Insurance Industry’s Progressive Penetration in India – Begining of A New Era

Insurance Industry

In industry once dominated by offline brokers, corporate agents is now embracing digitization where customers can purchase insurance through various channels on single tap. The uncertainties brought about by the COVID-19 pandemic underscored the importance for consumers to invest in products enhancing financial security, including life insurance. The life insurance industry grew 21 percent higher in February 2021 as compared to February 2020, a result of the evident effect of the pandemic. According to PWC, insurance is now considered a necessary risk mitigation tool, not an investment product for the wealthy. This has nudge people to demand insurance.

Today, the Insurance industry is moving swiftly with embracing digitization, customercentric principles to robust risk management. Over the decades, the sector has stood out as a premium industry – the journey started with expansion that was primarily attributed to rising incomes and heightened awareness within the sector. Today, India ranks as the fifth-largest life insurance market globally, exhibiting an annual growth rate of 32-34%. Government initiatives, democratic stability, a favorable regulatory environment, increased partnerships, product innovations, and dynamic distribution channels – these all have collectively contributed to the growth of the insurance market.

Alongside growth, recent years have witnessed intense competition among industry players, fostering the introduction of innovative products and initiatives. ‘Insurance for all by 2047’ – A proactive mission operated vigilantly by Insurance Regulatory and Development Authority of India (IRDAI) is aiming to address the industrial challenges in the sector and providing insurance coverage to every individual in the nation. Numerous similar innovations and initiatives are in progress, all working towards the goal of creating an insurance industry that not only makes the aspirations of Indians more accessible but also provides a secure and assured sense of safety.

Advent of Insurance in India – A Look Back
In 1818, the life insurance business made its debut in India with the establishment of the Oriental Life Insurance Company in Calcutta. Unfortunately, this company failed in 1834. The enactment of the British Insurance Act in 1870 marked a significant development – The last three decades of the nineteenth century witnessed the establishment of Bombay Mutual (1871), Oriental (1874), and Empire of India (1897) in the Bombay Residency. However, during this period, foreign insurance offices, such as Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance, dominated the Indian market, creating stiff competition for local companies.

In the early 20th century, India’s insurance industry began to take shape. The Indian Life Assurance Companies Act of 1912 marked the first step in regulating life insurance, followed by the Indian Insurance Companies Act of 1928, which allowed the government to gather statistical data on insurers.

In 1938, the Insurance Act consolidated and amended existing legislation to protect consumers’ interests. Additionally, in 1950, the Insurance Amendment Act addressed competition by abolishing Principal Agencies. However, allegations of unfair practices led to the nationalization of the life insurance sector in 1956, giving rise to the Life Insurance Corporation (LIC), which held a monopoly for decades.

In the 1990s, reforms began with the RN Malhotra committee recommending private sector participation. In 1999, the Insurance Regulatory and Development Authority (IRDA) was formed, and in 2000, the market opened to private players. The General Insurance Corporation’s subsidiaries became independent in 2000, and in 2002, they were delinked from GIC.

Today, India has 34 general insurance companies and 24 life insurance companies, contributing about 7% to the GDP. This transformation has made the insurance sector a vital part of India’s financial landscape, supporting economic development and risk management.

Major factors propelling growth in the Indian insurance industry includes

Entry of New Insurers

  • India presently boasts 57 insurance companies, encompassing 24 life insurers and 33 non-life insurers.
  • In a bid to expand the market, the Insurance Regulatory and Development Authority of India (IRDAI) recently granted two new insurance licenses, with plans to issue an additional 20 licenses in 2023.
  • Established insurers have thrived due to sustained growth, robust distribution networks, and customer trust. However, newcomers must target the uninsured and under-addressed segments through innovative offerings and digital-first approaches.

