FUTURE LOOKS PROMISING FOR THE LIFE INSURANCE INDUSTRY

Life Insurance is one of the sectors which have an adequate growth potential. It is the only financial asset which provides return in addition to the life risk coverage. In the modern era term assurance has got less importance since it provides only risk coverage and no return. The investors in life insurance are looking for both good return and life risk coverage. Hence the new policies framed by the companies will have both the elements. After privatisation of life insurance sector in 2000, drastic changes occurred in the sector. Linked policies were framed in place of the conventional policies. The potential for growth and spread of life insurance in India is high due to large population and no pension system among the larger work groups which leads to no old age income. The insurance sector provides for the long term contractual savings for the investors. Life insurance industry in India being about USD 66.4 billion, it is growing very well. It is growing at 12-15 percent over the next few years. So, by 2020 this market place should be a USD 350-400 billion market place. India is one of the emerging markets but when you see penetration of life insurance at about 3.9 percent but not nearly as high as some other mature markets where you are seeing insurance penetration up over 10 percent.

Growing interest towards insurance among Indians, innovative product designs and easy to access distribution channels are sustaining the growth of the insurance sector. Also, the government has opened various liberalization policies for private players. The Life Insurance Sector procured First Year Premium of Rs. 95871.62 crore with a growth of 15.55% as at the end of 31^st January, 2016. LIC procured Rs 66335.70 Cr with a growth of 14.99% where as Private Sector procured Rs 29535.92 Cr posting a growth of 16.82%. Private sector experienced a growth in both Individual NB and Group NB where as LIC shown a growth in

NB and decline in Individual NB. The Life Insurance Industry has procured Linked Premium of Rs.12845.80 crore as at 31^st January, 2016 as against Rs.9384.48 crore for the same corresponding period of previous year. It shows an increase of 36.88%. Life insurance companies are required to mandatorily issue an electronic insurance policy for any individual who takes a sum assured of Rs 10 lakh and above, or pays annual premium of Rs 10,000 and above in life insurance.

ONLINE LIFE INSURANCE MARKET:

The number of internet users in India is expected to grow from 200 million today to nearly 330 million by 2016, thanks to improving infrastructure, the spread of mobile phones to the most far-flung rural areas and affordable internet facilities. Online life insurance sales are expected to grow to 3-5% of the individual annualised new business premium by 2020; and non-life insurance sales are expected to grow to 15-20% of non-life retail business. This means the online insurance sales market in India will be around Rs. 3,500-Rs 6,000 crore for life insurance and around Rs 11,000-15,000 crore for non-life insurance. A total of Rs 15,000-20,000 crore, up by over 20 times. Life insurers are trying to move more and more renewals to online channels. Currently online renewals are expected to be around 10-15% of overall individual business renewals, which means around Rs 15,000- 25,000 crore worth of renewal premium is already coming through the online channel for the industry. By 2020, online renewals are expected to be 35-50% of individual renewal premiums, which will take online renewal premium to Rs. 1,75,000 to Rs 3,00,000 crore,

LIFE INSURANCE MARKET SIZE:

India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a Compound Annual Growth Rate (CAGR) of 12-15 per cent over the next five years. The insurance industry plans to hike penetration levels to five per cent by 2020. The country’s insurance market is expected to quadruple in size over the next 10 years from its current size of US$ 60 billion. During this period, the life insurance market is slated to cross US$ 160 billion. The Indian insurance market is a huge business opportunity waiting to be harnessed. India currently accounts for less than 1.5 per cent of the world’s total insurance premiums and about 2 per cent of the world’s life insurance premiums despite being the second most populous nation. The country is the fifteenth largest insurance market in the world in terms of premium volume, and has the potential to grow exponentially in the coming years. India’s insurance sector, which is witnessing a rapid growth, is likely to touch about $400 billion in premium income by 2020, making the country one of the top three life insurance and top 15 non-life insurance markets by 2020, according to a report. “The insurance industry will continue to outpace the rapid economic growth to reach $350-400 billion in premium income by 2020 (approximately Rs 17-22 lakh crore), making India among the top three life insurance markets and top 15 non-life insurance markets by 2020,” a report by Federation of Indian Chamber of Commerce and Industry (FICCI) and the Boston Consulting Group (BCG) has said.

