Insurance penetration in India grows just 1% in last one and half decade; These six charts explain why

In the past 17 years or so, the insurance sector has risen at a compounded annual growth rate (CAGR) of 16.5 percent. The total insurance premium of the industry has jumped from Rs 45,397 crore in FY2001 to Rs 6.10 lakh in FY2018, according to the data provided by the Insurance Regulatory and Development Authority of India (IRDAI).

During the period, while the life insurance sector clocked a CAGR of 16.4 percent in case of general insurance it was a tad higher at 17 percent. The total life insurance premium has gone up from Rs 34,898 crore in FY2001 to Rs 4.6 lakh crore in FY2018 whereas general insurance premium has surged from Rs 10,499 crore to Rs 1.51 lakh crore.

However, despite healthy growth, India’s share in the global insurance market was meagre 2.0 percent during 2017.  In the past 16 years, insurance penetration in India rose by mere 1 percentage point from 2.71 percent in 2001 to 3.69 percent in 2017, according to IRDAI data. However, insurance density rose by double-digit (CAGR of 12.2 percent) during the same period.

The measure of insurance penetration and density reflects the level of development of the insurance sector in a country. While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).

Insurance penetration in India grows just 1% in last one and half decade; These six charts explain why

Representational image. Reuters.

During the first decade of the insurance sector liberalisation, the sector has reported a consistent increase in insurance penetration from 2.71 percent in 2001 to 5.20 percent in 2009. Since then the level of penetration has been declining and dropped to a level of 3.30 percent in 2014.

However, it started increasing from 2015 and showing an increasing trend onwards viz. in 2015 (3.44 percent), in 2016 (3.49 percent) and in 2017 (3.69 percent).

The life insurance penetration had gone up from 2.15 percent in 2001 to 4.60 percent in 2009. Since then, it has exhibited a declining trend up to the year 2014. There was a slight increase in 2015 reaching 2.72 percent, then it remained the same in 2016 and increased to 2.76 in the year 2017. The penetration of non-life insurance sector in the country has gone up from 0.56 percent in 2001 to 0.93 percent in 2017(0.77 percent in 2016).

The level of insurance density reached a maximum of $64.4 in the year 2010 from the level of $11.5 in 2001. However, from the year 2011 to 2016 it was hovering between $50 to $60 but in the year 2017, it has grown up to $73 ($59.7 in 2016).

The insurance density of life insurance sector had gone up from $9.1 in 2001 to reach the peak at $55.7 in 2010. Since then it has exhibited a declining trend up to the year 2013. During the year 2017, the level of life insurance density was $55.00 ($46.50 in 2016). The insurance density of non-life insurance sector has gone up from $2.4 in 2001 to $18.0 in 2017 (13.20 in 2016).

In the life insurance business, though the Life Insurance Corporation (LIC) is still a leader, its share has substantially come down from nearly 100 percent in FY2001 to 69.4 percent in FY2018. Also, in general insurance segment the private insurers account more share than the public one. In FY2018, the private sector garnered the premium of Rs 65,420 crore (47.9 percent) while public insurers got premium of Rs 53,805 crore (40 percent). Until FY2017, the public sector was dominating the general insurance sector.

Recently, Moody's Investors Service, in a report, said India's insurance and reinsurance sectors will grow strongly driven by strong economic growth and evolving regulatory regime.

It said robust GDP expansion, coupled with current low insurance penetration, should support double-digit growth for the non-life sector over the next 3-4 years.

Liberalisation of the reinsurance sector — with the admission of foreign reinsurers since 2017 and IRDAI's steps to ensure that they can compete with incumbents — will specifically benefit the non-life sector. Regulatory reforms will also improve the sector's capital strength, Moody's said.

Here are six charts that depict the performance of the insurance sector in almost two-decade:

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Updated Date: Jan 25, 2019 16:02:51 IST

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