Life Insurance in India


Life insurance industry in India is more than a century old. Its importance can be gauged from the fact that it has mobilized national savings next only to banks. It is a significant player in the country’s capital markets as it deploys a sizable portion of its surplus in shares and corporate bonds. It has more than Rs 847,600 crores of assets under management.

According to figures released by the RBI, the percentage of gross household savings put into life insurance funds is growing steadily. It has risen from 17.1% in 2006-07 to 19.5 per cent in 2008-09. In absolute terms this has grown from Rs 110,965 crore in 2006-07 to Rs 145,876 crores in 2008-09.

The legislations governing insurance business are the Insurance Act, 1912 followed by the Insurance Act, 1938 and the Insurance Regulation and Development Authority Act, 1999. It is basically a story of nationalization of the business with formation of the Life Insurance Corporation of India in 1956 followed by fast-paced reforms in the 1990s intended to introduce competition and lower insurance costs for the consumer besides improving overall efficiency in the industry.

Reform of the insurance sector in India commenced with the constitution of a committee in April 1993. At the time of liberalization of the sector, only 22 per cent of the insurable population was covered. This is now expected to go up exponentially as the economy grows and the living standards of Indians improve in the coming decade.

Since 2000 when the life insurance was opened up to the private sector, private players have corned 22 per cent of market share. The size of the market has expanded from US$ 8billion in 2001 to $ 22 billion in 2005. As on date, there are 22 companies operating in the life insurance sector with the Life Insurance Corporation of India the only public sector company and the largest with a market share of about 75 per cent of total premium income.

Life insurance business grew by 14.2 per cent in US dollar terms (IRDA annual report 2007-08). Insurance penetration measured as a ratio of premium collected and GDP was just 4 per cent in 2007 in 2007. The total capital of life insurers as at March 31, 2008 was Rs 12296.42 crores .

The life insurance industry recorded 12.85 per cent growth in new business premium during the first half of 2008-09 even though private players saw a drop in sales of new policies, says a recent IRDA report. They reported a 14.67 per cent drop in first-premium income. Individual non-single premium policies accounted for 77 per cent, or Rs 10,285 crore, of the new business premium collected by private players in the first six months of 2008-09.

With the entry of a large number of players from the private sector (in collaboration with leading global players like Metlife, AIG, AXA, Aegon, Allianz, Sun Life among others), service standards have improved and cost of life protection has come down significantly as players vie for a bigger slice of the overall market pie. In addition, the insurance market has grown steadily in size. In the coming years the market will expand even further because so far barely the surface has been scratched.

Sources: The Reserve Bank of India

The Insurance Regulatory and Development Authority

Life Insurance Council