Insurance is a risk management tool in which the insured transfers the risk to the insurance company in exchange of premiums for a period of time. It has to be renewed from time to time. In India, Insurance covers both the public as well as the private sector.
Private companies started investing in Insurance sector after 2000 when FDI was allowed at 26%. The limit has been increased to 49% in 2014 and has further relaxed the FDI norms by permitting companies to enter via automatic approval route.
In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries.
As per legislation rules, a minimum capital of US$80 million (Rs. 4 billion) is required by to set up an insurance business.
Insurance penetration (measured as a percentage of insurance premium to GDP) rose from 2.71% in 2001 to 5.20% in 2009.
It has then declined to 3.9% in 2013-14, indicating the growth in insurance premium is lower than the growth in national GDP.Life Insurance penetration is very low in most of the North-Eastern states, Chhattisgarh, Haryana and Delhi. Lack of Agency penetration is also observed in most of the districts in North-Eastern states.
2.WORLD RANKING OF INDIA
India is the 15th largest insurance market in the world in terms of premium volume expected to improve in ranking in coming years. India currently accounts for less than 1.5 per cent of the world’s total insurance premium and about 2 per cent of the world’s life insurance premium despite being the second most populous nation.India’s insurance penetration is far below the world average of 6.3%, largely due to limited financial awareness and literacy among the masses.
For the year 2014, India stands at 3.1% in terms of life insurance penetration versus a global average of 3.5%, it lags far behind in non-life insurance where the penetration is a mere 0.8% compared to the world average of 2.8%.
As per 2014 stats, India is also far behind advanced economies in terms of insurance density (which is measured as a ratio of premium to total population). The annual insurance premium per capita (density) is abysmally low at $52 or less than 1% of annual income compared with 7% and 12% in the US and UK, respectively. Life Insurance density is at $41 and Non-life insurance’s density in India is at $11 only.
3.CLASSIFICATION AND TYPES of INSURANCE
Life Insurance are contracts between the person and the insuring company which based on the life expectancy of the person and the amount of Insurance decides the premium to be paid by the person. The company pays off in case of death of the person or any predetermined event to the beneficiary or the person respectively. The amount paid is tax-free.
Examples of Life Insurance Companies are-
- Life Insurance Corporation of India.
- Aegon Life Insurance Company Limited.
- Aviva India.
- Bajaj Allianz Life Insurance.
- Bharti AXA Life Insurance.
- Birla Sun Life Insurance Company Limited.
- Canara HSBC OBC Life Insurance Company Limited.
- DHFL Pramerica Life Insurance Company Limited.
- Edelweiss Tokio Life Insurance Company Limited.
There are two types of Life Insurance: Term Life Insurance and Permanent Life Insurance.
3.1.aTerm Life Insurance: Term Insurance are contracts which provides coverage for a period of time at a very low premium. These are not popular because if the insured survives, no benefit shall be given. But low premiums attracts investments. The purpose of taking life insurance is to provide life cover to the policyholder and financial security to his family.
There are two ways to take life insurance:
1. By opting for a pure life cover, also known as term insurance
2. By taking life cover with a savings component built-in, also called endowment insurance.
3.1.b.Permanent Life Insurance.
Permanent insurance provides lifelong protection and is tax free. A permanent insurance policy remains in force as long as you continue to pay your premiums. It is expensive than Term Life Insurance and the value of premium is calculated depending upon the life expectancy of the person.
3.2.GENERAL INSURANCE COMPANIES
Insurance contracts which are not covered in life insurance are called general insurance. The different forms of general insurance are fire, marine, motor, accident and other miscellaneous non-life insurance. The general insurance industry, industry experts estimate premium business for the industry would cross Rs. 1.2 lakh crore in fiscal 2016-17 from around Rs. 96,394 crore in the last fiscal.The general insurance industry has been growing at around 16 per cent every year since 2006-2007, but with higher penetration the industry is expected to quadruple in size over the next 10 years, industry players said.General insurance industry crossed Rs 1 lakh crore premium income at the end of January 2017, registering a growth of 32 per cent aided by growth in crop and property insurance.
The motor insurance dominates the Non-life segment in India.
