India’s insurance sector, a goldmine of untapped potential

The Swiss Re Group, a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer released their annual report recently. According to the insurance major, global insurance premiums grew by 3.8 per cent in real terms in 2015, amidst variations in regional growth rates. The overall performance was steady after a 3.4 per cent gain in direct insurance premiums written in 2014, and coming in an environment of just moderate (2.5 per cent) global economic growth, the latter a key driver of insurance demand. 

Things look encouraging as far as India is concerned. India was the world’s fastest-expanding large economy (+7.3 per cent) in 2015, with business and consumer sentiment improving significantly on expectations of a strong push towards economic reform and liberalization by the present government. The total insurance premiums grew strongly by 7.9 per cent in 2015, compared to a reduction of 1.2 per cent in 2014. The improved performance in this segment was aided by stronger growth in both life and non-life premiums. 

Breaking down the performance within the sector, the report said that life premiums growth witnessed a turnaround in India, growing by 7.8 per cent in 2015, compared to a contraction of 2.1 per cent in 2014. The recovery was reinforced by investment-linked products that showed strong growth through bancassurance (sale of life assurance and other products and services by banking institutions) channels. Similarly, growth in the non-life premiums segment also picked-up, rising by 8.1 per cent, compared to a growth of 2.2 per cent in 2014. The increase was led by stronger health (including personal accident (PA) and motor third party liability (MTPL) premiums. 

However, an area of concern is the level of penetration with regard to the insurance market locally. Insurance penetration in India remained at a low of 3.44 per cent in 2015 as compared to the global average of 6.23 per cent, reflecting large untapped potential. The report is optimistic that robust economic growth and policy actions and initiatives enabled by the government are expected to increase insurance penetration and will act as a catalyst for future growth of the industry. 

Kurt Karl, Chief Economist at Swiss Re, says, “Interest rates and the macroeconomic and financial market environments will continue to shape the outlook for the insurance industry. With profitability under pressure, life insurers will continue to focus on improving capital management, lowering expenses and enhancing investment yields.”