India’s insurance sector has become a talk of the town since the government proposed significant reforms like 100 per cent FDIs and easing restrictions on insurance agents. Currently, the market cap for insurance companies stands at 74 per cent. Some media reports also stated that the Centre is expected to exempt life and health insurance from the tax implication in the upcoming GST council meet.
The government will also present the Insurance Amendment Bill in the winter session of Parliament to attract foreign players in the market independently and boost investment. These measures are being taken to increase the present 4 per cent insurance penetration rate which witnessed a downfall from 4.2 per cent in 2022.
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Two years ago, the Insurance Regulatory and Development Authority of India (IRDAI) has even announced its “Insurance For All” by 2047 vision to take insurance coverage to the hinterlands of India and educate people about the importance of bot life and non-life products.
“The rise in foreign direct investments will bring more capital in insurance sector which will push insurers to write more policies, thereby, increasing insurance penetration rate. We hope that insurers will sell more policies in rural areas with bite-sized policies,” Casparus Kromhout, Managing Director and CEO of Shriram Life Insurance told Outlook Business.
Around 65 per cent of India’s population reside in rural areas. Of these, less than 10 per cent of people in rural India had life insurance coverage while only 20 per cent had health insurance cover in 2022, according to PwC research data. Even the life insurance industry underwrote only 6.5 million policies in FY22 in the rural sector.
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Where’s The Gap?
A recent report by global consultancy firm McKinsey highlighted a critical gap in product innovation, distribution capability, and renewal management in the country’s insurance sector. It said operational inefficiencies, profitability issues, limited regulatory support, and rapidly evolving risks have become significant challenges that hinder the industry’s performance.
Kromhout believes that a series of policy measures are needed to combat these challenges and push the penetration rate because insurance is a long gestation business where multi stakeholders are involved. “IRDAI is now following up with several other initiatives like the rules for Bima Trinity to increase insurance penetration in India,” he said.
It is important to note that life insurance is the toughest product to sell in Indian market because it is still a concept that needs to be accepted, the Shriram Life Insurance CEO said, while recognising that increase in awareness has already been taken up but limited to a few segments and geographical areas.
What’s The Way?
If India wants to achieve insurance for all, the market players also need to focus on the vulnerable segments because the biggest challenge continues to be the distribution reach and solution for these customers, Kromhout suggested.
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“Sales teams would have to work with lower premium sizes in underserved segments of the society and newer models to reach these customers must be developed. Therefore, the industry needs innovation that involves experimentation to come up with practical solutions for the same,” he said.
The average premium for the private players ranges between Rs 80,000 - Rs 85,000 annually, the expert said, while asking “How many Indian families can afford that premium?”
Hence, it is imperative to shift focus on bite-sized insurance policies to reach higher penetration and selling life insurance policies to people to who it matters the most, Kromhout said. He also revealed that 40% of Shriram Life Insurance’s business comes from rural areas.
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“With digital tools, it becomes less expensive to reach the hinterlands. The India Stack helps achieve this even faster. Maybe the insurance industry needs a similar campaign like ‘Mutual Funds Sahi Hain’ by Amfi, which has led to more participation in the Indian stock market,” he added.
The McKinsey data revealed that listed life insurers have been unable to generate sufficient returns to cover their cost of equity in the past three years and the top five private life insurance companies in India have experienced tepid net profit growth of under 2 per cent CAGR over the past five years.
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The three largest listed market players --- SBI Life, ICICI Prudential Life and HDFC Life --- had a return on equity (ROE) minus the cost of equity (COE) ranging between -3.9 per cent and 1.6 per cent, it added.
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