India is an underinsured country and given the lack of state-sponsored social security, like in several developed countries, the need for increased coverage is unquestionable. Against this backdrop, the recent missive from the insurance regulator, the Insurance and Regulatory Development Authority of India (IRDAI) to life insurers asking them to target growth rates of 15-50% in total corporate premiums per annum , based on the scale of their operations with LIC at 15% and major private insurers at 30%, is clearly well intentioned
IRDAI has also said it wants a component of life insurer CEO salaries to be tied to performance on this, to ensure accountability.
This is all very well, but the plan is clearly not well thought out and may just be a decoy to bring life insurers to the table to come up with a more workable plan. We will know in time.
For now, let’s look at the lay of the land and why the proposed growth plan is flawed.
Bonuses, the wrong metric
In India, the protection gap, ie the life insurance gap needed and provided, is estimated at $16.5 trillion. This is far more than in most other countries. In terms of sum insured (amount of protection value) to GDP also, India ranks poorly. But as a bonus to GDP, we’re doing better than some of our neighbors. It also suggests that premium growth may not be the best indicator to measure progress in broadening the life insurance base.
|SUM INSURED TO GDP|
|Country||Gap (in billions of dollars)|
|PREMIUM TO GDP|
The reason for this is that a large part of the premium collected by life insurers is intended for investments and not for protection. In fact, the majority of policies are sold as investment plans, not protection plans. Thus, despite the growth in premiums, there is no significant growth in protection. And while some insurers are focusing on increasing the share of pure protection policies in their business mix, this is still a fairly low share. The protection share of the main private life insurers varies between 12% and 17% only.
|SHARE OF PROTECTION IN THE MIX|
|Insurer||Share of EPAs (%)|
|SBI Life (from GNI)||12|
Interestingly, Life Insurance Corporation of India (LIC), by far the largest player in the industry, accounting for 65% of premiums, accounts for roughly 14.8% of sum insured, less than 15.8% for ICICI Prudential Life Insurance, which has a premium share of just 4.3 percent. It just goes to show that premium growth won’t necessarily translate into more life insurance, just bigger investment bodies for many life insurers.
Better metrics to use than the premium might be the number of lives covered and the sum insured. This would focus on increasing population coverage while ensuring that what is offered is protection, not just investment products.
Optimistic growth demand
The other flaw in the IRDAI proposal is the expectation of growth. The life insurance industry has grown at a CAGR of only 10.4% since 2002 on new business premiums, 14.2% on total business premiums and 15.7% on sum assured. Expecting LIC to grow 15-20% and major private insurers 30% seems like a stretch of the imagination, especially without a significant change in industry dynamics or policies.
|GROWTH OF LIFE INSURANCE IN INDIA|
|Year||New Business Premium||CAGR (%)||Total Biz Premium||CAGR (%)||Sum insured||CAGR (%)||AS/TBP(x)|
|FISCAL YEAR 2002||11,600||50 100||11,81,200||23.6|
|FISCAL YEAR 2010||55,000||21.5||2,65,400||23.2||37,50,500||15.5||14.1|
|FISCAL YEAR 2015||40,800||-5.8||3,28,100||4.3||78,09,100||15.8||23.8|
In fact, ICICI Prudential Life Insurance, in a presentation aimed at projecting the high growth potential of the life insurance industry, assumed a CAGR of just 20%, which some might also consider optimistic given the track record. .
|POTENTIAL @20% CAGR|
|Year||Sum insured / GDP (%)||GDP CAGR (%)|
|FISCAL YEAR 2025||33||ten|
|FISCAL YEAR 2030||53||ten|
|FISCAL YEAR 2035||85||8|
|Source: ICICI Pru Life|
|POPULATION COVERAGE @ 20% CAGR|
|Year||Insured (mn)||% of addressable population|
|FISCAL YEAR 2025||16.1||15.6|
|FISCAL YEAR 2030||40.8||24.5|
|FISCAL YEAR 2035||101.9||41.7|
|Source: ICICI Pru Life|
Growth needs impetus
Simply asking the industry to grow will not change anything. If the intention is to increase insurance penetration at the highest levels of government, there must be policy measures that encourage its spread. Life insurers have long called for a special exclusion from income tax relief or deduction for life insurance, but nothing has come of it. There must be political incentive and impetus for life insurance coverages so that the industry can grow at an accelerated pace.
Here it is worth noting the significant undercoverage of the taxpayer population in the country. Only around 12% of taxpayers in the country with an annual income above Rs 2.5 lakh have life insurance.
While getting individuals to buy life insurance is one way to expand penetration, involving organizations can provide further impetus. Currently, all companies employing more than 20 people must register with the Employees Provident Fund. Now might be a good time to consider a similar mandate to provide pure life coverage to employees. Today, many companies voluntarily provide these services as part of their welfare and benefits programs, but the number is quite low when considering India’s organized landscape.
the great hope
The hope for Indians and the life insurance industry in India is that the regulator, IRDAI, and life insurers take this opportunity to think together and come up with a viable plan to increase penetration in the country. , without ad hoc objectives or policies. it would divert attention from furthering common goals.
(Edited by : Abhishek Jha)
First post: STI