Insurance was reformed once and since then increasing the FDI limit has become a seemingly impossible reform. Data from 2007-08 shows how dramatic the changes would have been if insurance was fully reformed. Even with halfway house changes, the new business premium marketshare of private sector players crossed 50% in 2007-08 and public sector biggie LIC?s share dropped from 63% in 2006-07 to 48.1%. More dramatic is that the annualised premium earnings of LIC, which grew by 90% in 2006-07, remained almost stagnant in 2007-08. But private players maintained the momentum. Within the private sector, the spoils are shared unevenly; most of the gains in the last two years have gone to four insurers. There will be another churn as the market tries to identify the also-rans. For LIC, the fall in marketshare has been accompanied by a sharp fall in the average policy size, by almost three-fourths over the last three years. Clearly, high net-worth clients are finding LIC unattractive. The biggest players among the private insurers have policy sizes that on average are four to ten times that of LIC?s. LIC?s immediate priority has to be finding other business options, since high net-worth clients are likely to stay with smarter private players.
At the macro level, more activity in the insurance business has boosted savings, which has been registering reasonably impressive increases in recent years. Insurance has contributed more than a tenth of the growth in household financial savings. This puts the gains in the insurance sector almost at par with the increase in savings in equities and mutual funds, making it another financial segment where the private sector has edged out a public sector behemoth. Revealingly, the only major savings instrument whose share in total GDP has declined during recent years is the provident and pension funds. There has been no reform in provident and pension funds; some states are implementing the new pension system, but the Centre hasn?t cleared the change and in PF the same sarkari, market-resistant system goes on. Is there a better argument why delaying reforms is costly? Indeed, is there a better argument against those who paint liberal changes as being dangerous? Insurance was a gray, uninspired business with horrible customer service. Look at it now. Pension and PF can be the same.