Insurance Industry

Insurance Industry - the story so far


Opening Up Insures Competition



Almost a decade back, in 1999 December, the government decided to amend the Insurance Act and allowed entry to private players in the industry. The entry of private sector galvanised the industry, and even forced the Life Insurance Corporation, which had a virtual monopoly 1956 onwards, to innovate and rise to the challenge.


PRIVATE PLAYERS INVITED

In the year 2000, the Insurance Act of 1938 was amended and a new regulator for the sector, Insurance Regulatory and Development Authority (IRDA), was appointed. IRDA started issuing licences to private life insurers with FDI up to 26% from the same year Today there are 23 life insurance companies in India, including the state-owned Life Insurance Corporation.

INSURANCE PENETRATION SO FAR

Before the entry of private insurance players the insurance penetration in India was a less than 2%. In a decade of private presence, it has more than doubled as intense competition and high pitch sales have increased awareness and brought down premiums. The gather more market share, private insurers came out with new products including Unit Linked Products, currently commanding 75% of life insurance market. The latest product to get approval of IRDA was the Universal Life Product.



KEY ISSUES

Insurance penetration is still weaker than other Asian nations, which have reached 8-10% of the GDP.

Distorted commission structure has caused rampant misselling, positioning insurance mostly as a savings product.

Though life insurance has a wider reach in terms of people covered, even those having life cover are under insured.

The concept of protecting loss of earnings for the dependents is still not appreciated.

Though tariffs have fallen, a meaningful insurance cover is out of reach for a vast majority of Indians.

Low-income groups do not have many choices.
LIC continues to lead the way with over 60% market share despite intense competition.


Hike in the FDI cap to 49% is yet to happen as the insurance amendment bill, which was first tabled in the Parliament in 2005, is yet to be passed.

The industry needs capital to expand, as life insurance is a long-gestation business

There is no clarity on M&A regime or the norms for raising equity from public.

Many insurance companies are facing problems due to capital constraints as they are not allowed to raise debt and due to the 26% FDI cap, the domestic promoters have to meet the lion's share of capital infusion.
from gscurentaffair