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Development & Growth of the Insurance Industry in  India

The first statutory measure in India to regulate the Life Insurance Business was in 1912.

The first general insurance company ‐Mercantile Insurance Company Ltd. in Bombay in 1907. 

Insurance Act, 1938. – Still the definite legislation on insurance. Controls both life insurance and general insurance.

The Life Insurance Corporation (“LIC”) was formed in September 1956 – acquiring 245 Indian & Foreign Insurance with exclusive privilege to conduct life insurance business in India.

The general insurance business was also nationalised with effect from January 1, 1973, through the introduction of the General Insurance Business (Nationalisation) Act, 1972.

The  Indian Parliament passed the  Insurance Regulatory and Development Act, 1999  (“IRD Act”) on December 2, 1999 with the Objective 

o to provide for the establishment of an Authority, o to protect t he interests of the policy holders, o to regulate, promote and ensure orderly growth of the insurance industry

The  insurance sector was opened up  in 2000. After years of dominance by one public sector insurance company there was competition on home ground.

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Pre 2000

External Environment Consumer Preference Types of Products

LIC MonopolyHigh Interest rate regime

Premium on safetyInsurance used as tax saving instrumentIncremental returns

Participating Endowments & Single premium bonds

2000 - 2007Private players enter the marketCapital markets on a bull run

Consumers chase returnsProtection takes backseat in product design and communication

Unit Linked products with simple designs

2008 onwardsStock markets crashConsumer attention moves towards safety

Consumers look for transparent products coupled with safety & returns

Unit Linked plans with complex structuresTentative steps towards Universal Life platform

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Source of initiation of salePercent

Push based

Pull‐based (e.g., contacted agent, called up centre, searched internet, etc)

Other push‐based (e.g. call, bank branch) 

Contacted by an agent

Distributor plays a significant role in the insurance buying process

Pull based

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Pillar One

Pillar Two

Pillar Three

Government support

▪ Largely absent in India 

▪ Government has initiated some schemes but coverage is inadequate

Employers 

▪ Limited benefits, only around 11% of India’s working population engaged in the formal sector hence need to enhance Pillar One over time

Individual insurance/pensions 

▪ Currently the key pillar in India and thus need for incentives to the sector such as fiscal incentives, availability of appropriate investment assets, regulatory authority to enable development aspects

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SOURCE: : Global Insight; ICI World Factbook, IRDA; Swiss Re; Country Insurance handbook

Low protection levels

“Protection” (Level of Sum assured)Percentage of GDP (FY 2010-11 for India; CY 2008-09 for other markets)

167

157

51

165

176

249

55

Malaysia

US

Thailand

India

Germany

Singapore

Korea

Sum assured by private players’ 23% of GDP10.3%

6.2%

6.2%

7.0%

3.9%

4.6%

7.0%

Expected Growth SA % of GDP

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Protection levels in India remain abysmally low

India (FY’10)1, 2 4.2

Malaysia  3.1

Germany 3.1

Singapore  6.2

Korea  8.2

US 4.2

167.5

175.7

249.1

55.2

157.5

165.5

Penetration (Level of premiums)Percentage of GDP, 2008

“Protection” (Level of Sum assured)Percentage of GDP, 2008

SOURCE: IRDA; RBI; analysis

Due to high proportion of ULIPs (~85% of premium from private sector)

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Creating a healthy life insurance industry structure would require interplay among actions taken by 3 sets of stakeholders

• Mechanism and incentives for deepening long term savings pool

• Appropriate regulatory oversight

Healthyand vibrant

industry structure

Regulators

Insurers Distributors

• Efficient and sustainable business models

• Investing in consumer education

• Enhancing access to products

• Driving awareness

Over-arching objectives for the industry• Long-term

savings and protection

• Protection of consumer interests

• Creation of economic value for shareholders

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1. Insurance Act, 1938.2. Insurance Rules, 1939. 3. Corporate Governance Guidelines issued by IRDA .4. Products related Regulations and Guidelines.5. Advertisement and Disclosure related requirements.6. IRDA regulations on Insurance Agents.7. Code of Conduct, Whistle Blower  Options .8. Protection of Policyholders Interest.9. Outsourcing Guidelines.10. Investment Guidelines.11. Products Guidelines.12. Anti Money Laundering Guidelines.13. Intermediary guidelines for Agents, Brokers, Corporate Agents etc.

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