SECTOR REPORT

INSURANCE

2021
This report is the exclusive property of NMIMS, Mumbai. Prepared to be used by its students for educational purposes
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INTRODUCTION
In India, the insurance industry has seen a positive risk over a large number of people who pay a premium
growth cycle over the past 20 years owing to in part, to the provider. In case of any unexpected event which
the economic growth which the country has observed. is covered by the policy, the insurer covers the
There have been a number of new policies which have financial cost.
been introduced, both in the general and life insurance
segments which have supported the growth of the 4. Financial resources: the funds generated by
industry, which has reached a size of ~USD 280 Bn in Insurance premiums are invested into government
2020. Insurance industry within India is divided in 2 securities and other investment opportunities. The
segments: Life insurance or Non-Life/General funds are employed in the industrial development of
insurance. The latter category has segments such as the nation and further have a spill over effect on
home, motor, marine insurance etc. The market has a employment generation as well.
presence of 57 insurance providers, of which 24
provide life insurance and the rest, general insurance There have been recent changes in the policies and
services. Drilling down further, there are a total of 7 technological environment within the sector which
public sector companies in this industry, LIC in the serves as a catalyst for growth. Mentioning few of
Life insurance segment and the rest in the general these reasons below:
insurance business. The industry is governed by the
Insurance Regulatory and Development Authority 1. Presence of strong growth potential in rural areas,
(IRDAI), set up in 1999 and responsible for regulating particularly for micro insurance. Currently, there exist
and promoting growth of the insurance industry. certain gaps in implementing micro insurance policies
for rural areas, including but not limited to lack of
Coming to the importance of the industry, the market is awareness, few physical branches and high customer
a huge business opportunity, considering that despite support costs. However, with the advent of digitization
India being the second most populous country in the and automating manual processes, micro insurance can
world, it only accounts for 1.92% of the world’s total tap into the rural areas
insurance premiums. Further, the industry penetration
stood at 3.7% in 2018-19, with a marginal increase 2. Permitting 100% foreign direct investment for
over the past few years. Further benefits which the insurance intermediaries is set to attract investments
sector provides to an economy are as follows: within the sector. The FY2021-22 budget allowed FDI
limit to 74% up from 49%.
1. Provision of security: The services provided by the
sector aim to provide financial support and reduce the 3. Policy support factors including tax incentives,
risk associated with uncertainty by providing a cover IRDAI having full flexibility to frame regulations and
against sudden losses. clarification on rules infusing liquidity in the industry.