The number of life policies had increased nearly 12 fold over the past decade and health insurance nearly 25 fold. Progress has been made with emergence of multiple channels like bancassurance, broking, corporate agency, direct and auto dealers to complement the existing third party agency and in-house salaried sales force. Along with the emergence of multiple channels, the distribution reach has also gone up, nearly 6 fold for life, and 1.5 times for non-life, evolving the Indian market from a monopoly to a competitive one. This massive growth will have a major impact on India’s ranking in the global insurance industry and is based on strong fundamentals

SLOWER GROWTH IN INDIVIDUAL PREMIUM:

Insurers saw a lower growth with respect to individual first year premiums, with private life insurers seeing growth of 13 per cent and LIC seeing similar numbers in FY16 compared to the previous fiscal. While the top five players including ICICI Prudential Life, SBI Life, HDFC Life, Max Life and Kotak Life saw double digit growth, many private insurers reported negative growth or de-growth in the first year premium collection for individual segment. Data showed that those with bank promoters or with bancassurance agreements with large private sector, public sector and foreign bank have been at an advantage compared to those without such partners.

Individual policy sales have remained under pressure and hence have focussed on group business. Group business is not only easier to procure with lower distribution costs, it also helps generate adequate premium volumes. LIC saw a whopping 43 per cent growth in group business for FY16 compared to FY15 while private life insurers saw a growth of 26 per cent. The industry overall collected Rs 80,374 crore as group business premium for FY16 compared to Rs 57,771 crore in FY15. A report by McKinsey & Company had said that Indian life insurance sector has under-performed compared to its Asian peers. None of the private insurers in India are creating value as per the market potential. This is because they are all serving a miniscule segment of consumers, mainly to meet narrow investment needs. But it added that even within this confined space, they demonstrate a significant spread in performance which is driven largely by distribution strategy.

STRATEGIC INVESTMENT:

Life insurance giant LIC has made a profit of Rs 11,000 crore through its equity investments in the recently concluded 2015-16. The largest domestic investor pumped-in Rs 2.70 lakh crore across equity and debt markets in the fiscal, of which Rs 65,000 crore was in the equity segment. The depressed markets towards the latter part of the year led to the corporation exceeding on its equity investments target of Rs 60,000 crore announced earlier. The banking sector, where a thorough clean-up is underway, presents value buying opportunities at present. Even in the difficult times, there are stocks which are at their 52-week high and the LIC makes money by exiting in such investments. Having announced a target of investing up to Rs 1.5 lakh crore to help the Railways, LIC has loaned Rs 7,000 crore to it in 2015-16 and scale it up as Railways comes up with its needs. The money has been loaned at a coupon of 0.30 per cent over the benchmark government securities for the year. There was a 10.82 per cent correction in the 30-share benchmark of the BSE during the fiscal. It opened the fiscal at 28,260 points and closed at 25,341 points on March 31, 2016, making it a not-so-happy year due to the volatilities. It touched a high of 29,094 points on April 15 last year and passed through choppy waters towards the latter part of the fiscal, which led to it registering a year’s low of 22,494 points on February 29. The following are some of the major investments and developments in the Indian insurance sector:

• Foreign Direct Investment in the insurance sector stood at US$ 341 million in March-September, 2015, showing a growth of 152 per cent compared to the preceding year.
• Insurance firm AIA Group Ltd has decided to increase its stake in Tata AIA Life Insurance Co Ltd, a joint venture owned by Tata Sons Ltd and AIA Group from 26 per cent to 49 per cent.
• Canada-based Sun Life Financial Inc plans to increase its stake from 26 per cent to 49 per cent in Birla Sun Life Insurance Co Ltd, a joint venture with Aditya Birla Nuvo Ltd, through buying of shares worth Rs 1,664 crore (US$ 249 million).
• Nippon Life Insurance, Japan’s second largest life insurance company, has signed definitive agreements to invest Rs 2,265 crore (US$ 348 million) in order to increase its stake in Reliance Life Insurance from 26 per cent to 49 per cent.
• The Central Government is planning to launch an all-in-one insurance scheme for farmers called the Unified Package Insurance Scheme (Bhartiya Krishi Bima Yojana). The proposed scheme will have various features like crop insurance, health cover, personal accident insurance, live stock insurance, insurance cover for agriculture implements like tractors and pump sets, student safety insurance and life insurance.
• Government launched a special enrolment drive, Suraksha Bandhan Drive comprising of sale of gift cheques and launch of deposit schemes in bank branches, to facilitate enrolment under Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).
• To increase the subscriber base and ensure wider reach, the Central Government has eased several norms for its flagship insurance scheme Atal Pension Yojana (APY),in terms of more options for periodical contributions, voluntary and premature exits and simplified penalty for payment delays.
• Bennett Coleman and Co. Ltd (BCCL), the media conglomerate with multiple publications in several languages across India, is set to buy Religare Enterprises Ltd’s entire 44 per cent stake in life insurance joint venture Aegon Religare Life Insurance Co. Ltd. The foreign partner Aegon is set to increase its stake in the joint venture from 26 per cent to 49 per cent, following government’s reform measure allowing the increase in stake holding by foreign companies in the insurance sector.
• State Bank of India has announced that BNP Paribas Cardiff is keen to increase its stake in SBI Life Insurance from 26 per cent to 36 per cent. Once the foreign joint venture partner increases its stake to 36 per cent, SBI’s stake in SBI Life will get diluted to 64 per cent.
• Bangladesh has granted permission to the LIC of India to run its business, making it the second foreign insurance company to operate in the country.

