The Tenth Insurance Summit 2006

Pension Coverage: Role of Insurance

Oct 10, 2006

Old Age is the most unexpected of all things that happen to Man
-Trotsky

David Hatton
Director, Employee Benefits & Pensions

Agenda
Population Dimensions
Pensions Scenario
PFRDA- A New Scheme of Things
Pension Regulatory Framework
Conclusions

Population Dimensions

Of the total world population of over 6.5 Billion, India has 1.1 Billion

In India, the number of people aged 60 and above is expected to

increase by over 100%, to 113 Million by 2016 (9% of total population)

Fewer than 10% of Indians over the age of 60 receive old age income,
others rely on their own earnings or transfers from children

11% of the total workforce is eligible to participate in formal provisions

meant to provide old age security

Lower old age dependency rate as compared to the developed world

Median age of the Indian population is 24.7, and expected to reach 27.2
by 2016, which compares favorably with the developed world at 41.2

Agenda
Population Dimensions
Pensions Scenario
PFRDA- A New Scheme of Things
Pension Regulatory Framework
Conclusions

Pensions Scenario

Life companies everywhere are large players in private

sector pension plans
-

>

USA, Canada, UK- insurers are large players

>

Insurers are pension providers in Japan,

Korea, Hong Kong, China, Taiwan, Thailand,
Malaysia, India, Australia & New Zealand

In India, Pensions are the fastest growing component

of Life Insurance Sales

Has shown a CAGR of 222 % in the last 2 years

Significantly higher than CAGR of entire new business

premium (33%)

Contribution of Pensions to total New Premium has

increased from 9% to 22% in the last 2 years

Life Insurance Companies are key sellers of Pension

products
Broad array of products available
Individual Pension Products
Superannuation
Gratuity
Leave Encashment
Group Savings Plans

Rapid Growth in Pensions

Around the world, there are a combination of

banks, fund managers and insurers providing
pension protection

Pension
New Biz

7928

Pensions

4064

1775
27969
22154
18013

2003-04

2004-05

2005-06

Source: IRDA Annual Reports

Pensions Scenario: The Future

Existing Systems of mandatory pensions under fiscal strain

Need to move towards funded and contributory system

Pension research has shown more than 60% recognize children will
not/cannot look after them

Growing awareness even amongst rural and poor that they need to save
for retirement

India needs to bring 500 million people more under the retirement safety
net by 2015. Reaching out to this segment and selling pensions is a
challenge in spite of increased awareness

The market is expected to reach $10 Billion by 2010, from the current
$1.76 Billion

The Road Ahead

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Agenda
Population Dimensions
Pensions Scenario
PFRDA- A New Scheme of Things
Pension Regulatory Framework
Conclusions

New Scheme of Things (New Pension Scheme)

PFRDA

Individual members

POP

PFM

POP
CRA
POP
PFM
POP

IRDA

Annuity
Provider

Advantage Life Insurers

Pensions are closely connected with the Insurance sector

-

Insurance Companies have experience of administering long term plans such as annuities
and endowments which typically run for 15 to 50 years

On retirement, pension assets may be invested with annuity providers who are an
important component of the insurance sector

Insurance and Pensions deal with similar kinds of investment i.e. long term. They manage
investments to guarantee delivery 20/30/40 years from now

Insurance companies have experience of handling unit linked investments

Distribution will be the key

-

Pensions are sold- and require a lot of support and advice

People buy from people they trust- life agents

Examples of Mandatory Plans which are sold, not bought

>

Chile

>

Poland

>

Hong Kong

Will it be different in India??

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Advantage Life Insurers

Experience with Customer Service

-

Customers now demand a fair bit of advice and support

Unit linked plans require support and advice

We have Customer Service Departments trained in after sales service

We have agents who can help guide customers in product selection

We have internet sites and journals where performance is be monitored

Experience with Compliance and Governance

-

Everything Life Companies do is to preserve benefits for members

Agents can to be trained to give appropriate advice

Life Company reputations are based on our ability to meet insured needs at
unknown future dates- 100% of the time

Insurance Companies carry surplus capital for all future claims

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Agenda
Population Dimensions
Pensions Scenario
PFRDA- A New Scheme of Things
Pension Regulatory Framework
Conclusions

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Pension Regulatory Framework

Regulatory Bodies
-

PFRDA to license and regulate / supervise Pension Fund Managers

IRDA to regulate and supervise pension products launched by life insurers

Current Pension Regulatory Framework:

-

Pensions paid by the government and PPF is administered by the Government

Proposed DC Pension would be regulated by the PFRDA

EPF and EPS 95 is administered and regulated/supervised by the EPF

Individual and Group pension regulated and supervised by the IRDA

Regulation and supervision of pensions is fragmented and needs to be reviewed

IRDA regulates all insurers

PFRDA will regulate all pension products including those of life insurers

Could mean that PFRDA will have to work with IRDA on the rules, regulations and product approvals
for insurance company products

Already happening in other jurisdictions e.g. Hong Kong

There are precedents for this in India

-

RBI and SEBI

IRDA and SEBI

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Agenda
Population Dimensions
Pensions Scenario
PFRDA- A New Scheme of Things
Issues of Dual Regulation
Conclusions

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Conclusions

Pensions is the fastest growing segment in Life Insurance portfolio today

Opportunities for market growth are very high, as only 11% of the
working population has access to retirement benefits. India needs to
bring over 500 Million people under the retirement safety net by 2016

Growing awareness of the need for providing for retirement, with a

changing culture marked by movement towards nuclear families and
increasing affluence

Life companies are already doing a good job of managing pension assets
for their clients

In almost all other jurisdictions, life companies are major players in the
Private Sector Pension business

In India, Life Insurance Companies have the capabilities to help

consumers make the right decisions through their quality agency forces

India will well benefit from Life Insurance involvement in the private
sector pension businesses

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Thanks for listening

david.hatton@ingvysyalife.com

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