2. Employment: like any other Industry, the insurance 4. The rise in Internet adoption in India has given an
industry requires human capital to function and hence opportunity to a number of players to capitalize on.
generates employment in the country. Data published Companies ranging from Ecommerce (Amazon,
by the IRDAI indicates that the life insurance industry flipkart) to fintech (PhonePe, Paytm) are getting
currently employs over 22 lakh life insurance agents. involved in selling different set of policies. These
Other roles within the industry such as agents, brokers companies enjoy a wide reach within the Indian market
and surveyors further add to the employment generated which is a major factor for the growth of the Insurance
industry. Further, as ecommerce platforms are used
3. Risk spread: The industry promotes the process of daily by customers, they are more accepting towards
moving the risk from the insured i.e. person opting f or opting for insurance from these platforms.
the service, to the insurance provider. This is the basic
principle on which the industry works, spreading the
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Key Developments and Government Policy also ensuring security in the market. The market was
Interventions opened in the year 2000 and invitations were invited
from the private sector. Foreign companies were
The Indian Insurance Industry’s evolution can be allowed through joint ventures with Indian companies.
divided into three distinct phases, Pre-Nationalisation,
Nationalisation, and Privatisation. IRDA has the authority to regulate the insurance sector
and has framed various regulations overtime regarding
Pre-Nationalisation: In 1818 the first life insurance the operations of the companies to the protection of
company, The Oriental Life Insurance Company, was policyholders.
established in Calcutta. In the year 1870, The British
Insurance Act was enacted following which three Today, the Industry is growing at a rate of 15-20% and
Indian Insurance companies in Bombay were contributes about 7% to the GDP along with the
established namely, the Bombay Mutual (1871), banking sector.
Oriental (1874), and Empire of India (1897). During
this era, the Indian insurance companies faced intense
competition from foreign insurance companies namely Government Regulations:
Albert Life Insurance, Royal Insurance, Liverpool, and
London globe insurance which dominated the Indian The government body called Insurance Regulatory and
market during this period. Development Authority of India (IRDAI) was f ormed
by an Act in Parliament. The Act was the Insurance
The Indian Life Insurance Act enacted in 1912 was the Regulatory and Development Authority Act in the year
first attempt to regulate the insurance industry in India, 1999 (IRDAI Act 1999). This Act was to oversee and
which made it necessary for both Indian and foreign develop the Insurance sector in India.
companies to share their statistical and non-statistical The powers and functions of the IRDAI are laid down
data to the government. The government started in the IRDAI Act, 1999 and Insurance Act, 1938. The
publishing the returns of the companies keeping the key objectives of the IRDAI are to promote
public interest in mind. The act was further amended in competition to enhance satisfaction of the consumers
1938 with provisions for effective control of insurance by increasing the customers’ choice and existence of
companies’ activities. fair premiums, as well as ensuring security in the
Insurance sector.
The market competition was high and there were The Insurance Act, 1938 is the primary Act which
allegations of unfair trade practices due to which the governs the Insurance sector in India. It gives the
Government decided to nationalise the sector. power to IRDAI to frame various regulations which
assist in lay down the regulatory framework for
Nationalisation: On 19th January 1956 with the supervising the entities operating in the Insurance
passage of an ordinance the Life Insurance sector was market. Further, there are various other Acts which
nationtionalized with the establishment of Life supervise specific lines of Insurance business and
Insurance Corporation (LIC) India, it absorbed 245 functions such as Marine Insurance Act, 1963 and
Indian and foreign insurers operating in India at that Public Liability Insurance Act, 1991.
time. Till the early 1990s LIC India enjoyed
monopolistic status in India.

Privatization: In 1999, IRDA was set up to regulate

the insurance industry in India. Its main objectives
were to promote competition in the sector in order to
improve customer satisfaction by increasing the
number of available options and better services while
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Entities regulated by IRDAI:

The entities that are regulated by the IRDAI are: With the launch of standard term insurance policy,
Saral Jeevan Bima, effective from January 01, 2021,
a. Life Insurance Companies in both the Public the term life insurance business in India is expected to
and Private sector boost and expand the insurance penetration rate in a
b. General Insurance Companies operating in Both new and larger customer segment.
the public and private sector. Health Insurance
is also provided by some standalone Health
Insurance Companies
c. Re-Insurance Companies
d. Agency Channel
e. Intermediaries

The objective of supervision of the IRDAI Act is that it

must protect the interests of insurance policy holders
and ensure regulation, promotion and systematic
growth of the Insurance sector i.e., Insurance and
Reinsurance business. The powers and functions are
mentioned in the IRDAI Act, 1999 and Insurance Act,
1938 to enable the Authority to achieve its objectives.
Section 25 of IRDAI Act 1999 states that there has to
be an establishment of Insurance Advisory Committee
which consists of Representatives from, transport,
agriculture, commerce, industry consumers, surveyors’
agents, intermediaries, organizations who are engaged Insurance Penetration (Premiums as % of
in protection and loss prevention, research bodies and
employees’ association in the Insurance sector are
represented. All the rules, regulations, guidelines that
are applicable to the industry are written on the main
website of the supervisor and are available in the public
domain for the public to see.