Example of such companies are,
- Agriculture Insurance Company of India
- New India Assurance
- The Oriental Insurance Company
- United India Insurance Company
- National Insurance Company
- Export Credit Guarantee Corporation of India
- GIC Re
- Apollo Munich Health Insurance
- Cholamandalam MS General Insurance
- Cigna TTK
- HDFC ERGO General Insurance Company
- ICICI Lombard
- IFFCO Tokio
- L&T General Insurance
- Liberty Videocon General Insurance
- Max Bupa
- Reliance General Insurance
- SBI General Insurance
- Royal Sundaram General Insurance
- IFFCO Tokio General Insurance Co. Ltd
- TATA AIG General Insurance Company Ltd.
- Bajaj Allianz General Insurance Company Limited
- ICICI Lombard General Insurance Company Limited.
- Apollo Munich Insurance Company Limited
- Star Health Insurance
- Max Bupa Insurance
- Religare Health Insurance
- Future Generali India Insurance Company Limited
- Universal Sompo General Insurance Company Ltd.
- Cholamandalam General Insurance Company Ltd.
- Export Credit Guarantee Corporation Ltd.
- HDFC-Chubb General Insurance Co. Ltd.
- Bharti Axa General Insurance Company Ltd.
- Raheja QBE General Insurance Co. Ltd.
- Shriram General Insurance Co. Ltd.
4.MARKET SIZE AND GROWTH
The Indian insurance market is a huge business opportunity waiting to be harnessed. 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 life insurance industry reported 9 per cent increase in overall annual premium equivalent in April-November 2016. Life Insurance Corporation up 4 per cent to Rs 1, 50,456 crore (US$ 22.48). The life insurance market is expected to cross US$ 160 billion in next 10 years.
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 in India is currently at Rs 78,000 crore (US$ 11.44 billion) premium per annum industry and is growing at a healthy rate of 17 per cent.
Regular annual premium for private players has also gone up 16 per cent to Rs 1, 25,563 crore (US$ 18.76 billion).
The insurance industry estimates an increase in the penetration levels to 5% by 2020.
The central government's initiatives like JAM (Jan-Dhan, Aadhar and Mobile), Digital India and Start-up India helped the industry reach 12 crore customers in one year.
Penetration depends on various factors like:
- Level of economic development
- The extent of the savings in financial instruments and
- The size and reach of the insurance sector.
5.Insurance Regulatory and Development Authority of India (IRDA)
The Insurance Regulatory and Development Authority (IRDA) is a national agency run by the Government of India. It is based in Hyderabad and was formed by an act of Indian Parliament called as IRDA Act of 1999 amended in the year 2002.
5.a.Role and responsibilities of IRDA
- Protect the interest of policyholders by ensuring fair treatment by the insurance companies.
- Taking care of the speed and growth of the insurance companies.
- Monitor and implement quality competence and fair dealing of the insurance companies in the industry.
- IRDA should make sure that the insurers are providing precise and correct information about the products offered by them for the insurance customers.
- Ensure speedy settlement of genuine claims of the policyholders and prevent malpractices in the process of claims settlement.
6.TOP 10 Life Insurance Companies
7.Top 10 General Insurance Companies in India
A number of initiatives have been taken up for the Insurance Sector by the Government of India. This comprises of Insurance across various sectors like crops, motor insurance, Life insurance, Pension schemes and other general Insurance. In the year 2016, the Government has allowed 49% FDI in Insurance and pension schemes via automatic route. This has increased the investment in Insurance sector. The Government is also considering to allow 100 per cent foreign direct investment in insurance broking which will boost up funds in this sector.
As per the Insurance Laws (Amendment) Act, 2015, IRDAI has been granted more flexibility in work to work more efficiently. The amended Act will enable the companies to raise more Capital through new and innovative means which will lead to more distribution of funds to the un-served and lower sections of the society. For the consumer welfare, the penalties have been increased ranging from 1 crore to 5 crore for any mis-selling or misrepresentation. The capital requirement for health insurance companies has been increased to Rs. 100 crore which eliminates the non-serious players. The Life Insurance Council and General Insurance Council have now been made self-regulating bodies by empowering them to frame bye-laws for elections, meetings and levy and collect fees etc. from its members.
8.a.Pradhan Mantri Fasal Bima Yojana- This Yojana was a replacement of two crop insurance scheme i.e. the National Agricultural Insurance Scheme (NAIS) and the Modified NAIS. This came as a relief to the Farmers who have been provided financial support in case of failure of any notified crop as a result of natural calamities, pests and diseases. Rs. 9000 crore has been allocated for this initiative in 2017-18.