Diverse Product Offerings

  • The evolving risk landscape has prompted two notable trends in the Indian insurance market.
  • Firstly, the IRDAI encourages the standardization of protection products, simplifying customer experiences for life cover (Saral Jeevan Bima) and health cover (Arogya Sanjeevani).
  • Secondly, the ‘use and file’ procedure allows insurers to launch products more swiftly without prior regulator approval. This has led to the introduction of novel insurance covers such as cyber insurance, electric vehicle insurance, climate risk insurance, and other subscription-based offerings.

Distribution Channel Evolution

  • While traditional channels remain dominant, regulatory changes, such as corporate agency tie-ups between banks and insurers, and relaxed commission payout norms, are enhancing these channels.
  • With a significant number of active internet users, digital channels, e-commerce platforms, and online ecosystems are expected to become the preferred distribution models, ensuring wider reach, especially in remote areas.

Government Schemes Impact

  • Various government schemes, such as Pradhan Mantri Jeevan Jyoti Bima Yojana and health insurance initiatives, play a crucial role in providing coverage to marginalized sections of society.
  • For instance, Ayushman Bharat aims to offer INR 5,00,000 health cover to around 107.4 million families, with more than 237.3 million Ayushman cards issued by March 2023.

Digital-First and Tech-Enabled Ecosystem

  • Insurers are rapidly adopting technologies like robotic automation, artificial intelligence, cloud computing, and data analytics.
  • These technologies are transforming front-end and back-end operations, leading to hyper-personalized products and omnichannel servicing becoming the norm.

Regulatory Initiatives

  • IRDAI interventions, such as relaxed regulations for obtaining insurance licenses and the ‘use and file’ procedure, aim to foster innovation and faster product launches.
  • The impending risk-based capital (RBC) regime, in response to financial stresses from the pandemic, ensures insurers maintain a sound financial position to withstand large risks.

Insurtech – Opening a Gamut for Redefining Insurance Sector
In an industry as time-honored and traditional as insurance, the winds of change are blowing with increasing intensity, due to advancements in Insurtech. This blend of insurance and technology is not just a fleeting trend; it’s a comprehensive overhaul of how insurance operates, feels, and impacts both consumers and businesses. As we delve deeper into 2023, it’s clear that Insurtech is opening a gamut for redefining the insurance sector, heralding an era of innovation, efficiency, and unprecedented customercentric approaches.

The Dawn of Generative AI in Insurance
At the forefront of this revolution is the integration of Generative AI (Gen AI). This isn’t just about automating mundane tasks; it’s about reimagining the entire insurance landscape. From transforming customer interactions to refining the nuances of claims and underwriting, Gen AI is a beacon of innovation. But it’s not without its challenges. As insurers navigate the potential impacts of this technology, a delicate balance must be struck between innovation, ethical standards, and regulatory compliance.

A Shift from Growth to Profitability
Gone are the days when growth was the sole parameter of success in the insurance world. Today, the Insurtech narrative is increasingly centered around profitability. This paradigm shift is a direct response to the previous challenges of underpricing and market instability. Insurtechs, in their evolved form, are no longer just disruptors; they are collaborators, working hand-in-hand with traditional insurance carriers to bridge the gap between customer needs and existing capabilities. This trend marks a mature, sustainable approach to insurance, focusing on long-term viability over short-term expansion.

The Rise of Embedded Insurance
Perhaps the most consumer-friendly trend in Insurtech is the rise of embedded insurance. By embedding insurance into everyday transactions, the industry is not only expanding its reach but also addressing previously untapped or underinsured risks. The projected growth of the embedded insurance market to $722 billion by 2030 is a testament to its potential and popularity.

The insurtech sector in India is witnessing significant growth and innovation, disrupting traditional insurance models and offering new solutions to meet the evolving needs of consumers. With a large portion of the Indian population still lacking access to traditional insurance products, there is a significant potential for insurtech firms to offer lowcost, easy-to-use digital insurance products. Another area of opportunity is in the development of innovative products tailored to the Indian market.

