Insurance Sector of India

Syllabus: GS3/Economy

Context

• Chairman and MD of state-owned General Insurance Corporation of India (GIC Re), says the biggest problem for the insurance industry is fraud.

Indian Insurance Sector (FY24)

• Market Performance: Total insurance premium grew by 7.7%, reaching ₹11.2 lakh crore in FY24.
  • Reflects continued momentum despite global and domestic economic volatility.
• Insurance Penetration: Overall insurance penetration declined slightly from 4.0% in FY23 to 3.7% in FY24.
  • Life Insurance Penetration dropped from 3.0% to 2.8%.
  • Non-Life Insurance Penetration remained stable at 1.0%.
• Future Outlook: The Swiss Re Institute has projected India’s insurance sector to grow at a rate of 11.1% and is expected to become the fastest-growing market among the G20 nations over the next five years (2024-2028).
  • An expanding middle class, technological advancements, and supportive regulatory measures will likely drive this growth.
• Insurance Companies: At present, there are 25 life insurance companies, and 34 general insurers in the country.
  • Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. 
  • In addition to these, there is a sole national re-insurer, namely General Insurance Corporation of India (GIC Re).

Challenges faced by the Sector

• Low Penetration: With an overall insurance penetration rate of 3.7 per cent, below the global average of 7 per cent, there is a notable gap in coverage that presents opportunities for insurers to expand their reach.
• Claims Settlement Issues: Delays, rejections, and lack of transparency in the claims process create customer dissatisfaction.
• Distribution Limitations: There is limited reach in rural areas, and insurance distribution remains urban-centric, relying heavily on agents.
• Affordability: High premiums and the underpricing of certain products affect accessibility for low-income groups.
• Fraud and Mis-selling: Fraudulent claims and mis-selling by agents are common problems, damaging customer trust.
• Rising Costs: Increasing medical and claims costs impact affordability and profitability for insurers.

Initiatives Taken by the Government of India

• Last year, the Union Finance Ministry released a consultation paper proposing to raise the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100%.
  • The FDI limit in the insurance sector was previously increased from 49% to 74% in February 2021.
• Empowered the Insurance Regulatory and Development Authority of India (IRDAI) for:
  • Regulating, promoting, and ensuring orderly growth of the insurance industry.
  • Improving customer grievance redressal.
  • Simplifying product approvals.
• Bima Sugam initiative: It aims to empower all insurance stakeholders by connecting them all through a single platform.
  • The platform uses advanced technology to simplify processes for insurance companies, policy holders’, intermediaries, insurance repositories and external data sources etc.
• Bima Vahak: Focus on last-mile delivery of insurance in rural areas through trained agents (Bima Vahaks).
• Mandatory e-insurance: IRDAI mandated the digitisation of insurance policies across all categories to streamline processes, enhance efficiency, and improve accessibility for policyholders.
• IRDAI has decreased the health insurance waiting period from 48 months to 36 months.
  • The waiting period refers to the duration during which policyholders are not eligible to claim benefits for any pre-existing health conditions they might have during the purchase of the insurance policy.

Way Ahead

• By targeting tier 2 and 3 cities and rural areas where awareness and accessibility are limited, insurers can tap into new customer segments and stimulate Growth.
• Increase Financial Literacy: Conduct educational programs to enhance understanding of insurance products among the population.
• Simplify Regulations: Streamline regulatory processes to make product approvals faster and less complex, while ensuring consumer protection.
• Improve Claims Settlement: Ensure faster, transparent, and more efficient claims processing to build trust and reduce disputes.
• Expand Distribution Networks: Leverage digital platforms and mobile technology to reach underserved rural and semi-urban areas.
• Enhance Health Coverage: Expand coverage to include critical illnesses, hospitalization, and post-treatment care.

Source: IE