Life insurance – the future

8/8/2019 Life insurance – the future

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LIFE INSURANCE -

THE FUTURE FROM

KARTHEEK.A.P

MBA99614



What Is Life Insurance?

Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) onthe happening of the event insured against.

The contract is valid for payment of the insuredamount during:

* The date of maturity, or * Specified dates at periodic intervals, or

* Unfortunate death, if it occurs earlier.



Future or POTENTIAL OF LIFE

INSURANCE BUSINESS IN INDIA

India·s life insurance market has g rown rapidly over the past six years, with new

business premiums g rowing at over 40% per year. The premium income of

India·s life insurance market is set to double by 2012 on better penetration and

higher incomes. Insurance penetration in India is currently about 4% of its GDP,

much lower than the developed market level of 6-9%. In several segments of the

population, the penetration is lower than potential. For example, in urban areas, the penetration of life insurance in the mass market is about 65%, and it·s

considerably less in the low-income unbanked segment. In rural areas, life

insurance penetration in the banked segment is estimated to be about 40%,

while it is marg inal at best in the unbanked segment. The total premium could

g o up to $80-100 billion by 2012 from the present$40 billion as higher per

capita income increases per capita insurance intensity. The averag e household

premium will rise to Rs 3,000-4,100 from the current Rs 1,300 as will

penetration by the existing and new players. India·s ratio of life insurance

premium to its GDP is around4 per cent ag ainst 6-9 per cent in the developed

world. It could rise to 5.1-6.2 by 2012 in tandem with the country·s demog raphic

profile. India has 17 life insurers and the state-owned Life Insurance Corp. of

India dominates the industry with over 70 percent market share, though private

players have been g rowing agg ressively.



Considering the world·s larg est population and an annual g rowth rate of nearly 7 per

cent, India offers g reat opportunities for insurers. US based online insurance

company ebix.com plans to enter the Indian market following dereg ulation of its

insurance sector. Online insurer ebix.com·s expansion into India is a major step for

the company to become a global supplier of internet-based insurance tools for consumers and insurance professionals. In a diverse country such as India it is

imperative that a universal insurance infrastructure be created to maximize efficiency

in the insurance industry. Online insurer ebix.com can offers the Indian market a

business-to-consumer internet portal where consumers have more choice while

purchasing insurance and an internet-based ag ency manag ement system that will

help ag ents work more efficiently with multiple carriers.



Foreig n holding in Indian insurance companies is limited to 26 per

cent. The g overnment wants to increase the cap to 49 percent, but its

communist allies oppose such a move. The market is moving beyond

single-premium policies and unit linked insurance products which are easier to sell. The ag ency model is the dominant sales channel

accounting for more than 85 per cent of fresh premiums but overall

inactivity and attrition is much higher at 50-55 per cent than the

global averag e of 25 per cent. Opportunities include health insurance

and pensions, the report said, adding only 1.5-2 percent of total

healthcare expenditure in India was currently covered by insurance.



A life insurance policy covers one·s personal self . Unlike with g eneral insurance,

it is not like insuring a vehicle. Having said that, if we consider that India·s

population is over one billion and g rowing , we g et a picture of the true potential

of the life insurance sector in India. LIC has been in business for 50 years now

and has not covered the entire population base yet. About 250 to 300 million Indians are still insurable. LIC has issued about 120 million policies till now,

with new premium income of US$ 1 billion. Its assets have been estimated at

$37 billion and in the last quarter it reported a 60 per cent g rowth in new

business. LIC·s business is g rowing at the rate of 20 per cent every year. That is

the kind of potential one is talking about in life insurance in India. It would not

be wrong to say that a lot of the advantag e of advertising by new private sector

insurance companies has by default g one to LIC. While they have created a lot of

awareness through private insurer·s advertisements, LIC has benefited. Why?Because LIC has a much wider branch network, and buyers are surer of LIC

because it has been in existence for long; they are more comfortable about its

safety. Some LIC ag ents continue to follow the unethical practice of offering

discounts from their commissions to new policy buyers; this makes a difference.



PENETRATION- LOW ER

THAN POTENTI A LManag ement consultancy firm McKinsey has forecast that India·s life insurance

industry will be double in the next five years from $40 billion to $80-100 billion

in 2012. This g rowth would improve the level of insurance penetration from

5.1% of g ross domestic product to 6.2% in 2010-2012. The Indian life insurance

industry could witness a rise in the insurance sector premiums between 5.1%and 6.2% of GDP in 2012, from the current 4.1%. Total market premiums are

likely to more than double during this period, from about $40 billion to $80-100

billion. This implies a higher annual g rowth in new business annual premium

equivalent (APE) of 19% to 23% from 2007 to 2012. The larg e part of the g rowth

would come from second- and third-tier cities and small towns. Based on MGI

forecasts, 26 tier-II cities with population g reater than one million and 33 tier-III

towns with the population of more than 5 lakh will account for 25% of the

middle class and newly bankable class in 2025. Over 5,000 tier-IV small towns will account for as much as 40% of these two classes in 2025. However, if an

insurer decided to be a niche player and concentrated on metros and their

suburbs, they will have a big market, since 60% of the very rich (annual income

over Rs 10 lakh) would be concentrated in the top eight cities. Although these

consumers will be highly accessible, players will have to reckon with intense

competition that is only g oing to increase and extend to other segments as well.



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Life insurance – the future