Insurance business in India has its roots 150 years deep with establishment of Oriental Life Insurance Company in Kolkata in 1818. LIC was established in 1956 whereas General Insurance Corporation was established in 1971 and commenced its business in 1971.
There are basically two types of insurance in India. One is life insurance and other is general insurance or non life insurance. Insurance not covered in both of these categories are covered under Miscellaneous Insurance. As on date, there are almost 24 players in Life insurance sector in addition to LIC of India. Some of the major players are HDFC Life Insurance, ICICI Prudential Life Insurance Company, SBI Life Insurance Company, and Baja Allianz Life Insurance Company etc. Some of the major General insurance companies in India are Reliance General Insurance Company Ltd, SBI General Insurance Company Ltd., New India Assurance Company Ltd., Bajaj Allianz General Insurance Company Ltd & ICICI Lombard General Insurance Company Ltd etc.
Unlike earlier, now a day’s insurance is not only a tool for risk coverage but it is also seen as an investment option. As per IRDAI report, penetration of life insurance in India was 2.15% in 2001 and reached to 4.6% in 2009. Penetration from 2009 onward shows a declined trend up to 2014-15 and then after showed a flat trend of meager penetration of around 2.7% till year 2016-17. General insurance penetration in India is even more pathetic and consistently below 1%.
The picture is a little brighter when we see in terms of the absolute new business premium which increased from Rs.9707.40 crore in year 2000-01 to Rs.19.41 trillion in year 2017-18. However, the rate of growth remained an area of concern. Overall insurance penetration as a percentage of GDP in India was just 3.71 % in year 2019. Hence, the overall picture of insurance sector in India till now, shows a great untapped potential of insurance business in India. Section 80C remained a great booster to invest in insurance till now and has helped in growth in this sector but now awareness for insurance is increasing day by days and it is growing beyond the limited purpose of income tax exemptions. Increasing use of digital platform has also helped in pushing the awareness and demand of insurance product. However, capital requirement has remained a great concern in the sector to meet Solvency margin for risk taking and also to meet the capital required for various infrastructure as well as for adopting new technology for new product development.
FDI IN INSURANCE SECTOR
Foreign Direct Investment (FDI) in insurance sector has always been a debatable topic. The main driving force behind allowing FDI in insurance sector is to open the business for private players to enhance penetration of insurance. Doors for private companies were opened in year 2000 with FDI limit of 26% which was later on in year 2014, increased to 49% with certain restrictions in ownership and management control by Indian Companies only. It was because of the restrictions in terms of the ownership and management control, which probably could not attract foreign investment in insurance sector despite raising the limit up to 49%.
What is there for insurance sector in Budget 2021?
Budget 2021 has promised a greater future for insurance sector in India. Finance minister has announced for increasing FDI limit from 49% to 74% with opening the door for foreign ownership and control with safeguards. So, the budget 2021 has created a hope for greater inflows of foreign investment which can bring in radical changes in insurance sector in India.
There are huge advantages of the move, some of which can be listed as per below:
- It will give sufficient access to growth capital
- It will increase Solvency margin for risk taking.
- It will help in pushing the Insurance coverage in life insurance and General Insurance in the country.
- It will give a much needed push to wide and innovative insurance products and services in India.
- It will break the monopoly of a few companies and help in creating a better competitive market.
- It will bring opportunity of better foreign technology, expertise and services in India.
- It will lead to a greater penetration of insurance services in India.
Last but not least, it will create greater opportunities of employment generation, which is a burning need of India. However, there is always other side of the coin which can’t be ignored. Some of these can be summarized as under:
- It will lead to a lesser control of the government over the working of such organizations.
- It will bring in a threat for the household organizations to get taken over by the foreign organizations.
- It may lead to outflow of the fund from India to the abroad if the fund is not reinvested in India.
- It may lead to increased cost of insurance as the government would have a no say therein.
Insurance sector is one of the sectors, wherein a consumer invests for a longer term extending up to as long as 30 years. Hence, it has a great potential to give a long term boost to the economy of a nation. It is growing today at the rate of 15 to 20% and contributes almost 7% of the GDP of India along with the banking sector and appears to be at the point of break out towards a great upward journey. Let us hope that revised norms for FDI will act as a much required booster to insurance sector in India to enter into a new golden era.
Deepak Parmar
AGM & Director, SBILD Bhavnagar.
(Author of the Book “Heart Beat is Chargeable Now”)
