Globally, two very widely used indicators for the insurance industry are insurance penetration and insurance density. While the former means the total amount of insurance premiums as a percentage of GDP, the latter one is defined as per capita premium or premium per person. As per the latest Swiss Re World Insurance Report 2018, India ranks 41 globally in insurance penetration. Our overall life insurance penetration is 2.76% while non-life insurance penetration is 0.93%, overall resulting in 3.69%, which is very low from the world average of 6.13. Talking about insurance density, India stands on 73rd globally. Our life insurance business density is US$ 55 while the non-life insurance density amounts to only US$ 18, this is well below the global average of US$ 353 and US$ 297 for life and non-life insurance businesses respectively.
According to Annual Report of IRDAI by March 2018, there were 68 insurers operating in India; of which 24 are life insurers, 27 are general insurers, 6 are standalone health insurers exclusively doing health insurance business and 11 re-insurers including foreign reinsurers branches and Lloyd’s India. The India Brand Equity Foundation (IBEF) suggest that gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. These numbers do seem to present a flourishing picture for the industry. An Assocham report had said that the Indian insurance industry is expected to grow to US$ 280 billion by 2019-20. However, if we compare it with the global scenario then a lot needs to be done. The recent move of the Government, announced in the latest budget, to increase FDI capping for insurance intermediaries from 49 to 100% suggest the same.
It is interesting to look at the growth of other financial products in a similar timeframe. For example, Sensex was around 3000 during 2001 and now it is around 13 times bigger hovering around 40000. Although its penetration is also around just 2.5% of the population only. But, the growth of new customers for stocks in Tier 2 and 3 towns is increasing rapidly. For that matter, even the insurance density is also increasing. However the major difference between insurance and any other financial product is that the more the insurance distribution is spread, the more the risk is shared among many, hence the insurance penetration is much important for the economy. Though the Government schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PM-JAY), Pradhan Mantri Fasal Bima Yojana (PMFBY) can give a good exposure for insurance schemes, it remains in the hands of the insurance sector strategies on how to capitalize the exposure for add on risk coverages. For example, the statistics of dormant bank accounts of Jan Dhan is not much encouraging which means that mere exposure cannot contribute to the growth but active participation will do. Further, Jan-Dhan se Jan Suraksha under the Jan Dhan is not getting the desired traction.
Let’s keep aside the financial sector for a while and let’s discuss the e-commerce and consumer internet sector. Be it food delivery, retail or hospitality, startups like Zomato / Swiggy, Amazon / Flipkart, Paytm, Oyo have received great success. Their success model is based on two key factors; one their strong distribution channel for their services that dives deeper into even small cities of India with similar thrust as it does in metros and another key factor would be efficient customer service. It is to be noted that while some of these startups are yet to generate profits but it is intriguing that despite that, these are valued in billions of dollars just because of their impeccable customer service, capability to reach and deliver and fulfill the requirement of the customers by making them aware of all the options and providing choice.
Let us come back to the insurance sector and explore and understand the prospective implications and outcomes of 100% FDI in insurance intermediaries and specifically in insurance broking as announced in the budget:
According to IRDAI, there are over 400 brokers/broking firms registered with them in India, as on 30th June 2018. This comprises of direct (368), composite (60) and reinsurance (5) brokers. According to a report in the Indian Express, “Currently, the insurance broking industry deals with over Rs 30,000 crore of premium primarily from the non-life industry which generated over Rs 170,000 crore of premiums in 2018-19”. According to IBAI’s Vision 2025, a considerable chunk of brokers/broking firms in India are located in the top 4-5 states and corporates are the major clients of the brokers with 40–50% of their businesses. Clearly suggesting that brokers have confined areas of operation and vast opportunity to scale up in the future. Therefore, FDI will result into the capacity and expansion of broking firms in India that might enable the growth of broking business in smaller towns and tap other clients as well apart from corporates and focus on the rural, retail and SME segment. With technology-led initiatives, brokers can taste good success here.
The report further mentions that 6 out of the top 10 global brokers are not present in India. With this move, these giant brokers might pave their way into India. Foreign players will also bring new technologies and data analytics tools in the broking industry, these will surely help in devising strategies for better sales, customer behavior identification & targeting, product improvement based on analysis of feedback from the customer, etc; Data analytics is the way forward for sure. It is to be noted that there is no limit on insurance intermediaries in mature markets such as the UK, Australia or emerging markets such as Mexico and Vietnam, according to the IBAI report.
Dr. Arjun Kumar – He is the Director of Impact and Policy Research Institute (IMPRI), New Delhi. He holds a Ph.D. in economics from the Centre for the Study of Regional Development, School of Social Sciences, Jawaharlal Nehru University (JNU), New Delhi.