The insurance sector had laid its foundation in India, back in the year 1818, with the establishment of Oriental Life Insurance company. Since then, it has come a very long way. Today, India stands as the 10th largest global market for life insurance and is ranked 15th for its Non-Life-Insurance market. At the moment, India has around 58 insurance companies which include 24 life insurers and 34 non-life insurers (25 general insurers, 7 standalone health, 2 specialized insurers). As such, Life insurance occupies two third of the total market share of the insurance sector whereas non-life insurance sector only occupies a quarter of the market share.
A brief timeline about development of insurance sector in India-
1818: Oriental Life Insurance Company, the first life insurance company on Indian
1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company
1956: All Life insurance companies were nationalised to form LIC
1993: Malhotra Committee suggested to open the market for private companies,
1999: IRDAI act was passed in 1999 to make IRDAI the regulatory body for monitoring and controlling Insurance sector.
2001 onwards: Post Liberalisation, foreign players entered the market, private investment also significantly increased. In December 2014, Government approved the ordinance increasing FDI limit in Insurance sector from 26% to 49%. In 2015, Government introduced Pradhan Mantri Suraksha Bima Yojna and Pradhan Mantri Jeevan Jyoti Bima Yojana. Government introduced Atal Pension Yojana and Health insurance in 2015. Ayushman Bharat PM-JAY is the largest health assurance scheme in the world and is funded by the Government.
India’s insurance penetration was pegged at 3.76% in FY20, with life insurance penetration at 2.82% and non-life insurance penetration at 0.94%. In terms of insurance density, India’s overall density stood at US$ 78 in FY20. Life insurers recorded new business premium of INR 2.78 tn ($38 bn) in FY21 growing at 7.49% over the last year with private life insurers growing at 16.29%. Life insurance in India has a huge growth potential. By 2020, it was expected to account for 35% of India’s total savings.
Role of insurance sector in India’s Economic Growth:
1) Provides Support to Families during Medical Emergencies- In 2018, Indians had spent only around 62.7% of their total health spending as an out-of-pocket expenditure, which essentially means that a smaller chunk of their budget is now being spent, than before, and Indian’s have started relying more on their insurances to cover their hospital bills. With the improvement in technology, the ability to collect and dispatch larger amounts of information has greatly improved, resulting in a greater productivity. For the very reason, insurers are now being able to provide an even more efficient and effective claims system to policyholders.
2) Employment Generation- Insurance sector provide employment opportunities to people. In 2019, 2.8 million people were employed in the insurance sector. Moreover, another positive aspect is that 1.7 million of these employees were women accounting for around 60%. Insurance sector also helps in generating employment indirectly. For E.g., actuaries are hired for valuation, people are hired for repairing motorbikes etc
3) Helps to spread financial services in backward areas: Today, we have more than 1400 insurance centres/ offices in India located in almost every district and tehsil of the country making it possible to spread financial services to backward and rural areas. Life insurers are required to have 5%, 7%, 10%, 12%, 15% of total policies in first five years respectively in rural sector
4) Reduces uncertainties and provide sense of security: The business world today is full of uncertainties and is changing at a very fast rate making it more and more risky. Insurance acts as risk divisor and transfer a part of these risks from insuree to insurer. Insurance increases the sense of security as people have a backup option if anything goes wrong in their business or life.
5) Mitigate risk: Insurers spread various knowledge and information to the policyholders making them aware about various risks, caution them about the harm effects. E.g., life/health insurers continue to warn the public about the negative effects of smoking and opioids and on the property side, insurers evaluated the effectiveness of municipalities’ fire suppression systems and provided incentives to upgrade them.
6) Pooling of savings and channelizing it: Insurance premium helps to systematically pool out household savings and then channelize these saving as investments in different sectors. Insurance companies mainly invest in three asset classes – bonds, stocks and mortgage instruments. These three classes comprise about 90 percent of investments for life insurance companies and over 80 percent of investments for property and casualty insurers.
7) Spread Risk: The basic principle on which insurance sector work is to spread the risk in large number of policyholders. For E.g.- 100 people took an insurance of $10 each, 1 person suffered a loss of $700, so this loss spread over 100 people and each individual jus suffered at max a loss of $7.
8) Promotes Infrastructural Development-Insurance is required to safeguard different stakeholders from various risks associated with infrastructure projects like any potential losses arising from damage to the property or equipment used, legal liability for bodily injuries, and so forth.
9) Facilitates Credit for new ventures- It becomes easier for entrepreneurs to raise funding and loans for projects which are covered by insurance because insurance cover improves the creditability of the projects and investors get an assurance for their investments. Insurance in large part supports both the financial strength of the lending industry and facilitates consumer and business spending activities
10) Reduces Burden on Government- Insurance sector particularly life insurance segment focuses on needs of common people and provide social security to common people, it therefore helps the government do not have to incur expenditure on these schemes. This saves the scares resources of government which they can utilize in important projects.
Conclusion
Insurance sector in India is growing at a very promising rate since 2001. It has acted as a massive support system for the economy of the country since independence. In a world full of uncertainties insurance acts provides a sense of security to people in times of need. Insurance sector contributes around 4% of the GDP of the country and provide employment to millions of people directly and indirectly. Around 500 million people are covered with health insurance in the fiscal year 2020. Furthermore, life insurance is projected to comprise 35 per cent of total savings by the end of this decade, as against 26 per cent in 2009-10. There are certain problems also that the sector is facing at the moment like lack of awareness in people, lack of tailor-made plans for infra projects etc but we can hope that they will be overcome with time and the sector will continue to boom.
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