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The Present Situation of Insurance in India and Developments in Private Insurance in the Next Five to Ten Years

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The Present Situation of Insurance in India and Developments in Private Insurance in the Next Five to Ten Years The Geneva Papers on Risk and Insurance Vol. 25 No. 3 (July 2000) 315±334 The Present Situation of Insurance in India and Developments in Private Insurance in the Next Five to Ten Years by Praveen Guptaà 1. Introduction The last decade has been a slowly unfolding, occasionally frustrating but eventful period for the Indian insurance industry. The dominant theme throughout the 1990s was the liberalization agenda. Signi®cant milestones were ®rst, the setting up of a high powered committee to recommend future course of action. This entailed attempts to take a fresh look at the existing industry, to meet the aspirations of a dissatis®ed burgeoning clientele and to resolve the pressures of globalization. And second, the setting up of a regulatory mechanism to ful®l all the above. Having come this far, the next decade ought to represent one of the most momentous phases. If the business of insurance is allowed to be driven by market forces, it will strive to catch up with advances made by the other ®nancial services and even integrate with them and will endeavour to bring a world-class quality to this market and grow rapidly to respond to the massive potential. 2. Entrepreneurial origins Insurance in India, like any other aspect of commerce, is of entrepreneurial origin. Its history is far more longstanding than perhaps anywhere else in Asia. The Insurance Act 1938 is also the oldest surviving legislation on the subject in this part of the world. Of course, it was trade and commerce which gave birth to insurance in the pre-colonial era. The colonial years also saw the establishment of several foreign insurers. And interestingly, early last century a few insurers followed Indian traders, or the British ¯ag, overseas. In their heyday such players operated out of more than 50 countries. Even today Indian companies operate out of 31 overseas locations. The Insurance Act of 1938 still forms the legal basis governing India's nationalized insurance business. The Act's scope includes setting provisions for the licensing of insurers, prescribing capital norms, prohibiting unfair trade practices and specifying accounting requirements. However, the legal relevance of the Act has been eroded by various subsequent Acts governing the nationalization of life and non-life insurance business. Nationalization (life in 1956 and non-life in 1972) deserves most credit for the spread of networks across India and for the introduction of rural coverage. But it has had a feudalizing effect. Although the aristocracy is big business, it has been a one-way street. While big à M.A., F.I.I.I., A.C.I.I., General Manager (Business Development), Allianz AG, Bombay, India. # 2000 The International Association for the Study of Insurance Economics. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK. 316 GUPTA business has been the engine of growth, there is very little that insurers could claim in the form of innovation. Moreover, small business (personal insurance) has received little attention. Insurance largely remains a commodity that is bought. 3. The existing players: a snapshot Life Insurance Corporation of India was established in September 1956. All private life insurers (154 domestic insurers, 16 foreign insurers, 75 provident societies) were nationa- lized. The wholly state-owned Life Insurance Corporation of India (``LIC'') was established and granted a monopoly including all pensions and annuities business. LIC has a central of®ce in Mumbai, seven zonal of®ces, 100 divisional of®ces and 2,046 branch of®ces. It has 5.59 lakh active agents spread over the country. The corporation also transacts business abroad and has of®ces in Fiji, Mauritius and the U.K. LIC is associated with joint ventures abroad such as Kenindia Assurance Co. Ltd, Nairobi and Life Insurance Corporation (International) FC, Bahrain. It also entered into an agreement with SunLife (U.K.) for marketing unit-linked life insurance and pension policies in the U.K. The total new business of the corporation during 1998±1999 was Rs. 63,618 crores under 148.57 lakh policies.1 LIC's group insurance portfolio has also grown steadily with in- force business of Rs. 76,500 crores sum assured and annuities of Rs. 625 crores per annum under 84,750 group insurance and group