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Life insurance and Pension Schemes is an emerging and fast growing market in the Indian economy. Currently, it is still in its naive stages where the market penetration is relatively low as compared to other Asian countries.
In this report we look into the current status of the Life Insurance Business in India and its further growth prospects.
Origins of insurance in India can be traced down to the Vedas. For e.g. the name of Life Insurance Corporation of India's headquarters name yogakshema is derived from the Rig-Veda. The term suggests that a form of 'community insurance' was prevalent around 1000 BC and was practiced by the Aryans.
In the mid 1950's around 170 insurance companies and 80 provident fund societies operated in India. Due to difficulties in management, irregularities, scams the Government of India decided to nationalise all these companies and the parliament of India passed the Life Insurance Corporation Act on 19th June 1956.The Life Insurance Corporation of India was formed on 1st September 1956(http://www.licindia.in/history.htm).
Since then it held maximum market share of the life insurance business in India.
Along with the growth of economy there was a need to privatise insurance sector. Finally, in the year 2000- 2001 Insurance Regulatory and Development Authority (IRDA) issued licenses to new entrants thus opening up the life insurance sector of India to private companies. Currently, there are 23 life insurance companies operating in India where almost all of them having collaboration with another foreign insurance company.
The foreign companies having a joint venture with the Indian insurance company have a 26 % cap on their equity stakes. However, this cap is expected to rise up to 49 % (http://www.india-server.com/news/fdi-in-insurance-to-be-raised-to-49-per-4469.html). Currently, all the insurance companies work according to the guidelines set up by the IRDA.
India is already a $1 trillion economy where the life insurance business is growing manifolds however the penetration is still low. Currently , life insurance premium in India is about 4 per cent. Only 26 percent of the rural population and 60 percent of the urban population is insured. This shows that a large number of the population does not have any insurance or pension cover and there is a huge opportunity for premium expansion (http://www.rediff.com/money/2009/nov/16india-to-be-2-trillion-dollar-HYPERLINK "http://www.rediff.com/money/2009/nov/16india-to-be-2-trillion-dollar-economy-by-2014-15.htm"economy-by-2014-15.htm). Health Insurance is also very less. Insurance provides financial security in adverse situations and also reduces government liabilities towards the social welfare. Privatisation has brought better quality products suitable to the customer's requirements and has also provided a combination of insurance and investment.
RESEARCH QUESTION -
Are there any growth prospects of the insurance sector in India?
What methods can be implemented to increase the insurance business in India?
MAIN OBJECTIVES OF THE STUDY-
To study and understand the existing situation of the insurance and pension market in India.
To understand the difficulties faced by the insurance companies in increasing the market penetration, awareness of insurance and give suggestions on it.
To predict the future growth prospects of the insurance and pension business in an emerging country like India.
Current scenario of insurance sector in India:
The primary purpose of having Life Insurance is to cover the financial loss caused by person's death .Although death in a person's life is certain, the time and circumstances are uncertain. So, it can be said that life is full of uncertainties. Insurance gives peace of mind to the holder as he is aware that his dependents will have financial support even after he dies.
India is a country with a GDP of 7.20 percent annual rate (http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=INR) where still a large chunk of population remains uninsured mostly the rural part of the country. People in villages live in poverty, unhygienic, high-risk conditions and less medical facilities. Their per capita income as well as consumption is low and they are more prone to diseases as compared to the urban population.
In the urban part there is an increase in life expectancy, decrease in child mortality rate, inflation, increase in literacy rate and increase in job opportunity. Due to this a large number of people belongs to the working category and most of them are uninsured.
The younger age group tend to undertake tend to be more risk prone. Insurance can provide them protection, investments and retirement benefits. Rise in life expectancy is also creating more requirements of pension plans.
There is also an increase in the uncertainties/volatilities faced in life e.g. loss of life in terrorist attacks. The importance of life insurance was felt following the terrorist attacks in Mumbai (Nov 2008).
In a fast growing economy like India the standard of living is also rising. This means that the assets owned by people are increasing and so is the value of a persons life. Insurance becomes necessary in such conditions. The difference between developed countries and developing countries is that insurance is bought in developed countries but it is sold in developing countries. A large amount of Indian market still remains untapped and with this current economic growth rate India is fast moving towards developed nation's category where insurance will become almost a necessity of life.
Insurance companies believe that if the equity stakes of their foreign partners are increased up to 49 % then they would have more capital to set up new infrastructure, technology, expertise and other modern facilities in rural India. This would help in increasing the insurance business in rural India.
A well-developed insurance industry is required for the steady economic growth of a country as it develops the risk taking abilities of companies and enterprises. The union budget 2010 indicates that all the insurance companies will remain in the public sector. Government of India will support the growth of the insurance industry, help to maintain competitive environment and will also support capital infusion (http://finance.indiainfo.com/article/0907061908_budget_highlights/391767.html)
A large part of the population remains uninsured and without pension covers. With the government stopping to provide pension to its employees, high population working in the private sector, the increase in life expectancy in India, inflation more and more population will have no pension cover as well as insurance cover. Awareness about the need of insurance is very low in rural India. A large part of population can not afford to pay the high premiums.
In this project I intend to have a thorough understanding of the facts and the present situation of the Insurance industry in India. I will make a detailed study of the difficulties faced by the insurance companies in increasing their market penetration and suggest on it. My research would be generic and I would like to assess the future growth prospects of insurance and pension plans in India. For this, I would be making a thorough examination of the secondary data, make a questionnaire on the following parameters and try to find out the possible effect on the insurance business in India if any changes are made in these parameters-
Whether a majority of the Indian population feels the need of life insurance or pension cover?
The current costing of the insurance products, affordability and do they cater the needs of the consumer?
Should the Insurance Companies take initiatives such as increasing the consumer awareness about the importance of insurance?
Will the increase the financial literacy of people affect the insurance business in a positive way? What methods can be adopted to increase the literacy?
Will introducing more cost-risk combined, flexible and transparent insurance products which offer investment as well as insurance options be more suitable to the needs of the Indian consumers?
Promotion of life insurance and pension plans as an important investment and protection tool rather than a tax saving tool.
Consumers view if any add-on benefits or incentives are provided to individuals investing in insurance on a long term perspective.
Their experience about the after sales service from the private insurance companies as well as LIC because LIC has been a dominant player for all these years.
Would consumers prefer to buy insurance products through trained insurance agents, sales persons from the company, banks and internet?
Would changes in the commission structure of the insurance agents make any effect on the insurance business? This will be in reference to the wrong sales tactics used by some insurance agents in order to gain more commission.
Insurance is a business where consumers trust on the company is a very important factor. Does a tedious claim settlement process of the insurance company or any litigation (if involved) discourage people from buying insurance products in future?
Consumers view about the current tax exemption limits on insurance products.