investment (FDI)
limit from 26 per cent to 49 per cent in the sector is viewed as a key element to promote the insurance
industry in India.







Fact and finding

Last Updated: April, 2014
India was ranked 10th among 147 countries in the life insurance business, with a share of 2.03 per
cent, in FY 13. The country was ranked 19th among 147 countries in the non-life premium income,
with a share of 0.66 per cent, in FY 13.
The life insurance premium market expanded at a compound annual growth rate (CAGR) of 16.6 per
cent, from US$ 11.5 billion in FY 03 to US$ 53.3 billion in FY 13. The non-life insurance premium
market rose at a CAGR of 15.4 per cent, from US$ 3.1 billion in FY 03 to US$ 13.1 billion in FY 13.
The share of the private sector has been growing over the years, from around 2 per cent in FY 03 to
27 per cent in FY 13.
Indias robust economy is expected to sustain the growth in insurance premiums written. Higher
personal disposable incomes would result in higher household savings that can be channeled into
different financial savings instruments like insurance and pension policies. Household savings are
expected to grow to US$ 540 billion by 2015 from US$ 89 billion in 2000.
The Insurance Regulatory and Development Authority (IRDA) has recently allowed life insurance
companies that have completed 10 years of operations to raise capital through initial public offerings
(IPOs). Insurance products are also covered under the exempt, exempt, exempt (EEE) method of
taxation, which translates to an effective tax benefit of approximately 30 per cent on select
investments. The Government of India has extended Rashtriya Swasthya Bima Yojana (RSBY) to
cover unorganised sector workers in hazardous mining and associated industries.