Shrinking network puts life insurance in poor health as fewer people buy it

NEW DELHI: Life insurance penetration — defined as the ratio of premium underwritten in a given year to the GDP — has dropped to 3.3% in 2015 from close to 4.6% in 2010, despite efforts by the government and the sector watchdog Insurance Regulatory and Development Authority of India (IRDAI) to boost the segment, according to government data.

Industry sources cite a sharp reduction in the number of branches besides agents and the untapped consumer segment at the bottom of the market as the main reasons for the drop.

Private life insurers had about 8,800 branches and 3 million agents in 2010. The number has dropped to less than 6,500 branches and 2 million agents.

Besides, with a well-developed financial market offering a host of investment options, life insurance products are no more the preferred savings instrument for consumers.

“Reduction in branch count for private companies and decrease in the number of overall agents are the major factors that have led to lowered penetration. We are seeing some traction in ULIP (unit-linked investment plan) sales, but with volatile markets it’s not sustainable. Democratisation of bancassurance (selling of insurance products by banking institutions) will be key for the industry’s future growth,” said Anup Rau, CEO, Reliance Life Insurance.

The sector has not shown any pick-up, despite the government increasing the foreign direct investment limit to 49% from 26% and permitting banks to operate as insurance agents.

“There has been a sharp decline instead of a pick-up as expected mainly due to lack of choices for customers, untapped segments... and not just that, there has also been some kind of dissatisfaction among the upper-middle class, which have always remained the critical customer base for life insurers, especially related to after-sales services,” Yateesh Srivastava, industry consultant and analyst, told HT.

Growth in fresh policy sales also fell after the controversial norms mandating companies to offer 4.5% returns on ULIPs were introduced.