The pandemic presented many challenges for all of us. As a country, we had to navigate some very difficult times. My thoughts are with the families who lost their near and dear ones, and with those fellow citizens whose livelihood was severely impacted.
While we feel and hope that we have moved on irreversibly from those days of extreme distress, one key takeaway from the pandemic has been the accentuated need for life and health insurance for the citizens of a fast-developing country like ours. Ensuring this objective has always been the purpose of the Indian insurance industry. If anything, the pandemic has been a rude wake-up call for this sector to work much harder towards achieving this great purpose in the shortest possible time.
Today, the industry is poised at an interesting juncture. Buoyed by the twin tailwinds of growing consumer demand and a supportive government, the life insurance sector is all set to play a pivotal role in the country’s development.
According to a recent report by Swiss Re, a Zurich-based re-insurance company, the Indian insurance industry is ranked 10th globally in terms of premiums. This report also estimates a compounded annualised growth rate (CAGR) of 14 per cent, which will make India the sixth largest global insurance market by 2032. This will take India well ahead of developed nations like Germany, Canada, Italy, and South Korea.
The insurance industry’s growth will largely be fuelled by structural factors such as demographics, increasing disposable income, and higher risk awareness catalysed by the pandemic and the country’s strong macroeconomic fundamentals. But, crucially, this is backed by the enabling regulatory environment, which can potentially make the centenary year of Indian independence a genuinely memorable milestone for the citizens of the country.
Looking ahead, the Insurance Regulatory and Development Authority of India (Irdai) estimates the Indian insurance market to reach $200 billion by 2027. Further, according to Swiss Re, the insurance penetration in India, as a percentage of insurance premiums to the gross domestic product (GDP), is less than 5 per cent, below the world average of 7 per cent, placing the country in the 21st position globally. On the other hand, countries such as Taiwan, South Africa, and South Korea are well ahead with insurance penetration rates of 14.8 per cent, 12.2 per cent, and 10.9 per cent, respectively.
The other benchmark to measure the state of insurance adoption is insurance density, which denotes the proportion of premiums per capita of the population. According to the Economic Survey 2021-22, India’s per capita insurance density has grown from $11.5 in FY2001-02 to $78 in FY2020-21, contrasting the world average density of $809, which points to the opportunities in India. Concerning life insurance density, the needle has moved from $49 in FY2011 to $59 in FY2020. In contrast, the global life insurance density is $360, reiterating the potential for growth in India and the journey ahead for the sector.
A Swiss Re report, Closing Asia’s Mortality Protection Gap, estimates India’s protection gap to be $16.5 trillion. Additionally, the sum assured of India’s term insurance plans stands at 22 per cent to its GDP, significantly lower than those of some of the other south-east Asian countries such as Malaysia, Thailand, and Singapore, which stand at 127 per cent, 143 per cent, and 332 per cent to their respective GDPs.
India’s insurance growth, especially in the last 20 years, can be attributed to various elements, such as changing consumer mindsets, the rise in nuclear families, ease of doing business, and the need for insurance for financial security. It has also been due to innovative products, increased adoption of digital platforms by insurance companies, and accelerated customer acceptance.
One of the key enablers and important constituents of the Indian insurance industry’s success is the enabling regulatory framework, especially for product approvals and distribution. While the regulatory structure has played a supportive role from a policy perspective, the government has played an integral role by gradually liberalising foreign investment in the Indian insurance sector. The cap was raised from 26 per cent to 49 per cent in 2015 and further to 74 per cent in 2021. This, coupled with practical domestic control guidelines, has increased foreign investor confidence and has drawn in and will further accelerate the infusion of much-needed long-term capital for the industry.
To create sustained and long-term growth for the insurance industry in alingment with its vision of ‘Insurance For All By 2047,’ the Insurance Regulatory and Development Authority of India (Irdai) is rolling out several game-changing regulations. These include permitting direct investment by private equity funds, diluting promoter stakes to 26 per cent, and providing insurance companies the flexibility to raise alternative investments, such as subordinated debt and preference shares without prior approval.
Besides, to facilitate the ease of doing business, Irdai has increased the tie-up limits for intermediaries such as corporate agents and insurance marketing firms in a bid to help millions of Indian families get improved access to insurance to meet their needs. This will open up opportunities for customer-centric insurers to expand distribution partnerships and enhance penetration.
Further, as a first step towards moving to a risk-based capital regime, the solvency norms have been relaxed, ensuring optimal capital utilisation to fuel growth.
This, coupled with the digital IndiaStack and Irdai’s nudge towards the dematerialisation of insurance policies and digital adoption by the industry, gives a platform for expanding insurance reach.
To provide a facilitative framework for insurers, the regulator has also introduced the ‘Use and File’ approach, which will drive innovation and facilitate a quick go-to-market framework.
The ‘Bima Sugam’, an all-in-one digital platform for soliciting customers, service requests, and claims proposed by the regulator, is another path-breaking initiative. This would be a game-changer and possibly the Unified Payments Interface (UPI) moment for the insurance industry. Over time, we expect this unified platform to be used by a large number of customers to fulfil their insurance needs. This platform will also be used by insurers, intermediaries, and other market participants as an insurance repository.
As an industry practitioner, I can say that the structural changes, both by the government and Irdai, and that too, in such a short period, are nothing less than phenomenal!
This supportive environment will be a key factor in making the country’s centennial Independence Day celebrations sweeter for all its citizens. The regulator’s vision of ‘Insurance For All’ by 2047 will play a pivotal role in the government’s objective of transitioning to a developed country by the same year.
So, it’s now up to us in the insurance industry to step up and perform and ensure that financial security for all citizens by 2047 becomes a reality.
The author is MD and CEO, ICICI Prudential Life Insurance Company The views are of the author and do not necessarily reflect those of the organisation