The new crop Insurance scheme is to provide the farmers with more efficient insurance support, stability in income, adoption of new technologies in production etc. An amount of Rs. 17600 crore has been allotted for the scheme. It is implemented in all states in association with the State Government.
A uniform premium of 2% for Kharif crops.1.5% for Rabi crops and 5% for any commercial or horticulture crops shall be paid by the farmer. The rest shall be borne by the Government.
There will be exemption from Service Tax liability of all the services involved in the implementation of the scheme. It is estimated that the new scheme will ensure about 75-80 per cent of subsidy for the farmers in insurance premium.
8.b.Aam Admi Bima Yojana- It is a social security scheme which is structured for workers just above the poverty Line. The scheme is available for persons in the age group of 18 to 59. The age is checked by Ration Card, Extract from Birth Register, Extract from School Certificate, Voter’s List, Identity card issued by reputed employer/Government Department. Unique Identification Card (Aadhar Card).
In this the person registered is not required to pay any premium. An annual Premium of Rs. 200 per person annually is equally shared by the State and Central Government.
8.c.Pradhan Mantri Jan Dhan Yojana (PMJDY)
To allow access to facilities like saving accounts, deposits, remittances, pension, insurance Government has launched the Jan Dhan Yojana. People can open account easily with any officially valid documents.
Persons who do not have any of the ‘officially valid documents’ can open “Small Accounts” with banks which can be opened on the basis of a self-attested photograph and putting his/her signatures or thumb print in the presence of officials of the bank which has a validity of 12 months, after which the account can be continues further by showing evidence of applying for any officially valid document.
Benefits available under the scheme includes:-
- Accidental insurance cover of Rs. 1 lac
- No minimum balance required.
- The scheme provide life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfilment of the eligibility condition.
- Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
- Access to Pension, insurance products.
- Personal Accidental Insurance
- Overdraft facility
8.d.Pradhan Mantri Jeevan Jyoti Bima Yojana
It is a government backed Life Insurance scheme to increase the coverage of people with Insurance in India. This is available to people between 18 and 50 years of age with bank accounts. The annual premium is Rs. 330. In case of death due to any cause, the payment to the nominee will be ₹2 lakh.
As on May 8, 2017, nearly 3.11 crore people had enrolled under PMJJBY, and the total number of claims received till date were nearly 65,083. PMJJBY is administered through LIC and other Indian private life insurance companies
8.e.Pradhan Mantri Suraksha Bima Yojana
It is an accident insurance covered by Government. It is available to people between 18 and 70 years of age with bank accounts. It has a validity for 1 year with annual premium is Rs. 12 Per annum which has to be renewed each year. In case of accidental deaths or permanent disability, the nominee will be made a payment of Rs. 200000 and if there is partial permanent disability the nominee will be paid Rs. 100000.
Non-life insurers are bullish about Pradhan Mantri Suraksha Bima Yojana (PMSBY) and have built ambitious plans for the scheme whose claim ratio has shot up to around 100 per cent.
8.f.Atal Pension Yojana
The Government has started Swavalamban Scheme to start a formal pension provision which was not available in under NPS (National Pension Scheme). But there was no guaranteed pension benefits at the age of 60. So the Government launched the Atal Pension Yojana. APY will be focussed on all citizens in the unorganised sector, who join the National Pension System (NPS).
It is available for people who start contribution between the age of 18 years and 40 years. The subscribers would receive the fixed minimum pension ranging between Rs. 1000 to Rs. 5000 per month, at the age of 60 years, depending on their contributions.
The Atal Pension Yojana (APY) is eligible for the same tax benefits as the National Pension System (NPS). The government will contribute 50% of the contribution made by the investor for a period of five years (2015-2020).
To increase the reach of social security in India the pension regulator PFRDA is in the process of starting an auto enrolment programme under the National Pension System (NPS) extending it to Atal Pension Yojana.
8.g. Varishtha Pension Bima Yojana
The scheme was launched on 1st April 2017 by Life Insurance Corporation of India. Senior citizens will be able to make an investment of up to Rs 7.5 lakh in the scheme. There will be guaranteed return of 8 percent for 10 years to protect the elderly of 60 or above age from further fall in interest income, after which the rates might be re fixed.
Senior citizens can opt for pension on a monthly/quarterly/half-yearly or annual basis.
