The insurance sector in India is burgeoning with 52 insurance companies of which 24 are in life insurance business and 28 are non-life insurers. While the industry still struggles with challenges like lack of awareness, low penetration; the strong fundamentals of this industry are an absolute necessity for the sustainable long-term growth of an economy.
Liberalization has led to the entry of some of the world’s largest insurance players in India over the last 12 years. In a recent move, Indian government amended an insurance law to raise the cap on foreign direct investment (FDI) into Indian insurance companies to 49% from the 26%. The amendment which was due for nearly a decade also allowed global reinsurance companies to set up offices in India, something that wasn’t allowed before.
It is estimated that this move could help seed in $1billion to $3 billion of foreign investments and bring the expected turn in the insurance industry. For the world’s second most populous country, India has abysmally low penetration of insurance, either for life or health, thus experts agree that there is huge scope of growth in the insurance sector.
Digitalization in Insurance
The population of emerging countries like India has started heavily purchasing online for categories like apparels, electronics and even grocery. Needless to say this population is already making banking transactions online however; the purchase of insurance online is yet to catch up. With more and more payment getaway providers entering the market this trend is likely to go up soon.
As many as three out of every four insurance policies will be sold online by 2020, says a Google study. The report ‘Digital@Insurance-20X By 2020’ asserts that three in every four insurance policies sold by 2020 would be influenced by digital channels during either the pre-purchase stage, purchase or renewal stages.
Product Innovation & Marketing
For a long time, life insurance and motor insurance have been the most popular categories of insurance people buy. In general insurance industry, motor insurance alone forms a major part of the premium portfolio of insurers because it is mandatory by law for bike and car owners to insure their vehicle. Health insurance is slowly yet steadily catching up with its counterparts since it provides tax benefits under Sec 80D for the growing young working population with limited knowledge of investment options. However, people need to understand the importance of their most valuable asset- their health and not consider the added benefit of saving tax as the sole motivation for buying health insurance.
Recently huge destruction caused by natural calamities has brought to light the importance of categories such as home insurance. There is a need for product innovation that caters to the needs of the customers and offers enhanced convenience. Insurers need to create awareness of insurance products, educating public on the need to be insured and finally converting them in a cost effective manner to tap the ‘un-insured’ and ‘under-insured’ market.
Insurance Outlook –Year 2016
Newer technologies like telematics and concepts like big data are allowing for better risk assessments and pricing of insurance products. Digital disruption has changed the way most industries function today and sooner or later insurance industry will have to embrace this too. Indian economy is expected to do well in the coming decades, thanks to the reform favoring government; per capita income and awareness of insurance is likely to increase.
With the expected influx of more foreign players and increased competition, consumers will have access to a wider pool of insurance products. This should ultimately help the Indian insurance market evolve. A better distributional channel will also be key to penetrating the market. Ease in the process of purchasing insurance and a robust product portfolio with easy to understand terms and conditions will play a critical role in the growth of the insurance sector in India.