SINGLE LARGEST INVESTOR:

The Insurance Laws (Amendment) Act passed in February 2015 allows foreign partners to increase their stake in Indian insurance firms from 26 per cent to 49 per cent. The Corporation is the single largest investor in the market with trillions of rupees invested in many blue-chips and even in mid-caps. That apart LIC is the proxy investor for the government too in many of the state-run banks wherein its holding is over 15%, while it holds 25% in corporation bank. While LIC is the single largest domestic institutional investor, it also is the largest player in the government securities market, investing more than Rs 2.5 trillion annually, while its incremental annual stock market investment is under Rs 60,000 crore.

PRODUCT INNOVATION & PROFITABILITY:

All the companies in the life insurance sector have about 20-25 products. And each company will have at least five or 10 products which are fairly easy to understand. These have converged over the last few years and they are fairly easy to understand. There were 28 new products launched across the life insurance industry during the period December 2015 to February 2016. Out of these, 21 of the products launched were traditional products with guaranteed additions featuring in many of them. Insurers are taking measures to manage these guarantees offered.

Even as the life insurance industry is undergoing regulatory changes and companies in this space are looking to sustain business, some life insurance companies have not only seen growth in premium, but also posted profits. At a time when the macro-economic situation has been tough and the life insurance industry is itself undergoing regulatory changes, the industry is looking to sustain its business. However, there have been some life insurance players who have not seen a growth in premium, but have also posted profits. While the industry has come a long way over the past decade, the big challenge with the industry is profitability. For sustainable profitability, the companies need to fix the agency operating model, build strategic, long-term non-agency partnership, incubate, experiment and develop alternative channels, develop a customer-centric operating model, target customer or product white spaces and go lean. The investors are looking for the gains from the securities market also. These investors can invest in mutual funds but it does not cover life risk.

India’s insurable population is anticipated to touch 750 million in 2020, with life expectancy reaching 74 years. Furthermore, life insurance is projected to comprise 35 per cent of total savings by the end of this decade, as against 26 per cent in 2009-10. The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance. As per the LIC Act, the corporation has to distribute 95% of its profits with the policyholders, and accordingly the financial powerhouse paid Rs 34,283 crore to its millions of policy holders in the year, while the remaining 5% worth Rs 1,804.35 crore was paid to its owner, the government. Accordingly, the LIC handed over the valuation surplus worth Rs 1,804.35 crore to the finance minister for the fiscal year ended March 2015.The Government of India has taken a number of initiatives to boost the insurance industry. IRDAI has formulated a draft regulation, IRDAI (Obligations of Insures to Rural and Social Sectors) Regulations, 2015, in pursuance of the amendments brought about under section 32 B of the Insurance Laws (Amendment) Act, 2015. These regulations impose obligations on insurers towards providing insurance cover to the rural and economically weaker sections of the population. The Insurance Regulator of India has formed two committees to explore and suggest ways to promote e-commerce in the sector in order to increase insurance penetration and bring financial inclusion.

Author

JAGENDRA KUMAR
Ex. CEO, Pearl Insurance Brokers
71/143, “Ramashram” Paramhans Marg,
Mansarovar, JAIPUR-302020

References:

1. https://www.irda.gov.in
2. http://economictimes.indiatimes.com/opinion/interviews/industry
3. IRDA Annual Report 2014-15
4. http://www.celent.com/reports/indian-insurance-market-and-technology-overviewhttp://www.policyholder.gov.in/warnings_and_penalties.aspx
5. Newspapers & Journals.