Increasing penetration and density of

insurance over the years

• The overall market size of the insurance sector

was expected to reach US$ 280 billion by
2020.
• India’s insurance penetration was pegged at
3.76% in FY20, with life insurance penetration
at 2.82% and non-life insurance penetration at GDP))
0.94%.
• In terms of insurance density, India’s overall
density stood at US$ 78 in FY20.
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ANALYSIS
A big revolution came in 1991 when liberalisation was
Insurance is an industry which is very much vital in accepted by the government and Indian market was
everyone’s life for protection against hazards. Apart opened for foreign companies again. But true
from this it plays a very important role in the finance competition started from 2000 when 26% FDI was
industry as well. The insurance sector in India has seen allowed in the insurance segment. In the same year
a lot of changes from time to time. The impact of GIC was divided into 4 companies: Oriental Insurance
government policies on the sector is huge as the sector Company Limited, New India Assurance Company
is still dominated by government companies. The Limited, National Insurance Company Limited and
structure and degree of competition in the sector are United India Insurance Company. Thus, in order to
changed multiple times because of government compete with private insurance that will come; the
interventions. government itself created competition and converted
market structure into Oligopoly.
During English reign majorly there was discrimination
with Indians and thus a lot many co-operative societies From 2001 all the major players like ICICI Lombard,
providing insurance mainly to farmers and small ICICI prudential, Kotak Life insurance, Reliance life
insurance companies were formed. So, at that time insurance, SBI life insurance etc. were formed. Now
before independence the market structure was the insurance market was totally changed and was a
monopolistic competition as there were a lot many monopolistic competition. But it clearly had 2 sectors:
insurance providers in different demographics and government companies and private companies. In the
segments. Also, it was unregulated before 1912 when government companies, LIC was still the only one and
LIC was formed and merger and acquisition began in enjoyed monopoly as it had sovereign guarantee.
the industry. Whereas private companies focused on the customer
service and satisfaction part and charged lesser
But after independence in 1956 the government
premium than LIC. Also, companies like SBI Life
nationalised the whole life insurance sector creating
insurance had both the service of a private company
monopoly. All the existing co-operative societies and
and name of a giant government company like SBI.
foreign companies were absorbed in LIC giving birth
to a revolutionary company. As LIC established itself
Private Banks like ICICI, HDFC and Kotak emerged as
and enhanced trust among insurers with sovereign
main challengers to LIC and started gaining market
guarantee, in 1972 the government brought General
share very quickly. LIC’s market share in first time
Insurance Business (Nationalisation) Act. So, from
premium collection started falling sharply and fell from
1973 the whole insurance sector was nationalised and it
100% in 2000 to 60.9% in 2009. Whereas among
was a perfect monopoly. Till 1990 LIC and GIC
private sector companies ICICI emerged as leader and
enjoyed perfect monopoly and grew exponentially.
gained a whopping 92.6% share in first time premium
“LIC had 5 zonal offices, 33 divisional offices and 212 collection by private sector companies. But as more
branch offices, apart from its corporate office in the and more private sector companies started to establish
year 1956.” [8] In 1957 it received new business worth their business, market structure was perfect
200 crore. But, by 1985 it achieved 7000 crores worth competition among private sector companies.
sum assured on new policies. Thus, both LIC and GIC
took advantage of perfect monopoly and grew their The image shows number of companies in life
business. LIC was also an important company to insurance segment and market share of LIC vs. private
control financial markets as well and also it purchased companies in total premium collection from FY2001 to
a lot of government bonds making liquidity available FY2015.
for the government.
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Now analysing the insurance sector by statistical and empirical ratios, we could conclude that there were 2
different conditions and structure of market:

1. With inclusion of LIC:

Year Concentration ratio of top 3 Concentration ratio of top Herfindahl - Hirschman

companies 10 companies index (HHI)

FY 0.998 0.999 0.989

2002

FY 0.904 0.985 0.676

2007

FY 0.803 0.953 0.496

2011

FY 0.822 0.952 0.541

2015
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2. Without LIC:

Year Concentration ratio of top 3 Concentration ratio of top Herfindahl - Hirschman

companies 10 companies index (HHI)

FY 0.693 0.999 0.239

2002

FY 0.573 0.949 0.149

2007

FY 0.459 0.873 0.105

2011

FY 0.486 0.844 0.104

2015

So with LIC, market is still not a perfect competition.

LIC being a clear leader charges higher policy rates
with less return on investment. Whereas private
companies need to have higher claim settlement ratio
and lower premiums.

