Insurance in India

In this article we will discuss Insurance in India (Background and Challenges)

In this article, we will discuss Insurance in India (Background and Challenges). So, let’s get started.

Background of Insurance Sector

The insurance sector has witnessed many changes over the years including:

  • Nationalisation of life (LIC Act 1956) and non-life sectors (GIC Act 1972).
  • Constitution of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999.
  • Opening up of the sector to both private and foreign players in 2000.
  • Increase in the foreign investment cap to 26% from 49% in 2015.
  • The recent notification of 100% foreign direct investment (FDI) for insurance intermediaries (announced in the Union Budget of 2019-20) has further liberalised the sector.


  • Prevalence of Insurance Gap: The insurance penetration (ratio of total premium to GDP (gross domestic product)) and density (ratio of total premium to population) stood at 3.69% and US$ 73, respectively for FY18 (fiscal year 2017-18), which is low in comparison with global levels.
  • These low penetration and density rates reveal the uninsured nature of large sections of population in India, and the presence of an insurance gap.
  • Public Sector Dominated: The insurance sector has transitioned from being an exclusive State monopoly to a competitive market, but public-sector insurers hold a greater share of the insurance market even though they are fewer in number.
  • Nascent Non-life Insurance: Life insurance dominates the sector with a huge share of 74.7%, with non-life insurance accounting for the remaining 25.3%.
  • In the non-life insurance sector, motor, health, and crop insurance segments are driving growth. India’s non-life insurance penetration is below 1%.
  • In addition, insurance products catering to speciality risks such as catastrophes and cyber security are at a nascent stage of development in the country.
  • Rural-Urban Divide: Low insurance penetration and density rates prevail in India. However, Rural participation of insurers remains deficient, and life insurers, especially private ones, gravitate towards the urban population.
  • Capital Starved Insurers: Insurers in India lack sufficient capital, and their financial health, particularly that of the public-sector insurers, is in a precarious state.
  • Further, investment in the insurance sector got dwindled due to the crisis in banks and NBFCs (non-banking financial companies) sector.

By competitiveworld27

Competitive World is your online guide for competitive exam preparation

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