Strong distribution helps private insurers

Published: July 30, 2019 1:46:10 AM

Marketing of insurance service is critical and complex due to the periodicity, claims and brand switching costs that affect buying behaviour. Distribution is one of the key determinants of succes.

During the initial decade, insurance penetration (premium as percentage of GDP) in India increased from 2.71% in CY01 to 5.2% in CY09.

The insurance industry in India is a fast growing market with life dominating value and non-life taking pole position for volume. Currently, 68 companies operate in the country. Since the industry was opened to private sector in 2001, it has witnessed several changes (regulatory and structural) and has undergone transformation leading to increased penetration, higher coverage, rise of multiple channels (agency, bancassurance, broking, direct, corporate agency, etc.,), superior reach, and intensifying competitiveness.

Premium grows

The Indian insurance industry’s total premium income grew from Rs 1,82,006 crore in FY07 to Rs 6,12,247 crore in FY18; i.e., CAGR of 11.7% driven by rising per capita income, enhanced income tax benefits, product innovations and customisation, development of strong distribution channel, and rising financial literacy. India’s share in global insurance market was 2% during CY17. During CY17, premiums in India increased by 10.1% (in real terms) whereas global premiums increased by 1.5% (in real terms) indicating the faster growth achieved in India as compared to the global growth.

During the initial decade, insurance penetration (premium as percentage of GDP) in India increased from 2.71% in CY01 to 5.2% in CY09. Since then, penetration level declined to reach 3.3% in CY14. Post this trough, it is showing an increasing trend, from 3.44% in CY15 to 3.69% in CY17. Insurance density (premium per capita) reached $64.4 in CY10 from $11.5 in CY01. However, from CY11 to CY16 it remained between $50-60 but in CY17, it shot up to $73.

Life insurance continues to dominate

Life insurance segment continues to dominate the domestic insurance industry premiums. Globally, the share of life insurance business in total premium was 54.3%, while the same for India was 74.9%. However, its share has been declining gradually from 85.8% in FY07 to 74.9% in FY18. On the other hand, in terms of new policies issued, non-life segment is dominant and its share has been on an uptrend from 50% in FY07 to 86% in FY18.

Domestically, over a 15-year period, the market share of the private insurance companies has reached 31% (FY18) from 2% (FY03) in life and 48% (FY18) from 9% (FY03) in non-life driven by usage of multiple distribution channel and faster technology adoption.

India’s insurance penetration is lower than global average and lower than quite a few developed countries. India continues to be an underpenetrated insurance market with an insurance penetration of 3.7% in fiscal 2017, as compared to 4.8% in Malaysia, 5.3% in Thailand and a global average of 6.1% in 2017.

Distribution Channels

Marketing of insurance service is critical and complex due to the periodicity, claims and brand switching costs that affect buying behaviour. Consequently, distribution is one of the key determinants of success for insurance companies. A variety of distribution channels are currently used to sell insurance products. These channels can broadly be classified into internet-led channels, company-led channels, bank-led channels, and agent-led channels. There has been a shift in the channel mix from the earlier agency-focused model to a more diversified distribution mix.

(Edited excerpts from CARE Ratings report)

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