Low density and penetration indicates that nothing significant has happened for Indians in insurance.
Penetration, density and growth rate are the three vital parameters to judge the performance of the insurance industry. Penetration is the ratio of total premium collected by all the insurers in a financial year to the GDP of the country.
In this respect we have been struggling at 2.5-3.5% in spite of the liberalisation of the insurance industry 18 years ago and 24 life and 33 non-life insurance companies in India. In 2016-17, insurance penetration was a mere 3.49%. The global insurance penetration ratio is 6.3%, with China at 4.2% and the UK at 10.2%.
Insurance density is per capita insurance premium. While global insurance density was $638 in 2016, for India it was $59.7 in 2016-17. The share of non-life has been a mere $13.2 for the same period. Insurance density of China was $337 in the same year.
Higher growth has no meaning
We, in India, revel in the fact that the growth rate in the insurance industry is always higher than the growth rate of GDP. The life insurance industry registered 11% year-on-year growth for new business premium for 2017-18 generating revenue of Rs 1,94,000 crore. Similarly, gross direct premium of non-life insurance has been Rs 1,51,000 crore for 2017-18. During the last six years, non-life premium grew at a much higher rate of CAGR 16.65%, spurred by health insurance.
The market share of private life insurers is 29%; however, in non-life the private sector achieved 48% market share.
An incisive study of the growth of the insurance industry would point to a highly mediocre performance with a very insignificant impact of the opening of the sector to global players. Whatever new happened to the industry following the entry of well-known Indian and global brands is confined to adoption of customer facing technology and selling through a few new channels, mostly dominated by bancassurance. But very low density as well as insurance penetration indicates that nothing significant has actually happened.
Products not helping much
There are, of course, exceptionally good performances by a few companies compared to their peers but as an industry the sector has failed the citizens. The data on number of claimants and claims settled by both life, non-life sectors in Kerala after the recent floods would confirm my views. I am sure the number of death claims settled would be far fewer than the number of people losing their life in the unprecedented floods. Similarly, the amount paid as claim settlement for loss of property is also likely to be far less than the value of property and wealth destroyed. The practice by successive governments in states and Centre to announce ex-gratia relief to the affected people or to the dependents of the deceased has also taken away the shine from the insurance industry.
In fact, for all such disasters the only scientific method of indemnifying the loss is insurance. Its continuous usurping by politicians has made the industry complacent. In such a scenario people too don’t feel obliged to buy an insurance policy either for themselves or for their property.
The pent-up need for insurance by the people can be met by radical, strategic and structural shifts. Growth which does not improve penetration and density should not satisfy the insurers. Data analytics must be adopted to harness the potentiality available by way of demographic dividend. The conventional underwriting practices must be replaced by digital tools to make customers happy.
Retention of customers, conservation of business and repeat sales to meet all the insurance needs may multiply the business manifold. The CSR spends by companies must earmark large sum for creating insurance awareness. The size of the Indian insurance market is likely to grow to $280 billion by 2020. This may not be enough when we consider even minimum insurance needs of the 45% of our population which is dependent on 50% of people in the earning age group and the growing industrialisation of our country.
-The writer is former MD & CEO, Star Union Dai-ichi