8.h.National Health Protection Scheme
Under the scheme every family will get a Health cover of Rs. 100000 and an additional of Rs.30000 will be provided for senior citizens. It will cover 10 crore families initially. The renal analysis which cost around 2000 bringing an annual cost to around Rs. 300000 has been made free of cost under the scheme.
9.EDUCATIONAL BODIES- INSURANCE
In India Insurance industry provides ample opportunities in various sectors of Insurance like actuarial, distribution, marketing, underwriting and investing. There are few Institutes which prepares students for this Industry. There is huge scope for insurance agents in India as they advise individuals, companies, firms, enterprises about the policies which are beneficial for them and sell them to provide protection against any financial loss.
9.a.Various courses available in Insurance
9.b.Top Institutes for Insurance in India
- National Insurance Academy, Pune
- Institute of Insurance and Risk Management, Hyderabad
- Birla Institute of Management Technology, Greater Noida
- Amity School of Insurance Banking and Actuarial science (ASIBAS) of Amity University, located in Noida
- Pondicherry University offers an MBA in insurance management.
- National Law University, Jodhpur
9.c.Work opportunities in Insurance Sector
As per McKinsey’s global research, improving the customer experience are better drivers of profit rather than reducing prices or advertisements. The Insurance sector delivers customer experience via separate functions (marketing, distribution, underwriting and claims), using a website, sales call center, service department etc. each having different goals and metrics. Insurance is seen as a low-engagement, disintermediated category. It often forgets that the customer experience is a single journey from start till end and not divided into parts.
Best-in-class experiences have generated two to four times more growth in new business and about 30 percent higher profitability than firms with an inconsistent customer focus, in part because satisfied customers are 80 percent more likely to renew their policies than unsatisfied customers.Identifying what drives customer satisfaction and translating it into operational performance improvements requires deep customer insights, solid analytics, and modeling the most important customer journeys, with cross-functional ownership and multichannel, end-to-end management.
10.b.Skilled group of people with domain expertise
As the size of Insurance sector is increasing, the sector is experiencing a shortage of skilled workforce. Many representatives or agents are available at lower level of the industry. The agents become eligible to work after qualifying a small written exam done by Insurance Regulatory and Development Authority. The shortage occurs in the upper end of the Industry. There are only 200-300 actuaries across Insurance Companies in India. The focus has now been shifted towards hiring only skilled professionals with depth of industry knowledge.
In the Indian banking, financial services and insurance (BFSI) sector, the incremental human resource requirement will be about 500,000 persons by 2020, estimates National Skill Development Corporation (NSDC). The insurance industry will require niche high-end skills in complex and highly-specialised areas such as risk management, credit evaluation and financial engineering.
Organisations are slow to change their talent strategy to attract, retain and engage the right candidates to remain competitive. In fact, the survey found that less than a quarter of insurance CEOs are changing the way they manage talent to ensure they can fill their skills shortages.
10.c.Management of Claims
Delayed claim settlement generally results in higher cost for the concerned insurer. Claims cost is a very important factor and directly affects the profitability. Health insurance segment had and continued to experience highest percentage of fraudulent claims followed by non-life and life respectively. Insurance companies must manage claims instead of merely handling it. Managing claims involves not only claims processing but goes on to cover the entire claims management.
10.d.Low penetration of General Insurance
In December 2016, Rajiv Vastupal, Chairman, FICCI Gujarat State Council said, "Penetration of general insurance in India is very low at 0.70 per cent and Gujarat, in spite of being highly industrialised, is no different at just 0.71 per cent. The low penetration is a major reason for the losses of the industry players."The general insurance industry has made pure underwriting losses since 2007, which has increased in recent years due to the deteriorating claims ratio in medical insurance.
As per Bhargav Dasgupta, managing director, ICICI Lombard General Insurance, the General Insurance industry is expected to grow to Rs 4 lakh crore by 2025, helped by growth in health, motor, and home segments.
Large opportunities lies in the end-to-end customer journeys, customization for each customer separately, “phygital” – a mix of physical and digital, becoming more and more digital. Customer experience could be improved by providing end-end services meeting customer needs and not just products.
The GST rollout, will have huge implication for insurers on multiple fronts, including attractiveness of product categories, and the operational efforts for insurers. The applicability of different GST slabs can significantly influence affordability and therefore alter the growth trajectory of different product segments.