In India, why Insurance is the least sought after investment option?
Insurance is a means of protecting oneself against financial loss. It’s a type of risk management used to guard against the possibility of a speculative or unforeseen loss.
A company that sells insurance is known as an insurer, insurance company, insurance carrier, or underwriter. A policyholder is someone or something that buys insurance, while an insured is someone or something covered by the policy. Although the terms policyholder and insured are interchangeable, coverage can sometimes extend to non-purchased insureds. In exchange for the insurer’s pledge to compensate the insured in the case of a covered loss, the policyholder takes a guarantee in the form of payment to the insurer.
The loss might be both financial and non-financial. Still, it must be monetary and frequently involves something in which the insured has an insurable interest due to ownership, possession, or the last relationship.
An insurance policy is delivered to the insured and lays out the terms and conditions under which the insurer will compensate the insured or their specified beneficiary or assignee. The premium is the amount that the insurer charges the policyholder for the coverage that is stated in the insurance policy. Suppose the insured suffers a loss covered by the insurance policy, the insured files a claim with the insurer, which a claims adjuster then processes. By obtaining reinsurance, the insurer can lower its risk. Another insurer agrees to take on some risk, especially if the primary insurer believes the risk is too high to bear.
Let’s understand why the insurance industry is so crucial to the growth of any economy
- Provides Safety and Security to Individuals and Organisations: Insurance provides financial support and mitigates the dangers that individuals and organisations face at all stages of their lives. It’s a terrific risk-mitigation tool for people and businesses in scenarios that could result in financial hardship. With medical inflation hovering about 15% per year, even regular medical treatments might throw a family’s carefully planned budget off. Still, a Health Insurance policy would provide financial certainty.
- Provides Long-Term Financial Resources: The insurance industry receives funding from millions of policyholders in the form of premiums. Because these funds are long-term, they are invested in long-term infrastructure assets (like roads, ports, power plants, dams, and so on) that are critical to nation-building. Large investments that result in capital formation in the economy create employment prospects.
- Promotes Economic Growth: The insurance industry impacts the whole economy by mobilising domestic savings. Insurance converts collected funds into profitable ventures. Insurance also allows for loss mitigation, financial stability, and the promotion of trade and commerce operations, all of which contribute to long-term economic growth and development. As a result, insurance is critical to an economy’s long-term viability.
- Provides Support to Families during Medical Emergencies: Everyone cares about their family’s well-being, and the majority of people are more concerned about the health of their family members. From elderly parents to newborn children, medication and hospitalisation play a key role in ensuring the well-being of families. Rising medical care costs and soaring prescription prices might drain your savings if you are not prepared. A critical illness can strike anyone. Furthermore, increasing medical costs are a source of concern. Medical insurance is a type of coverage that protects people financially from various health-related risks. In a medical emergency, health insurance coverage provides financial aid.
- Spreads Risk: The insured might transfer the risk of loss to the insurer through insurance. The basic assumption of insurance is to spread risk among many people. Many people buy insurance plans and pay the insurance company premiums. When a loss occurs, the funds raised from millions of policyholders are utilised to compensate the victims.
Overview of the Indian Insurance Industry
There are 57 insurance companies and 24 life insurance companies, and 34 non-life insurance companies in India’s insurance industry. Life Insurance Corporation is the only public company among life insurers. There are six public sector insurers in the non-life insurance segment. Aside from that, India’s General Insurance Corporation is the country’s only national re-insurer (GIC Re). Other stakeholders in the Indian insurance business include agents, brokers, surveyors, and third-party administrators who handle health insurance claims.
Insurance Market Size in India
By 2020, India’s entire insurance business is expected to be worth US$ 280 billion.
The life insurance sector is expected to increase at a CAGR of 5.3 per cent between 2019 and 2023. Insurance penetration in India was 4.2 per cent in FY21, with life insurance accounting for 3.2 per cent and non-life insurance accounting for 1.0 per cent. India was rated 78th in the world in terms of insurance density in FY21.
The life insurance industry grew at a 5.8 per cent annual pace in the first half of FY22, compared to 0.8 per cent in the same period the last year.
New premiums from life insurers rose by 22.2 per cent in September 2021, compared to 2.9 per cent in September 2020.
Non-life insurers wrote down Rs. 108,705.3 crore in gross premiums between April and September 2021, up 12.8 per cent from the exact period in FY21. The non-life insurance market earned a total premium of Rs. 17,679.98 crore (US$ 2.38 billion) in October 2021, compared to Rs. 15,906.71 crore (US$ 2.14 billion) in October 2020.
