We have travelled a long distance, since insurance was nationalised in 1956. The growth in premium underwriting has witnessed a strong CAGR (compound annual growth rate) of 18.85 per cent since 2001. Insurance penetration and density has improved... The public confidence in the industry is more positive today than earlier. Asia, excluding Japan, will contribute a quarter of global growth in the next five years and within Asia, India will be the fastest growing general insurance market during this period with an average expected growth of 15 per cent.
A welcome feature is that the share of life insurance premium in the gross domestic savings with the household is about 18 per cent and is increasing over the years. There are strong underwriting growth drivers. The demand for insurance products is likely to increase due to growth of household savings and purchasing power. I wish to highlight these factors to drive home the fact that despite occasional hiccups, the future looks bright for the insurance sector.
We are all aware that the insurance sector has been contributing immensely to the infrastructure development of the country. The total investments of the PSU (public sector undertaking) insurance companies in infrastructure (as on March 31, 2012) were Rs 14.26 lakh crore, of which the Life Insurance Corporation of India (LIC) alone has invested Rs 13 lakh crore.
In life sector, LIC continues to be the leader. And, despite it being an open market, LIC has a market share of 81 per cent in terms of new business policies and 71.3 per cent in terms of new business premium during 2011-12. I congratulate LIC for being the trust factor among the people. LIC is also successfully implementing social security schemes — Aam Aadmi Bima Yojana and Janashree Bima Yojana (JBY). I would advise LIC to work out Kisaan Bima Yojana, a life insurance scheme for the farmers on the lines of JBY where the coverage can be extended up to the age of 65 or 70 years and the additional premium can be borne by the farmers covered under the scheme.
In agriculture sector, I have noted the progress in terms of coverage of farmers under agriculture insurance. However, the number of non-loanee farmers has been coming down over the years. The Agriculture Insurance Company of India Ltd (AICL) should work for ensuring not only bringing all loanee farmers under the cover, but as many non-loanee farmers as possible. I feel this is the most marginalised group requiring agriculture insurance and should be covered on priority. Reinsurance is an integral part of the insurance sector and the General Insurance Corporation of India is the sole Indian reinsurer in the country. While the loss of Rs 2,490 crore during 2011-12 is largely attributable to the natural catastrophes in Japan and Thailand, and the provisioning on account of motor pool, the larger policy issue of minimisation of exposure risk, diversification of risk and due-diligence while assessing the country-specific risk remains.
I have a few concerns in the general insurance non-life sector where the insurance market is structurally challenged in terms of profitability. India is the only country in Asia with a combined ratio of 105 and above consistently during the last five years and all the four PSU range of 136 per cent to 140 per cent during 2010-11, has come down and now is in the range of 120 per cent to 129 per cent for non-life general insurance companies.
There is a desire in general insurance PSUs to grow at a faster rate and be the market leader. The growth rate in GDPI for all four companies during last year was 21.39 per cent, with a market share of 55.76 per cent. While the emphasis on growth in premium is understandable, what is of concern is the underwriting losses that stood at a whopping Rs 6,134 crore during 2011-12. The overall profitability clearly is driven by the investment income, with continued deterioration in the core business of premium underwriting. It is understood that growth in top line cannot be at the cost of bottom line. The ministry has suggested certain welcome steps to curb the unhealthy competition in underwriting premiums and it will help restore the sustained business growth.
I complement the PSU insurance companies in reaching out to the people in far-flung areas. However, I have pointed out earlier in my zonal meetings the need to cover all the remaining un-served areas, especially district headquarters. You will agree that the per capita income has grown over the years and a large number of people in smaller towns are saving and are looking for insurance products. It is in this regard that we have decided that LIC as well as PSU general insurance companies should have a presence in all the towns, up to Tier-IV classification by the census. Such an early foothold will be advantageous, in business sense, to the PSU insurance companies also. A reorganisation of the existing loss-making branches, especially those of non-life general insurance companies, and de-congestion of branches that are concentrated in metros, can help this expansion...
We have recently initiated, as part of financial inclusion, a detailed exercise to ensure the presence of business correspondents (BCAs) in all the revenue villages with a population of 2,000 and above. It only makes business sense for insurance companies to appoint these BCAs, as insurance agents to tap the huge potential of insurance coverage in rural areas. Similarly, other mode of distribution such as bancassurance must be adopted in a big way. Of the available 80,000 bank branches, less than 7,000 are being used by PSU insurers. We need to scale up bancassurance immediately. In order to tap the growing segment of insurable population who is technology-savvy, you all must immediately take the e-governance route and ensure all your policies — both new and renewal — are available online. This will also enable them to have direct access with you and dependence on brokers will come down. And, in the process, some of your savings must be passed on to the customers through discounts. E-governance, issuance of -policies and e-payment are no longer options, but have become a necessity.
Excerpts from Finance Minister Pranab Mukherjee’s address to chairmen of PSU insurance companies in New Delhi on June 13
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