FDI is important:

There have been many developments in the sector in the recent past in the year 2014 - proposal
of increasing the Foreign Direct Investment (FDI) limit to 49%, introduction of the insurance
repository, changes in ULIP regulations and availability of policies online. In 2015, the sector is
expected to witness consolidation in addition to introduction of new distribution channels,
innovations in products and a more stringent regulatory regime. The sector is expected to grow
at a fast pace in the coming years, with increasing awareness and penetration levels.
Forward looking policies and innovations by insurance players will help in taking the sector to
the next level of growth.

Competition
The insurance Sector is one of the most competitive sectors in India today. With 24 life insurance
players, the industry has come a long way since the time when there was only one player in the
market - Life Insurance Corporation. In 2000, the sector was liberalised by the Government. Over
the past 14 years, the sector has not only witnessed increased competitiveness due to the
presence of multiple players, but has also seen several product and operational innovations. The
Insurance Regulatory and Development Authority (IRDA) being the regulatory authority of the
insurance sector in India is the sole authority which frames regulations for the sector, ranging
from registration of insurance players to protection of policy holders interest, thus aiming to
regulate and promote the growth of the insurance sector.
Changes made by govt
The insurance sector is continuously evolving and requires continuous changes by the
government and the regulator to be competitive. The year 2014 witnessed some landmark
changes in the insurance sector. One of the most recent changes is the proposal to increase the
foreign investment cap to 49% from 26% for the sector. Increase in FDI limit will not only give the
insurance sector the much needed access to foreign funds, but will also make the sector more
competitive and open for growth.
> Access to international best practices and entry of mature players in the industry will help in the
strategic development of the sector.

Regulations
On the regulatory front, IRDA has recently brought about several changes. In September 2013,
the insurance repository was introduced which is a facility to maintain insurance policies online in
the demat form. At present applicable only to life insurance policies, the system is expected to be
available for other insurance types in the coming years.
>The insurance repository system helps in easier maintenance of policies and the risk of losing
physical policy documents is also minimized. Another development in the sector is the
introduction of new guidelines by IRDA with respect to Unit Linked Insurance Policies (ULIPs).
During the latter part of last decade, ULIPs were very popular as agents and insurance players
promised high returns and attractive features. However, these plans were notorious for the
exorbitant charges and fee structure. As a result, policy holders lost a considerable part of their
premium towards such charges. IRDA had brought down these charges in 2010. Recently, IRDA

has made the product attractive for investors by reducing the charges further. Regulating a
unitlinked product was the need of the hour to protect policy holders interest.

Innovations
Another innovation in the sector is the advent and popularity of online term plans.
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> A term plan bought online from the insurers website works out to be much cheaper than that
bought offline or from the agent.
>
> The regulator has constantly worked on improving transparency and protecting policy holders,
while at the same time bringing about forward looking policies to promote the growth of the
sector.

Way forward for insurance sector:

Going forward in 2015, the insurance sector is expected to see changes in the operational as
well as ownership levels.
> First, the sector is witnessing consolidation, especially on the back of the proposed hike in the
FDI limit.
>
> New players could enter the market, while existing smaller players can be taken over by the
larger players.
>
> Next, the distribution infrastructure could also witness some changes.
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> New channels could come into play in order to widen the reach of insurance products.
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> Despite growing penetration levels over the past decade, India remains a largely under
penetrated market as far as insurance is concerned. Many people continue to view insurance as
a tax saving instrument rather than a necessary financial instrument to protect risks.
>
> However, it is expected that with growing awareness and financial penetration, this view will
change and people will begin to appreciate the importance of buying an insurance cover.
Adopting distribution channels such as bancassurance has already gained momentum, and is
expected to increase in the coming year.
>
> The range of product offerings is also expected to increase in 2015. Innovation in product
offerings, which calls for differentiated products, could become popular, as new companies and
international practices come into vogue in the sector. On the regulatory front, IRDA could get
morestringent in terms of the due diligence to be undertaken by the players, and also on aspects
such as mis-selling.
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> According to IBEF, the insurance sector is expected to grow at a CAGR of 12%-15% over the
next five years. With India having high savings rate in comparison to many other countries, this
should not be a very difficult target to achieve. This shows the enormous potential of the sector.
Proactive policies by the regulator and the government, increasing customer awareness, making

operations efficient, innovative products and bringing about customer centric products and
services will help in taking the sector to the next level of growth.