Private sector companies increased their market share in general and health insurance from 47.97 per cent in FY19 to 48.03 per cent in FY20. In the life insurance sector, private companies had a market share of 33.78 per cent in underwritten premium services in FY20.
Non-life insurance premiums in July 2021 were Rs. 20,171 crore, up 19.5 per cent year on year from Rs. 16,885 crore in July 2020. Strong performance from the health and motor categories fueled the expansion.
Premium growth for standalone private health issuers was Rs. 1,753 crore (US$ 235.11 million) in July 2021, up 27.5 per cent year on year.
The general insurance business in India earned Rs. 1,087 billion (US$ 14.62 billion) in gross direct premium income in FY22 (through September 2021), up 12.3% YoY, thanks to 28.8% growth in the health segment and 84.7 per cent growth in the individual accident segment.
Six freestanding private-sector health insurance businesses saw their gross premium increase by 66.6 per cent to Rs 1,406.64 crore (US$ 191.84 million) in May 2021, compared to Rs 844.13 crore (US$ 115.12 million) the previous month.
Health insurance firms in the non-life insurance market grew by 41% in March 2021, owing to increased demand for health insurance products during the COVID-19 rise.
Non-life insurers’ premiums, which comprise general, standalone, and specialised public-sector insurance, increased 19.46 per cent year on year in July 2021, reaching Rs. 20,171.15 crore, up from Rs. 16,885 crore (US$ 2.27 billion) the previous month.
According to statistics from S&P Global Industry Intelligence, India is Asia-second-largest Pacific’s insurance technology market, accounting for 35 per cent of the country’s US$ 3.66 billion insurtech-focused venture investments.
Recent Developments and Investments
Some of the most impactful investments and innovations in the Indian insurance market are listed here.
Companies are trying to leverage strategic partnerships to provide the following services:
- In November 2021, ICICI Lombard partnered with Vega to offer personal accident insurance with every online Vega helmet purchase to raise customer awareness of road safety.
- ICICI Prudential Life Insurance collaborated with NPCI Bharat BillPay, a subsidiary of National Payments Corporation of India (NPCI), to offer ClickPay to its customers in November 2021.
- The Competition Commission of India authorised HDFC Life Insurance’s acquisition of a 100% stake in Exide Life Insurance in November 2021. HDFC Life’s position in South India is projected to be strengthened due to this move.
- In November 2021, Willis Towers Watson bought the remaining 51 per cent of WTW India’s shares, bringing the company’s stake in the company to 100 per cent.
- Acko, a digital insurance start-up, raised US$ 255 million in November 2021, bringing its valuation to US$ 1.1 billion.
- PhonePe stated in August 2021 that it had gained preliminary approval from the IRDAI to function as a broker for life and general insurance. The company’s 300 million+ users can now get insurance advice.
- In FY21, LIC’s assurance business generated a record first-year premium income of Rs. 56,406 crore (US$ 7.75 billion), up 10.11 per cent from the previous year.
- Non-life insurers’ gross premiums written in India increased to US$ 26.52 billion in FY21 (April 2020 to March 2021), up from US$ 26.49 billion in FY20 (April 2019 to March 2020), owing to robust growth from general insurers.
- ICICI Prudential Life Insurance and the National Payments Corporation of India partnered in August 2021 to offer a single payments interface autopay.
- ICICI Lombard General Insurance announced comprehensive coverage for remotely piloted aircraft, notably drone operators, in August 2021. This product protects the drone and the payload (camera/equipment) attached to it from theft, loss, damage, and third-party liability.
- In July 2021, MedPay, a Bengaluru-based B2B tech start-up, launched its MedPay Connected Care Network, which connects healthcare service providers, clinics, pharmacies, labs, and insurance companies via an API architecture.
- Bharti AXA Life Insurance reported a 10% increase in renewal premiums of Rs. 1,498 crore in FY21 in June 2021.
- Gallagher announced plans to purchase a 100 per cent stake in India’s Edelweiss Gallagher Insurance Brokers in July 2021.
- Aditya Birla Sun Life Insurance announced the start of a new Vision LifeIncome Plus Plan in June 2021, which would give policyholders guaranteed recurring income and variable bonus payouts.
- In June 2021, Wardwizard Group will partner with Bajaj Allianz to offer Joy e-Bike clients insurance packages.
- Max Life Insurance Co. Ltd. introduced the ‘Max Life Saral Pension,’ a non-linked, individual instant annuity plan, in May 2021.
- Health insurance businesses in the non-life insurance industry expanded by 41% in March 2021, owing to increased demand for health insurance due to the pandemic.
- Bharti AXA General Insurance introduced its ‘Health AdvantEDGE’ health insurance policy in February 2021 to give comprehensive coverage against rising medical bills and other healthcare expenses.
