Insurance penetration at 10-year low

Insurance penetration, measured as a percentage of premiums to a country’s gross domestic product(GDP), has been on a constant drop in India. According to the latest sigma study from global reinsurer Swiss Re, India’s insurance penetration fell to 3.3 per cent in FY15, compared to 3.9 per cent in FY14. This has been the lowest since 2005-06, when the penetration was at 3.14 per cent.


India stands 15th globally with respect to premium income, is similar to last year’s. The only positive is insurance density figures, which have risen to $55 (Rs 3,498) from $52 (Rs 3,307 approximately). Insurance penetration refers to premiums as a percentage of GDP, whereas insurance density (measured in $) refers to per capita premium or premium per person.


Globally, insurance penetration stands at 6.2 per cent, while density is at $662 (Rs 42,103) for 2014. The study said global life premiums returned to positive real growth of 4.3 per cent in 2014, above the pre-financial crisis average. Further, non-life premiums were up 2.9 per cent in 2014, based largely on continuing improvement in the advanced markets.


In India, there was merely a one per cent growth in life premiums, while non-life premiums grew 4.8 per cent, is higher than the world average for 2014. “The global insurance industry gained momentum in 2014, though the economic environment improved only marginally. Total direct premiums written were up 3.7 per cent to $4,778 billion, after having stagnated the previous year,” the study noted.


With lower rates of renewal and lesser disposable income available to invest, insurers said the penetration had come down. Non-life penetration also declined marginally, which insurers say is due to slower auto sales affecting premiums, it is life insurance that saw a bigger drop.


Anup Rau, chief executive officer of Reliance Life Insurance, said, “The larger issue here is that if you take away the top four-five players, top line and access to distribution is a challenge. The agency channel of distribution is not as viable. Hence, unless channels like banks open up to sell products of more than one insurer, distribution will be an issue.”


Rau said the Insurance Regulatory and Development Authority of India was looking to bring out newer channels such as insurance marketing firms. This could improve distribution by getting these firms to distribute products of more than one insurer in each category — life, non-life and health.


In life insurance, India had penetration of 2.6 per cent in FY15 — down from 3.1 per cent in FY14. On the non-life side, it was 0.7 per cent — down from 0.8 per cent.


Penetration in India, surged consistently till 2009, has been seeing a gradual decline. Insurers said penetration has dropped since the sector has not been able to grow at the same pace as GDP. Recent studies have shown with higher inflation and lower disposable incomes, overall intention to buy life insurance policies in India has taken a hit.


Following the changes in unit-linked product regulations in September 2010, there was a big drop in premiums in life insurers from this space. Although unit-linked insurance plan, sales have caught on once again, thanks to better market conditions, overall, there has been a rise in surrenders. According to the Swiss Re study, overall profitability in the life insurance sector improved slightly in 2014, driven by stronger stock markets, higher premium growth and cost containment efforts.


It said the underwriting results in non-life were positive but slightly weaker than in 2013 because claims experience deteriorated slightly and contributions from prior-year reserve releases lessened. The study said life premium growth would remain solid in the advanced regions in 2015, and would increase in the emerging markets, particularly in Central and Eastern Europe and China.


The US life insurance market would improve alongside the strengthening economy and jobs market but in Western Europe, premium growth would slow from the strong gain in 2014, it said. The outlook for the non-life segment in advanced markets is more moderate, it added.

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