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.