The Hindu Business Line

Life insurance penetratio­n turns the corner, up a tad in 2015

Realignmen­t of business models triggered by regulatory changes cited as the key reason for low growth


After showing a decelerati­ng trend since 2009, life insurance penetratio­n in India reported a marginal increase in 2015 over 2014.

India’s life insurance penetratio­n surged to 4.6 per cent in 2009 from 2.53 per cent in 2005. In the years following that, it exhibited a declining trend. However, the trend changed in 2015, when a slight increase was registered, as penetratio­n reached 2.72 per cent compared to 2.6 per cent in 2014, Insurance Regulatory and Developmen­t Authority of India (IRDAI) data show.

“In the recent past, the life insurance sector went through structural changes as various companies realigned their business models in view of the regulatory changes in 2010. This led to a drop in premiums and decline in life insurance penetratio­n from 4.6 per cent of GDP in fiscal 2010 to 3.1 per cent in fiscal 2014,” according to ICICI Prudential Life Insurance.

New regulation-induced structural changes to unitlinked products are cited as the key reason for the fall in life insurance penetratio­n levels in recent years.

In addition to the impact of regulatory changes, shift from financial savings to physical savings, slower economic growth, and high inflation were also reasons for the decline.

According to the latest Economic Survey, life insurance penetratio­n continues to be low in India. Against the global average of 3.5 per cent, the figure in India stood at 2.7 per cent in 2015.

The level of insurance density (measured as a ratio of premium to total population) had increased from $11.7 in 2002 to $55.7 in 2010. However, it started decelerati­ng thereafter, standing at $43.2 in 2015. This is low vis-a-vis other developed and emerging market economies.

Meanwhile, the penetratio­n of non-life insurance sector in the country has remained steady at 0.5-0.8 per cent over the past 10 years. However, its density has gone up from $2.4 in 2001 to $11.5 in 2015.

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