The market remains largely untapped and offers unlimited opportunities for those ready to be patient and adapt to Indian conditions. The government realises the important part the sector can play in funding the India Growth Story. We will compile and analyse the risks and benefits along with you and ensure your interests are protected.
The insurance sector is not only a source of long-term funds for infrastructure development but also strengthens the capacity of a country to take risks.
The Insurance Regulatory and Development Authority (Irda) tells us that the concept of insurance is ages old in India. It is mentioned in Manusmriti, Yagnavalkya’s Dharmasastra and Arthashastra. They propagate pooling of resources which could be re-distributed in times of calamities such as fire, floods, epidemics and famine. Marine trade loans and carrier contracts are the earliest forms of insurance recorded in Indian history. The insurance sector has evolved drawing heavily from other countries, England in particular.
Irda opened up the sector in August 2000. Foreign companies were permitted to hold up to 26 per cent in an insurance company. In December 2000, the subsidiaries of the General Insurance Corporation of India were hived off into independent companies. GIC became the national re-insurer. As of September 2012, Indian consumer can choose from 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India, and 27 life insurance companies.
The insurance sector is growing at a rate of between 15 and 20 percent. Banking and insurance services account for around 7 percent of India’s GDP. But it still has miles to go as less than 4 percent of Indian population has life insurance cover while less than one percent has non-life insurance. With insurers coming up with innovative products such as micro-insurance policies and new channels of distribution especially in the semi-urban and rural markets, the market has immense potential. Hiccups such as the Insurance Amendment Bill to raise FDI cap in the insurance sector from 26 per cent to 49 per cent have been pending in the Rajya Sabha since 2008 may slow but cannot stop the sector’s growth.
India is set to be the world’s most populated country by 2030. The population of the elderly, aged over 60 years, is growing at around 3.8 percent which is much higher than the overall rate of the population growth of roughly 1.76 percent. The proportion of the elderly in the population, which stood at 8.2 percent in 2008, is likely to increase to 10.7 percent in 2021 and 21 percent in 2050. Seniors aged over 80 years would make around 15 percent of the total population in 2050.
The existing pension system covers about 11 percent of the employees, mostly in the organised sector. The formal pension system does not cover the unorganised sector which employs more than 86 percent of the Indian labour force. Studies have revealed that more than 52 percent of elderly depend on others and more than 72 percent of women are totally dependent on others.
Pension is a long-term investment and trust plays a major role in decisions taken by the investors. The returns on market-linked pension products do not infuse confidence among many. The lack of financial literacy is another impediment to the expansion of this sector.
(Disclaimer: The information has been aggregated through secondary research. IFIE is not responsible for errors if any)