International Conference
Insurance in Central Asia
Development of Insurance Markets in India
-
An Overview
28th May, 2007
Almaty, Kazakhstan
By
G. Prabhakara
Member (Life) – IRDA
Hyderabad, India
gprabhakara@irdaonline.org
Evolution of Indian Insurance
Sector
Social Security – An age old tradition inscribed in Vedas
Insurance an informal self arranged system prior to 18th
century
Local community centers
Joint Family System - Institution of Mutual help
‘Your Welfare is my responsibility’ drawn from Vedas – An
indication of prevalence of community insurance even over
3000 years ago
“Yogakshemam Vahamyaham” - Mission of LIC, national
life insurer since 1956
2
Insurance Industry prior to opening up
Insurance Act, 1938 - A time tested legislation
Nationalisation of Life Insurance Industry 1956 –
Monopoly of Life Insurance business
Nationalisation of General Insurance business 1972
Limited Competition – Restricted reach of insurance
Constitution of Committee on reforms in Insurance
Sector, 1994 – Opening up of Insurance Sector
3
Constitution of Regulator - IRDA
Delegation of Regulation by Legislature – Enactment
of IRDA Act, 1999
Constitution of IRDA - An Autonomous body to
Regulate & Develop insurance business
Promote market efficiency – Protect interests of
policyholders
Promotion and Regulation of Professional
organisations of Insurance
Regulating maintenance of Margin of Solvency
4
Regulator as Developer
A Unique model
Legislation entrusts developmental role to IRDA – Unique of
its own
Balanced approach while regulating industry vis-à-vis
developing the same
Protection of Policy holders’ Interests – Mission of IRDA
Interests of policy holders prime objective while formulating
regulatory approach
Spread of Insurance business – Mandatory norms under
Rural and Social Sector Obligations
Prudential entry norms
5
Requirements of New Insurers
Certificate of Registration & License from IRDA –
A pre requisite for commencement of Insurance
business
No Composite Business – Life & Non Life to be
separate classes of business
Minimum paid up capital - A statutory requirement
Life & Non Life Insurers – $ 25 million (Rs 100 crores)
Re-insurers - $ 50 million (Rs 200 crores)
A limit of 26% on Foreign Direct Investment
Carries out ‘Due Diligence’ – And other Norms of
Prudential Supervision
6
Existing Market Players
Number of Life Insurers – 16
One Public Sector & 15 Private Insurance
companies (13 in collaboration with foreign
partners)
Number of Non Life (P&C) Insurers – 15
5 Public Sector, 1 Standalone agriculture
Insurance, 1 Standalone Health Insurance & 1
Standalone export credit insurance company
Number of Reinsurers – 1 in public sector
7
Self Regulatory Organisations
Revival of Life Insurance Council, General
Insurance Council – A statutory measure of
Self Regulation
Focus on matters of Market Conduct & Best
Business Practices
Member (Life & Non-Life) – Chairman of
respective councils
8
Efforts to expand the reach
Individual Agents are principal business sources of
Life Insurance industry
Introduction of Institutional Agents –Widening of
Distribution channels
Corporate Agents
Brokers
Entry of Banks under ‘Banacassurance’ model
Norms of Minimum qualification, Mandatory
Training by accredited institutions, Pre-recruitment
exam before licensing all Intermediaries, Subject to
Code of conduct
9
Spreading Insurance through Micro Insurance
Development is not complete without reaching all
sections – Introduction of Micro Insurance
Micro Insurance Agency by agreement – A
relaxation from pre licensing training/test
Local Institutions as MI agents – Helps in spread of
Insurance awareness
Micro Insurance Products subject to File and Use
procedure – Expected to be self supportive
Issuance of documents in vernacular languages –
An Objective of reaching the targeted 10
Business potentiality of Micro
Insurance
10% of Cattle – A potential Premium of Rs
1000 crores ($220 million)
Overall Agri Insurance Premium – Rs 8000
Crores ($1.74 billion)
Life Insurance – 24 crore (240 million)
individuals BPL, MBPL are insurable
11
(Report of Consultative Group on Micro Insurance)
Product Innovation
Better benefit forms and easy delivery mechanisms
Single largest innovation – Unit Linked Life Insurance
Products (Capital Market Linked)
Upfront Transparency, Flexibility & Liquidity
Specific covers for Diabetes, Cancer – Protection with
preventive approach
Variable Annuities – Revisiting the annuities on vesting
Group Insurance products with value-added services –
Strengths of professional fund management
Micro Insurance products with Weekly/Fort-nightly
premium mode
12
Health Insurance
A prosperous portfolio
Working group on health insurance by IRDA - 2003
Fastest growing portfolios of Non life Insurers
Health Insurance – 1.2% of total expenditure on
health
Life insurers also offering standalone health
products & add on riders to base products (critical
illness etc.)
