International Conference

Insurance in Central Asia

Development of Insurance Markets in India

-
An Overview
28th May, 2007
Almaty, Kazakhstan

By
G. Prabhakara
Member (Life) – IRDA
Hyderabad, India
gprabhakara@irdaonline.org
 Evolution of Indian Insurance
Sector
„ Social Security – An age old tradition inscribed in Vedas
„ Insurance an informal self arranged system prior to 18th
century
„ Local community centers

„ Joint Family System - Institution of Mutual help

„ ‘Your Welfare is my responsibility’ drawn from Vedas – An

indication of prevalence of community insurance even over
3000 years ago
„ “Yogakshemam Vahamyaham” - Mission of LIC, national

life insurer since 1956

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Insurance Industry prior to opening up

„ Insurance Act, 1938 - A time tested legislation

„ Nationalisation of Life Insurance Industry 1956 –
Monopoly of Life Insurance business
„ Nationalisation of General Insurance business 1972
„ Limited Competition – Restricted reach of insurance
„ Constitution of Committee on reforms in Insurance
Sector, 1994 – Opening up of Insurance Sector

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Constitution of Regulator - IRDA
„ Delegation of Regulation by Legislature – Enactment
of IRDA Act, 1999
„ Constitution of IRDA - An Autonomous body to
Regulate & Develop insurance business
„ Promote market efficiency – Protect interests of
policyholders
„ Promotion and Regulation of Professional
organisations of Insurance
„ Regulating maintenance of Margin of Solvency

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 Regulator as Developer
A Unique model
„ Legislation entrusts developmental role to IRDA – Unique of
its own
„ Balanced approach while regulating industry vis-à-vis
developing the same
„ Protection of Policy holders’ Interests – Mission of IRDA
„ Interests of policy holders prime objective while formulating
regulatory approach
„ Spread of Insurance business – Mandatory norms under
Rural and Social Sector Obligations
„ Prudential entry norms

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 Requirements of New Insurers
„ Certificate of Registration & License from IRDA –
A pre requisite for commencement of Insurance
business
„ No Composite Business – Life & Non Life to be
separate classes of business
„ Minimum paid up capital - A statutory requirement
„ Life & Non Life Insurers – $ 25 million (Rs 100 crores)
„ Re-insurers - $ 50 million (Rs 200 crores)
„ A limit of 26% on Foreign Direct Investment
„ Carries out ‘Due Diligence’ – And other Norms of
Prudential Supervision
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 Existing Market Players

„ Number of Life Insurers – 16

„ One Public Sector & 15 Private Insurance
companies (13 in collaboration with foreign
partners)
„ Number of Non Life (P&C) Insurers – 15
„ 5 Public Sector, 1 Standalone agriculture
Insurance, 1 Standalone Health Insurance & 1
Standalone export credit insurance company
„ Number of Reinsurers – 1 in public sector
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 Self Regulatory Organisations
„ Revival of Life Insurance Council, General
Insurance Council – A statutory measure of
Self Regulation
„ Focus on matters of Market Conduct & Best
Business Practices
„ Member (Life & Non-Life) – Chairman of
respective councils

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 Efforts to expand the reach
„ Individual Agents are principal business sources of
Life Insurance industry
„ Introduction of Institutional Agents –Widening of
Distribution channels
„ Corporate Agents
„ Brokers
„ Entry of Banks under ‘Banacassurance’ model
„ Norms of Minimum qualification, Mandatory
Training by accredited institutions, Pre-recruitment
exam before licensing all Intermediaries, Subject to
Code of conduct
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 Spreading Insurance through Micro Insurance

Development is not complete without reaching all

sections – Introduction of Micro Insurance
„ Micro Insurance Agency by agreement – A
relaxation from pre licensing training/test
„ Local Institutions as MI agents – Helps in spread of
Insurance awareness
„ Micro Insurance Products subject to File and Use
procedure – Expected to be self supportive
„ Issuance of documents in vernacular languages –
An Objective of reaching the targeted 10
 Business potentiality of Micro
Insurance
„ 10% of Cattle – A potential Premium of Rs
1000 crores ($220 million)

„ Overall Agri Insurance Premium – Rs 8000

Crores ($1.74 billion)

„ Life Insurance – 24 crore (240 million)

individuals BPL, MBPL are insurable
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(Report of Consultative Group on Micro Insurance)
 Product Innovation
„ Better benefit forms and easy delivery mechanisms
„ Single largest innovation – Unit Linked Life Insurance
Products (Capital Market Linked)
„ Upfront Transparency, Flexibility & Liquidity

„ Specific covers for Diabetes, Cancer – Protection with

preventive approach
„ Variable Annuities – Revisiting the annuities on vesting
„ Group Insurance products with value-added services –
Strengths of professional fund management
„ Micro Insurance products with Weekly/Fort-nightly
premium mode
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 Health Insurance
A prosperous portfolio

