Indian Insurance Sector – Reasons behind its Growing Market

What is Insurance

Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premium, to pay the other party called insured a fixed amount of money on the happening of certain event.

“Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice“.

Source: Wikipedia

Read more on Advantages & Disadvantages of Life Insurance on GWI.

Future is uncertain; it is unknown what is going to happen tomorrow. Insurance is the concept of risk management. Insurance business in India can be broadly divided into two categories:

i) Life Insurance and

ii) General Insurance or Non-life insurance.

Evolution of the Insurance Industry

The growing demand for insurance around the world continues to have a positive effect on the insurance industry across all economies. The insurance industry in India has come a long way since the time when businesses were tightly regulated and concentrated in the hands of a few public sector insurers. The major market share of the insurance sector is with LIC.

Indian insurance industry is a $400 trillion industry and is one of the premium sectors showing upward growth trend. Globally, India ranks fifth in life insurance market and is growing at 32-34 percent annually.

The reforms initiated in 1991 paved the way for the growth, wherein the opening up of the financial sector led to a sustained period of economic growth. In the year 2000, the sector was opened for private players and as a result of which it saw tremendous growth over the past decade.

Importance of the Insurance in India

Sector plays a critical role in a country’s economic development:

1. Acts as a mobilizer of savings, a financial intermediary, a promoter of investment activities, etc.
2. Plays an important role in providing risk cover, investment and tax planning for individuals
3. Provides a risk cover for assets in case of non-life insurance industry
4. Health insurance and pension systems protect individuals against the hazards of life
5. Fire and liability insurance are useful for corporations as it helps safeguarding infrastructure projects and investment risks.

Reforms in the Indian Insurance Sector

The Government introduced reforms in the insurance sector in 1990s, primarily to encourage more domestic investments to increase insurance coverage and create an efficient and competitive insurance industry. In 1999 IRDA bill was passed in Parliament and further in 2000, IRDA was set up as the statutory body to regulate and register private sector insurance companies.

The effect of insurance reforms has been positive on the insurance industry. There has been positive growth in all the segments, with investments flowing in the right direction. Reforms have helped to achieve rapid growth in critical areas. Post reforms, the number of players have increased from four in life insurance and eight in general insurance in 2000, to 21 life players and 20 general insurance players, including one reinsurer, in 2008.

Read more about Life Insurance Industry in India – List of All Life Insurers (SBI, Aviva, HDFC, LIC) and Best Life Insurance Company in India.

Critical Factors for market development of Insurance Sector

The effectiveness and cost of diverse distribution strategies of different players is crucial in ensuring the success of players in the insurance business, particularly in the retail lines of business.

The insurance sector is expected to grow at a paid rate in the coming years. Thanks to the financial literacy and other services offered to individuals. Following are some of the key drivers which can help the sector grow in future:

• One of the crucial areas in the insurance sector is the adoption of new technology in the industry. E-commerce will be increasingly used in all the sectors and products will be sold on the internet more often.
• Project insurance is another area, which is increasingly gaining significant traction.
• Insurance plans for children are fast becoming popular, as they not only offer payouts that can be timed to coincide with certain milestones in a child’s life, but also financial security if the parent dies.

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