Currently in 2020 there are 24 life insurance

companies and 30 non-life insurance companies.
Also, the rise of Fintech is creating disruption with
all the processes being online. Further, private sector
companies have quickly adopted IT infrastructure
and have enabled their customers to get services li ke
payment of premium and policy renewal by online
channels. LIC also has to pay a big commission to its
agents but these private companies can make better
profits because of proper management and cost
reduction.
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Performance of Key Players

As we see LIC is a clear dominator in the market. In terms of product all these companies offer similar
Along with LIC mainly ICICI Prudential, HDFC Lif e products with minor differences. Main products
and SBI Life are major players in the sector. So, to offered are:
analyse performance of the whole insurance sector • Term Insurance Plan
we analysed these 4 companies by their products, • Unit Linked Insurance Plan (ULIP)
prices, revenue and financial performance. • Money Back life insurance
• Endowment Insurance policy
• Whole life insurance policy

The most popular product preferred specially by

young customers is Term plan.

Premium charged by companies for term insurance

worth 1 crore for age till 65 and current age 24 is as
follows:

Company Annual Premium Claim settlement

(rupees) ratio (%)

HDFC Life 9378 99

ICICI 11046 97.8

Prudential

SBI Life 10974 94.5

LIC 12000 + taxes 98.04

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Now we analyse financial performance of these 4 companies.

Financial Year LIC HDFC Life ICICI Prudential SBI Life

2012-13 Revenue 326341.88 14,059.84 20,023.26 14,869.77

PAT 447.73 1,515.52 630.11

2015-16 Revenue 424186.68 18,138.17 20,847.13 19,324.15

PAT 818.40 1,650.46 844.10

2018-19 Revenue 560784.39 38,359.88 41,460.43 44,604.06

PAT 1,276.79 1,140.65 1,251.37

*Data in crore rupees

LIC being non listed company results are not according to IND AS standards. Hence calculation of Profit after Tax
is not available.
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CONCLUSION

Challenges facing India’s insurance industry 5. Digital disintermediation - Digital

disintermediation is proceeding strongly in the
Indian insurance industry. The number of
There is Low insurance penetration and density rates
in India. Rural participation of insurers remains start-ups offering online insurance has grown,
deficient in rural India and private life insurers only with the key player being Policy Bazaar.
work towards the urban population, to the detriment Backed by SoftBank and Singapore’s
of the rural population. Temasek, each holding a 15% stake, Policy
bazaar has a 50%market share in the online
All Insurers in India lack sufficient capital and their insurance sales and is planning an IPO in
financials are unhealthy, mainly that of the public- 2021, with listings in the US and India
sector insurers, which are in a precarious state.
Among the public-sector general insurers, the 6. Policy changes and penetration push by the
financial situation of the sick National Insurance Govt –Easing of FDI norms and introduction
Company is worrying. The Government of India has of various schemes such as PMJAY SEHAT
already provided Rs. 25 billion in the three public-
and PMJJBY which incentivise and subsidize
sector insurers, however, these insurers require an
the adoption of insurance.
additional Rs. 100-120 billion in order to achieve the
required margin of solvency.

Future Prospects of India’s Insurance Industry

1. Attracting a younger population- The large

millennial population will cause a shift in the
industry. The industry will adapt to deliver
solutions differently to this demographic.

2. Rising cost of healthcare- Lifestyle led

diseases are becoming more prevalent in
India. The cost of healthcare in India is rising
and this awareness among the population is
increasing in the number of people opting f or
medical and health insurance providing
growth prospects to the providers.

3. Awareness and potential demand from

rural population- Rural India is a huge
untapped market providing great future
prospects and potential to insurance providers
for expansion due to their realisation of the
importance of insurance.

4. Higher personal disposable incomes would

result in higher household savings that will be
channelled into different financial savings
instruments like insurance and pension
policies.
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REFERENCES

1. https://www.televisory.com/blogs/-/blogs/insurance-industry-in-india-the-way-forward
2. https://www.policyholder.gov.in/indian_insurance_market.aspx#
3. https://www.ibef.org/industry/insurance-sector-india.aspx
4. http://www.onlinejournal.in/IJIRV2I12/260.pdf
5. https://www.ideasforindia.in/topics/money-finance/india-s-insurance-sector-challenges-and-
opportunities.html#:~:text=Key%20challenges%20facing%20India's%20insurance%20industry&text=2020
6. https://financialservices.gov.in/insurance-divisions/Insurance-Regulatory-&-Development-Authority#.
7. https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2
8. https://qrius.com/the-future-of-indias-life-insurance-industry/
9. https://www.licindia.in