- The International Financial Services Centre (IFSC) has authorised ICICI Lombard General Insurance, a private non-life insurance provider, to open an IFSC Insurance Office (IIO) at GIFT City in Gandhinagar, Gujarat, in February 2021.
The Indian government has made several steps to help the insurance industry grow. The following are a few of them:
- The Indian government inked a US$ 40 million agreement with the World Bank in November 2021 to improve the quality and standard of health services in Meghalaya.
- In September last year, the Union Cabinet approved an investment of Rs. 6,000 crore in organisations to provide export insurance cover for an additional Rs. 5.6 lakh crore in exports over the next five years.
- The General Insurance Business (Nationalisation) Amendment Bill was enacted in August 2021.
- In the Union Budget 2021, the FDI limit in insurance was raised from 49 to 74 per cent. India’s Insurance Regulatory and Development Authority has announced that insurance companies can issue digital insurance policies using Digilocker.
- As part of the banking and insurance industry consolidation, Finance Minister Nirmala Sitharaman said in the Union Budget 2021 that the LIC initial public offering would occur in FY22. LIC’s public offering has the potential to raise Rs. 1,00,000 crore despite the lack of a formal market valuation.
- The government of India extended Rs. 50 lakh insurance coverage scheme for healthcare professionals across the country till June 2021.
- Nirmala Sitharaman, the Finance Ministry, announced in February 2021 that it would inject Rs. 3,000 crore into state-owned general insurance businesses to boost their overall financial health.
- A sum of Rs. 16,000 crore has been set out for the crop insurance scheme in the Union Budget 2021.
Thanks to several regulatory improvements, the life insurance industry’s future is bright. This will result in even more changes in how the industry operates and interacts with its customers.
The insurance industry as a whole is expected to be valued at US$ 280 billion by the end of 2020. For the next 3 to 5 years, the country’s life insurance business is predicted to grow by 14-15 per cent annually.
The application of IoT in the Indian insurance business goes beyond telematics and customer risk assessment. In India, there are presently around 110 InsurTech start-ups.
The rise of Indian life insurance will be aided by demographic factors, including a growing middle class and an awareness of the need for protection and retirement planning.
So, why is insurance one of the least popular financial options among Indians?
Many people in India avoid purchasing a life insurance policy because they either do not understand the value of insurance or believe it is unnecessary. Continue reading to learn about the five reasons why Indians do not get life insurance.
In India, insurance is still a growing business compared to western countries. Although the number of people purchasing life insurance has increased dramatically over the years, a large percentage of people remain unprotected. People in India avoid buying life insurance because they are either unaware of the many insurance policies available or believe it is too costly.
The following are the most common reasons Indians do not purchase life insurance:
1. Oblivious to the financial risks
In India, most people prefer to stay in denial, thinking that ‘nothing will happen to me, and hence they like to keep self-insured rather than buy an insurance policy to protect against the risks. In addition, a large section of the Indian population has little or no understanding of the financial repercussions of not having enough insurance coverage.
2. Insurance products are not well understood
Insurance companies in India now offer a variety of insurance solutions to meet the demands of their consumers. However, the available options frequently confuse customers, making it challenging to select the best plan for their needs. Some plans protect crises, while others, including the Unit-Linked Insurance Policy (ULIP), provide both protection and the option to invest in the money market. As a result, you can select the appropriate policy depending on your preferences and the coverage you require.
3. Insurance provided by the employer
One of the most prevalent reasons Indians avoid purchasing life insurance coverage is this. In India, several companies provide insurance coverage to all of their employees. However, you should be aware that the insurance provided by the employer is a minimal benefit, and it may not be enough to meet your needs. Furthermore, the insurance provided by your company may not cover all members of your family. So, even if your job covers you, you need to purchase personal insurance to provide complete security for your family.
4. Good health
Many Indians put off purchasing life insurance because they assume they are healthy and do not require insurance. If you believe this, you should know that buying insurance when you are young and healthy is the greatest time to do it because you may acquire it at a reduced premium cost. One will have to pay a larger premium if one wait until later in life to purchase insurance.
It is not necessary to have life insurance in India. Furthermore, there is no legal age limit for purchasing insurance. People don’t think of protection as a top concern and believe they can have it later. However, research shows that in the breadwinner’s death, four out of ten homes with a single earner face challenges covering household expenses.
Another reason Indians avoid buying life insurance is because they believe it is prohibitively expensive. However, the truth is that it is cost-effective for all. A term life insurance policy with coverage up to INR 5 lakh can be acquired for as little as INR 500 per month.
Edited and published by Ashlyn Joy