Helped by government intervention and a conducive regulatory environment that has spawned product innovations and vibrant distribution channels, India is poised to emerge as one of the fastest growing insurance markets in the coming decades, the Economic Survey of 2022-23 noted.
According to the survey, with the conflict in Ukraine weighing on economic growth in Europe in particular, insurance industry growth in emerging markets is expected to outpace that in the developed markets this year, with emerging Asia in the lead.
India became the world's tenth largest insurance market in terms of premiums, and second largest among emerging market economies in 2021, according to a Swiss Re report. It is expected to emerge as one of the top six insurance markets by 2032, ahead of Germany, Canada, Italy, and South Korea.
Interestingly, insurance penetration in the country has risen steadily from 2.7 per cent at the turn of the millennium to 4.2 per cent in 2021, with life insurance penetration at 3.2 per cent, almost twice more than the emerging markets and slightly above the global average. That said, customers mostly buy savings-linked life insurance products, which have a small protection quotient, leaving households exposed to significant financing gap in the event of the premature death of the primary breadwinner.
Further, insurance density in the country has increased from $11.1 in 2001 to $91 in 2021 (density for life insurance was $69 and non-life insurance was $22 in 2021) in keeping with the relatively faster expansion of the insurance market in the country.
While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).
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Recently, in his address, Debasish Panda, Chairman, Insurance Regulatory and Development Authority of India (Irdai) said, the insurance sector would need a capital infusion of around Rs 50,000 crore every year to double the insurance penetration in about 5-7 years’ time. And, this capital has to come from existing players by way of ploughing back of profits and by additional capital from new players. Panda made a pitch to the conglomerates and individual investors present in the country to invest in the insurance sector, given the return on equity (RoE) of the top five insurers have been around 20 per cent.
“The insurance sector is highly competitive and is already witnessing mergers and acquisitions (M&A) activity as insurers have tremendous opportunities and volume to co-exist in the space. Additional foreign direct investment (FDI) inflows, initial public offerings (IPO), simplified rules and regulations, and improved corporate valuations will likely further accelerate M&A activities in the sector”, the Economic Survey stated.
A rapidly maturing insurance market has provided a lucrative opportunity to the government to privatize its stake in the insurance business. Accordingly, the General Insurance Business (Nationalisation) Amendment Act, 2021 allows the central government to pare its stake to less than 51 per cent of the equity capital in a specified insurer, it further said.
