Understanding India's Insurance Sector..

The cabinet approval for listing of five general insurance company is a smart move which would not only mop up some money for the government but also pave the way for listing of LIC, the insurance behemoth. Further, this would bring about greater transparency and visibility to their operations. Despite having total investments of nearly Rs 27 lakh crore, almost one-fourth the size of entire banking industry, sector’s financial details receives very low attention in the mainstream media. A brief look at aggregate indicators of the sector.

Insurance sector is classified into two segments – Life and non-Life. As per Insurance Regulatory and Development Authority (IRDA), there are a total of 54 insurance companies in India nearly half of which are life insurers. Of the total, eight are in public sector, formed after amalgamation of then existing private insurers in 1950s and 70s. The sector gained prominence around 2000-2 with entry of private players in the market.
Even though the sector has low visibility, it handles a large amount of funds. Life insurance sector received total annual premium of Rs 3.7 lakh crore in FY16, of which, LIC accounted for Rs 2.7 lakh crore. (Though not exactly comparable, this is significantly higher than total income of Rs 1.9 lakh crore recorded by SBI during the year). Despite being in the market for fifteen years and enticed the market with higher commision and larger network of offices than LIC, private insurers have not been able to penetrate the market. A figure which could be working to their disadvantage is high claims rejection. Against 1.5% of claims rejected/repudiated & pending for LIC, the figure for private sector stands at 8.5% (as per IRDA annual report), probably adding to the credibility of LIC.
Non-Life insurance segment covers everything other than life such as motor, health, fire, travel etc. Despite covering a large motley of services, premium collected by non-life segment, at less than Rs one lakh crore. is only one-fourth the size of life insurance segment. This is also much less than world average where non-life accounts for nearly 45% share. However, this segment has seen greater penetration of private players with nearly 45% market share against less than 30% in life.
Despite handling such large funds, net profits of the sector is quite low. While life segment reported profit of Rs 7,500 crore with LIC reporting profit of just over Rs 2,500 crore. For non-life, profit was barely Rs 3,200 crore with nearly one-third of the companies incurring losses.
(Image courtesy of LIC website. Data source – IRDA)

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