While the Indian general insurance industry has evolved significantly over the past decade or so, the insurance penetration and insurance density levels are significantly lower than the developed as well as comparable developing countries, according to a report by KPMG and Bengal National Chamber of Commerce and Industry.
The report, Insurance Industry—Road Ahead, said, the under-penetration is driven by lack of overall financial awareness, lack of understanding of general insurance products, low perceived benefits, and propensity to purchase insurance based on reactive drivers such as insistence by financers, statutory requirements, etc.
After liberalisation of the Indian insurance industry in 1999- 2000, the Indian general insurance industry has witnessed rapid growth. The industry, in terms of gross direct premium, has grown from Rs. 114.46 billion in FY02 to Rs. 579.64 billion in FY12, which corresponds to a compounded annual growth rate (CAGR) of 17.6%.
Insurance density, which is defined as the ratio of premium underwritten in a given year to the total population, has increased from $2.4 in 2001 to $10 in 2011. The growth in the general insurance industry has kept pace with the nominal GDP growth rate resulting in general insurance penetration remaining stable in the range of 0.55% to 0.75% over the last 10 years.
Economic growth, socio-economic drivers, greater market penetration, rising prices of underlying assets, increase in healthcare costs would significantly drive the growth of the general insurance industry in the medium to long term. The growth may also be supported by a focus on profitability by public as well as private sector insurers resulting in lower propensity of price wars. The general insurance sector is expected to grow at a CAGR of 16% from FY12 Rs. 579.64 billion to approximately Rs. 1.94 trillion by FY20.
While, the overall macro-economic and socio-demographic factors would enable growth across the industry, each of the industry segments would have specific growth drivers with respect to the increase in the underlying assets or risks, market penetration and potential increase in the premium rates.
The proportion of motor and health insurance businesses in the overall product mix is likely to go up further. Personal line business could be around 70% of the overall market. Among the commercial lines, proportion of fire insurance business may marginally increase further.
Profitability of a large number of players, including that of public sector players, is significantly low as of today. A number of factors like detariffication, competitive pricing etc. have contributed to the overall low profitability of the industry. Going forward, a number of drivers are likely to have considerable impact on the overall business profitability.