India's growing economy, coupled with a significant rise in the young working population, has potential for development of the life insurance sector. This is in addition to the large population that remains uninsured.
Moreover, of the insured population, a significant percentage remains under-insured. So, while premium as percentage of GDP is 4.47 per cent, sum assured as a multiple of GDP is just 0.3. It is estimated that the sector will grow at a compounded average growth rate of 15-20 per cent over the next 15-20 years.
Since the life insurance sector was opened up in 2000, it has now gone through two clear cycles - the first of very high growth (CAGR of over 12 per cent in number of new policies between 2000-10) and then one of substantive moderation (CAGR of over 9 per cent between 2010-12). Despite this, long-term growth prospects for the industry remain intact.
Guidelines for traditional and pension products, currently in the draft stage, will be standardised in the year ahead. While standard guidelines should reduce approval time, and therefore time to develop and market new products, too much standardisation can stifle innovation. Customers have varied needs and insurers should offer products that cater to the specific needs of the distinct segments.
The new Bancassurance regulations are also expected next year. These should allow for a bank to collaborate with more than one insurer. While this will allow for more choices for a customer of the bank, choices will remain limited if the number of insurers are restricted to one per state or zone as proposed in the draft regulation.
A more open architecture (utilising banking infrastructure and reach), while likely to increase distribution costs in the short term, will ultimately ensure customers have the best options and increase penetration of life insurance.
Finance budgets have always had a significant impact on the shape of the Indian industry. This time around, there is a clear need to announce measures that will help sustain momentum of growth and confidence in the economy. There is also a need for decisive legislature and clarity on reforms.
At the same time, the government will need to contain the fiscal deficit and inflation. Government spending will have to be efficient and sectors that will have a longterm impact on the economy, such as education, infrastructure and health, will have to be monitored.
All these and tax incentives for long-term protection products will fuel growth of the sector.
MD and CEO, DLF Pramerica Life Insurance