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BUSINESS MANAGEMENT SYMPOSIUM 2016, 26TH AUGUSTatSchool of Petroleum ManagementPandit Deendayal Petroleum University (PDPU)
SONJAI KUMAR, Vice President- Business RiskAviva India Life Insurance
Disclaimer: Views expressed in this presentation are mine and not necessarily of my employer
2
WHAT IS THE EXAM QUESTION ? In the current growth in the domestic market how
does the Insurance sector is going to influence the trajectories of Indian Economy in future.
We shall see that how does the insurance sector influences the economy and vice versa
How does the current statistics indicates immense potential in the insurance sector compared to the developed market which in turn will impact the economic growth positively
What are the current and future challenges to watch out
3
SOME LATEST INDICATORS Total insurance players in India are 53 insurance
companies of which 24 are in life insurance business and 29 are non-life insurers
Life insurance market is expected to grow over the next 10 years from its current size of US$ 60 billion to US$ 160 billion.
Between April 2015 to March 2016 the life insurance industry wrote new premium income of Rs 1.38 trillion (US$ 21 billion), @ growth rate of 22.5%
The general insurance industry recorded a 12 per cent growth in Gross Direct Premium underwritten in April 2016 at Rs 105.25 billion (US$ 1.55 billion).
The general insurance business currently at Rs 78,000 crore (US$ 11.44 billion) premium p.a. likely to grow @ 17 per cent.
US, UK
4
INSURANCE PENETRATIONInsurance penetration measured as a percentage of insurance premium to GDP rose from 2.71% in 2001 to 5.20% in 2009, then declined to 3.3% in 2013-14, indicating the growth in insurance premium is lower than the growth in national GDP
World average of 6.3%,
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INSURANCE DENSITY DEVELOPING COUNTRIES
Insurance density which is measured as a ratio of premium to total population. It was 11.5 in 2001
Low ID in India is due to Insurance business largely skewed towards Urban area whereas total population accounts for rural which is largely uninsuredWhat about China?This indicates the potential India presents to insurance business and particularly “Rural India”
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INSURANCE DENSITY - DEVELOPED COUNTRIES
Impact of low population, high income and awareness towards protection
7
IMPORTANCE OF LIFE AND HEALTH INSURANCE SECTOR
Financial Protection against death earlier than expected- Term Insurance
Financial Protection to meet the cost of health care – Health Insurance Products
Longevity protection- Living Longer than expected- Annuity Products
Savings- To meet long term guaranteed liability such as Education, marriage, build up pension corpus, Inheritance transfer – Endowment and Whole Life Products
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POTENTIAL IN THE INSURANCE SECTOR
0-14 15-24 25-54 55-64 65+ -
10
20
30
40
50
60
36 Cr, 29%
23 Cr, 18%
51 Cr, 41%
9 Cr, 7% 7 Cr, 6%
Population Profile as on 2014
Child Products
Term Insurance
Term Insurance
Endowment Insurance
Whole Insurance
Term Insurance
Annuity
Annuity
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RELATIONSHIP OF ECONOMIC PARAMETER AND INSURANCE SECTOR
Macro Economic Parameters
Insurance Sector
Improves Employment
Generates income
Growth in GDP
Increase Domestic Savings
Increase Disposable Income
Capacity to pay Premium
Customer
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RELATIONSHIP OF ECONOMIC ACTIVITY AND INSURANCE SECTOR
Macro Economic Parameters
Insurance Sector
Growth in GDPIncrease Disposable Income
Capacity to pay Premium
Support Capital Market
FDI increases more insurance players and so more money into capital market
Generate long term investible fund and improve GDP
Customer
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RELATIONSHIP OF ECONOMIC ACTIVITY AND INSURANCE SECTOR
Macro Economic Parameters
Insurance Sector
PremiumCustomer
Interest Rate
Inflation Increase in interest rate negatively correlated with increase in Premium income
Increase in inflation rate negatively correlated with increase in Premium income
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IMPACT OF ECONOMIC AND DEMOGRAPHIC FACTORS ON INSURANCE SECTOR
Macro Economic Factors
Insurance Sector
Demographic Factors
Interest Rate
Inflation
Equity Market
Longevity of Life
Willingness to pay Premium
New Business
Profit
Impacts savings products
Impacts cost of products
Moves customers to and away from Insurance
Impact on Economy
Impacts cost of products
Impacts cost of products
Customer
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HOW DO WE SEE THE FUTURE ?
Insurance Sector
Capital
Regulatory Regime
Taxes
Digital
Rural Market
Distribution
FDI- 49%, IPO,
Capital intensive, Long pay back Period , Risk Based Capital
GST, Tax Benefits
New Regulations Challenge
IT investment, cost saving by 15% to 20%
Expensive Agency Model, Bancassurance is limited,
New Opportunities- Online, NBFC,
Types of Products, Pension
Large untapped market – key to the future successRight Products for such market
Risk Based Capital will induce more application of risk management
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RISK MANAGEMENT & INSURANCE
Insurance Sector
Internal Risks
Economic Risk
Demographic Risk
Regulatory Risk
Global Risks
Operational Risk
Lapse Risk
Mortality Risk
Interest Rate Risk
Inflation RiskEquity Risk
Expense Risk
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CONCLUSION The insurance industry has contributed in the increasing the
employment both directly and indirectly Private Sector has contributed towards increase in premium
by around 10%; this also catalyst LIC to increase its productivity Insurance industry has contributed in the GDP over the last 10
years to peak at around 5%; however compared to the developed market, we have long way to go and tap its current potential
Willingness to invest capital, improving on the digital front from cost and automation perspective, focus on rural market and innovative distribution holds the key for the future of insurance industry.
These factors will be reflective in the future insurance penetration and insurance density.
Now, India no more being a closed economy, one critical factor that may affect Insurance sector and economy together is the Global risk factors
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THANKS
17
GDP GROWTH RATE
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INSURANCE PENETRATIONNot enough compared to developed countries which is around 10%
19
INSURANCE DENSITY
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
10
20
30
40
50
60
70
11.514.716.419.722.7
38.446.647.4
54.3
64.459
53.2 52 55
Insurance Density (USD)
20
INCREASE IN EMPLOYMENT- EMPLOYEES AND AGENTS , FIGS IN LACS
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0
5.0
10.0
15.0
20.0
25.0
30.0
1.5 1.9 2.5 2.9 3.0 3.4 2.5 2.5 2.4 2.5 2.5
14
20
25
29 30
27
23.421.2 21.6
20.4320.16
No. of Employees No. of Agents
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PREMIUM INCOME
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1st Yr Premium Existing Business Total Premium
11%9%
11%11
%14%
14%
15%
17%
12%
10%7%
4%2%1%
% indicates Share of Private Sector
Cr
22
GROSS DOMESTIC SAVINGS AS A % OF GDP
Definition of 'Gross Domestic Saving' Definition: Gross Domestic Saving is GDP minus final consumption expenditure. Gross Domestic Saving consists of savings of household sector, private corporate sector and public sector.
23
DISPOSABLE INCOMEDisposable Personal Income in India increased to 138192890 INR Million in 2015 from 127880080 INR Million in 2014
24
FDI IN INDIAFDI in India increased by 1547 USD Million in May of 2016. FDI in India averaged 1153.89 USD Million from 1995 until 2016, reaching an all time high of 5670 USD Million in February of 2008 and a record low of -60 USD Million in February of 2014.
25
ASSETS INVESTMENTS (CR)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Equity (Market Value) Fixed Income (Book Value)