One Standalone Health Insurance company already
in the market
13
Removal of Tariffs - Non Life Insurance
70% of General Insurance Business was
under tariff regime till December, 2006
Effective January, 2007 tariffs removed
Movement of regulated price to market
determined pricing
Expected product innovation
Scientific underwriting – Risk determined
premium
14
Increasing Insurance Penetration
(% of Premium to GDP)
Market 2003 2004 2005
World 8.06 7.99 7.52
Asia 7.51 7.37 6.83
India 2.88 3.17 3.14
15
Steadfast growth of Industry
(raising penetration levels)
Insurance Penetratin
3.26 3.17
2.71 3.14
2.32 2.88
1.93
1999 2000 2001 2002 2003 2004 2005
Year
Insurance Penetratin
16
Deepening Insurance Density
(% of Premium to Total Population)
Market 2003 2004 2005
World 469.6 511.5 518.5
Asia 183.4 194.3 197.9
India 16.4 19.7 22.7
17
Steadfast growth of Industry
(raising density levels)
22.7
Insurance Density
14.7 19.7
16.4
9.9
11.5
8.5
1999 2000 2001 2002 2003 2004 2005
Year
Insurance Density
18
Financial Savings of Household Sector
(% to GDP)
Item 2003-04 2004-05 2005-06
Bank 37.4 36.4 46.7
Deposits
Shares & 0.1 1.1 4.9
Debenture
Insurance 13.7 16.0 14.2
Funds
19
Booming Insurance Industry
Premium 2003-04 2004-05 2005-06
Growth
Life 18.91% 24.31% 27.78%
India
Non Life 11.16% 12.09% 15.61%
India
Global 11.71% 9.70% 4.90%
20
Increase in Premium Volumes
Expansion of market size
Increase in Premium Volumes
4000.00
Total Premium ($)
3000.00
2000.00
1000.00
0.00
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Year
Life Non Life Total
21
Growing Number
No of New Policies sold
Indication of furthering penetration
52.89
47.25
43.56 41.73
(million)
35.46
28.63
25.37 26.21
2002-03 2003-04 2004-05 2005-06
Year
Life Non Life
22
Market Share of Private players
Indication of increasing acceptance levels
Companies (No. of New
Market Share of Private
16.91
Policies Issued)
10.81 10.91
7.91
8.52
3.85
5.79
3.25
2002-03 2003-04 2004-05 2005-06
Year
Life Non Life
23
Growth of Unit Linked Funds
Increased Acceptance of product innovation
UL Funds under Management ($
70000
64720.33
60000
50000
million)
40000
30000
20000 18818.6
10000 0.01
4220.77
0 664.77 0.48 1.76 5.31
2002-03 2003-04 2004-05 2005-06
Year
Total ULIP Funds % to Total Funds
24
Status of Indian Insurance Market
Estimated Premium Income over $ 31.8 bn
Current Indian Market 0.9% of $3425.71Bn Global Insurance Market
Expected Growth Rate – 125% in 10 Yrs
Absolute number of people without protection – Remain High
Potential Size of over 350 million people
Advent of Updated technology – Servicing on Real Time Basis
Networking of Financial Centers – 24/7 Call centers
Updated web portals – Availability of Service and Business
Information
Accessibility to Data Bases – Better prudential practices
25
Prospects Vs Challenges
Insurance potentiality high - Penetration remains low
Projections of GDP growth indicates quadruple of per capita
Income by 2020
Changing Socio Economic Styles – Increase in Income levels of
Young generations
Increase in Infrastructure development – Migration towards
Urbanisation
Changes in Demography – Projections of 120 million over age
60 by 2020 – Annuity business opportunities
Less than 10% of population over age 60 have access to
pension benefits
26
Prospects Vs Challenges
93% of work force in unorganised sector – An aggregate of 369
million people
Expansion of working age population by 45% - Additional generation
of 150-200 million jobs by 2020
Contribution of IT & BPO sector significant
Lower literacy levels (61%) – Need for imparting insurance education
Wide Geography – Delivery channels for distribution of insurance
solutions
Need for educating intermediaries for a well informed decision by
policyholders
Market Segment-Specific Product design – An acceptable
innovative insurance solutions to all
27
Thank You
28