Recent Government Initiatives – Steering Us Towards the Future

The Government of India has taken several initiatives to boost the insurance industry. Some of them are as follows:

Tax Realignment for High-Value Life Insurance

In a sweeping move to revitalize the insurance sector, the Indian Government unveiled a series of initiatives in its 2023-24 Union Budget. Central to these reforms is the recalibration of tax exemptions for high-value life insurance contracts. Traditionally a tax-free investment, high-value insurance policies issued from April 1, 2023, will now see tax impositions on annual premiums exceeding Rs. 5 lakh. This bold step aims at curbing the excessive tax benefits leveraged by high net-worth individuals (HNIs), aligning with a more targeted and equitable tax regime. Though causing initial market jitters among major insurance players, this change signifies a pivotal shift towards fiscal prudence and fairness.

Pradhan Mantri Fasal Bima Yojana: Revolutionizing Crop Insurance for Indian Farmers

The government’s persistent efforts in agricultural welfare have been reinforced through the Pradhan Mantri Fasal Bima Yojana (PMFBY). Since its inception in 2016, PMFBY has emerged as a cornerstone in crop insurance, absorbing and enhancing previous schemes. It offers comprehensive insurance coverage across the entire cropping cycle, addressing risks like crop failure, natural calamities, and pest infestations. Its inclusive design, offering affordable premiums heavily subsidized by the state and central governments, has made it the world’s largest crop insurance scheme in terms of farmer enrollments.

Also Read | Role of Bancassurance in the insurance industry

Ayushman Bharat PM-JAY: Pioneering Universal Health Coverage in India

The Ayushman Bharat scheme, particularly the Pradhan Mantri Jan Arogya Yojana (PM-JAY), marks a transformative stride in public health insurance. Launched in 2018, PM-JAY aims to provide Rs. 5 lakh in health coverage per family annually, targeting the most vulnerable segments of the population. With over 12 crore families covered, it stands as the world’s largest health assurance scheme, fully funded by the government.

These initiatives, ranging from recalibrating tax exemptions to expansive insurance schemes, collectively underscore the government’s commitment to reinforcing the financial and welfare foundations of the nation. The approach balances fiscal responsibility with social welfare, steering the insurance sector towards a more sustainable and inclusive future.

The Outlook for the Insurance Sector in India

The future looks promising for the life insurance industry with several changes in the regulatory framework which will lead to further changes in the way the industry conducts its business and engages with its customers. Life insurance industry in the country is expected to increase by 14-15% annually for the next three to five years.

The scope of IoT in the Indian insurance market continues to go beyond telematics and customer risk assessment. Currently, there are 110+ InsurTech start-ups operating in India. These startups are expected to provide a major boost to the industry and help increase India’s insurance penetration which plays a crucial role in the overall development of the country. In the past, the Indian government has played a crucial role in increasing the scope of the insurance sector through various policies and schemes. This trend will continue in the further through schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) providing crop insurance and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) providing life insurance coverage to the youth at an affordable price. Schemes like these coupled with India’s demographic factors such as a growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of the Indian insurance sector.

While LIC remains a dominant force in the Indian insurance sector, the entry of new private insurers is poised to bring about dynamic expansion and growth in both life and non-life segments in 2017. There is a significant demand for new insurance policies featuring affordable premiums. Given that the domestic economy cannot experience drastic growth, the insurance sector in India is positioned for robust expansion.

To sum it up
The Indian insurance sector is experiencing a remarkable transformation, driven by a combination of factors including robust government initiatives, technological advancements, and a growing awareness among the population. The sector, showcasing a blend of traditional methods and modern insurtech, is not only expanding rapidly but also evolving to meet the diverse needs of its consumers. With a focus on inclusivity and accessibility, the industry is set to play a pivotal role in India’s economic growth and social development. As it navigates through challenges and leverages opportunities, the Indian insurance sector stands on the brink of a new era of innovation and expansion, making it an exciting time for stakeholders and consumers alike.

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