superannuation schemes, covering 236 lakh individuals at the end of 1997±1998. In 1997±1998, LIC's total income was Rs. 30,732.60 crores consisting of premium income of Rs. 19,257.07 crores, investment income of Rs. 11,296.32 crores and other income of Rs. 184.21 crores. A Social Security Fund (``SSF'') administered by the LIC was set up in 1998±1999 to meet the insurance requirements of the weaker and vulnerable sections of the society. The non-life insurance industry was nationalized and a government company, known as General Insurance Corporation of India (``GIC'') was formed by the central government in November 1972. Thereby, the erstwhile 107 Indian and foreign insurers, which were operating in the country prior to nationalization, were grouped into four operating companies, namely: National Insurance Co. Ltd, The New India Assurance Co. Ltd, Oriental Insurance Company Ltd, and United India Insurance Company Ltd. All four subsidiaries of GIC compete with one another and underwrite various classes of general insurance business except for aviation insurance of national airlines and crop insurance, which is handled by GIC. 4. Market overview Population : 1 billion GDP growth of economy : 6±7% p.a. Insurance industry growth (in¯ation adjusted) : 7±8% p.a. Life: non-life : 70 : 30 Share of world insurance market : 0.34% Life Non-life Premium per capita (US$) : 4.90 2.10 Premium as per share of GDP : 1.3% 0.60% 1 1 lakh 100,000; 1 crore 10 million; US$; Rs. 43.65. # 2000 The International Association for the Study of Insurance Economics. THE PRESENT SITUATION OF INSURANCE IN INDIA AND DEVELOPMENTS IN PRIVATE INSURANCE 317 The network consists of 4,208 of®ces covering even remote rural areas. The number of full-time employees amounts to more than 85,000. In addition, more than 180,000 agents are involved in distributing GIC'sproducts. Besides the domestic market, the industry is presently operating in 17 countries directly through branches or agencies and in 14 countries through subsidiary and associate companies. The wholly-owned subsidiary of GIC, India Interna- tional Insurance Pte Ltd, was set up in Singapore in 1988. It has grown into a leading company in that country. The gross premium income of GIC in 1997±1998 was Rs. 7,736 crores as against Rs. 7,021 crores in 1996±1997, representing a growth of 10.2 per cent. The gross pro®ts were Rs.1,623 crores as against Rs.1,084 crores in the previous year. General Insurance Corporation of India National New India Oriental United India Insurance Co. Assurance Co. Insurance Co. Insurance Co. (Calcutta) (Mumbai) (New Delhi) (Chennai) International overview, 1996 Premium volume direct business Economic indicators Total Non-life Life GDP Population GDP/capital US$m US$m US$m US$bn m US$bn China 9,622 5,653 3,969 813 1,224 664 Hong Kong 5,432 1,856 3,576 155 63 24,564 India 6,584 1,978 4,606 357 936 381 Indonesia 2,707 1,557 1,150 227 198 1,146 Japan 5,19,590 1,12,644 4,06,946 4,556 126 36,245 Korea, Republic 62,471 15,239 47,232 485 46 10,640 Malaysia 4,632 2,561 2,071 99 21 4,694 Philippines 1,248 686 562 84 72 1,165 Singapore 4,259 1,287 2,972 93 3 30,465 Taiwan 15,827 4,833 10,994 274 21 12,829 Thailand 4,586 2,400 2,186 184 60 3,063 All 11 countries 6,35,958 1,50,694 4,86,264 7,327 2,714 2,310 United States 6,52,992 3,66,529 2,86,463 7,636 265 28,783 World 2,105,836 9,09,100 1,196,736 28,475 5,322 5,350 # 2000 The International Association for the Study of Insurance Economics. 318 GUPTA Direct premium per GDP, % Direct premiums per capita, USD Total Non-life Life Total Non-life Life China 1.20% 0.70% 0.50% 7.9 4.6 3.2 Hong Kong 3.50% 1.20% 2.30% 860.7 294.1 566.6 India 1.80% 0.60% 1.30% 7 2.1 4.9 Indonesia 1.20% 0.70% 0.50% 13.6 7.9 5.8 Japan 11.40% 2.50% 8.90% 4,133 896 3,237 Korea, Republic 12.90% 3.10% 9.70% 1,371.8 334.6 1,037.2 Malaysia 4.70% 2.60% 2.10% 219.1 121.1 97.9 Philippines 1.50% 0.80% 0.70% 17.4 9.5 7.8 Singapore 4.60% 1.40% 3.20% 1,399 422.8 976.3 Taiwan 5.80% 1.80% 4.00% 740.2 226 514.1 Thailand 2.50% 1.30% 1.20% 76.3 39.9 36.4 All 11 countries 8.90% 2.10% 6.80% 228.3 54 174.3 United States 8.60% 4.80% 3.80% 2,461 1,382 1,080 World 7.40% 3.20% 4.20% 395.7 170.2 224.9 5. Fallout of state-control Despite signi®cant autonomy in the early years of nationalization, bureaucracy eventually began to displace the entrepreneur. Two phenomena stand out. The ®rst was the creation of a risk averse hierarchy ``running''the risk business: ``Do not write business which might invite a claim''seemed to be the governing principle.
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