„ Working group on health insurance by IRDA - 2003

„ Fastest growing portfolios of Non life Insurers
„ Health Insurance – 1.2% of total expenditure on
health
„ Life insurers also offering standalone health
products & add on riders to base products (critical
illness etc.)
„ One Standalone Health Insurance company already
in the market
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Removal of Tariffs - Non Life Insurance

„ 70% of General Insurance Business was

under tariff regime till December, 2006
„ Effective January, 2007 tariffs removed
„ Movement of regulated price to market
determined pricing
„ Expected product innovation
„ Scientific underwriting – Risk determined
premium

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 Increasing Insurance Penetration
(% of Premium to GDP)

Market 2003 2004 2005

World 8.06 7.99 7.52

Asia 7.51 7.37 6.83

India 2.88 3.17 3.14

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 Steadfast growth of Industry
(raising penetration levels)
Insurance Penetratin

3.26 3.17
2.71 3.14
2.32 2.88
1.93

1999 2000 2001 2002 2003 2004 2005

Year

Insurance Penetratin

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 Deepening Insurance Density
(% of Premium to Total Population)

Market 2003 2004 2005

World 469.6 511.5 518.5

Asia 183.4 194.3 197.9

India 16.4 19.7 22.7

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 Steadfast growth of Industry
(raising density levels)

22.7
Insurance Density

14.7 19.7
16.4
9.9
11.5
8.5

1999 2000 2001 2002 2003 2004 2005

Year

Insurance Density

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Financial Savings of Household Sector
(% to GDP)

Item 2003-04 2004-05 2005-06

Bank 37.4 36.4 46.7

Deposits
Shares & 0.1 1.1 4.9
Debenture
Insurance 13.7 16.0 14.2
Funds
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 Booming Insurance Industry
Premium 2003-04 2004-05 2005-06
Growth
Life 18.91% 24.31% 27.78%
India
Non Life 11.16% 12.09% 15.61%
India
Global 11.71% 9.70% 4.90%

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Increase in Premium Volumes
Expansion of market size

Increase in Premium Volumes

4000.00
Total Premium ($)

3000.00
2000.00
1000.00
0.00
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Year

Life Non Life Total

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 Growing Number
No of New Policies sold
Indication of furthering penetration

52.89
47.25
43.56 41.73
(million)

35.46
28.63
25.37 26.21

2002-03 2003-04 2004-05 2005-06

Year

Life Non Life

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 Market Share of Private players
Indication of increasing acceptance levels
Companies (No. of New
Market Share of Private

16.91
Policies Issued)

10.81 10.91
7.91
8.52
3.85
5.79
3.25

2002-03 2003-04 2004-05 2005-06

Year

Life Non Life

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 Growth of Unit Linked Funds
Increased Acceptance of product innovation
UL Funds under Management ($

70000
64720.33
60000
50000
million)

40000
30000
20000 18818.6
10000 0.01
4220.77
0 664.77 0.48 1.76 5.31
2002-03 2003-04 2004-05 2005-06
Year

Total ULIP Funds % to Total Funds

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Status of Indian Insurance Market

„ Estimated Premium Income over $ 31.8 bn

„ Current Indian Market 0.9% of $3425.71Bn Global Insurance Market
„ Expected Growth Rate – 125% in 10 Yrs
„ Absolute number of people without protection – Remain High
„ Potential Size of over 350 million people

„ Advent of Updated technology – Servicing on Real Time Basis

„ Networking of Financial Centers – 24/7 Call centers

„ Updated web portals – Availability of Service and Business

Information
„ Accessibility to Data Bases – Better prudential practices

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 Prospects Vs Challenges
„ Insurance potentiality high - Penetration remains low
„ Projections of GDP growth indicates quadruple of per capita
Income by 2020
„ Changing Socio Economic Styles – Increase in Income levels of
Young generations
„ Increase in Infrastructure development – Migration towards
Urbanisation
„ Changes in Demography – Projections of 120 million over age
60 by 2020 – Annuity business opportunities
„ Less than 10% of population over age 60 have access to
pension benefits

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 Prospects Vs Challenges
„ 93% of work force in unorganised sector – An aggregate of 369
million people
„ Expansion of working age population by 45% - Additional generation
of 150-200 million jobs by 2020
„ Contribution of IT & BPO sector significant
„ Lower literacy levels (61%) – Need for imparting insurance education
„ Wide Geography – Delivery channels for distribution of insurance
solutions
„ Need for educating intermediaries for a well informed decision by
policyholders
„ Market Segment-Specific Product design – An acceptable
innovative insurance solutions to all

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Thank You

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