The Hindu Business Line : Indians take to insurance spending in a big way

Growth story
The industry’s investment in the equity market stood at Rs 1,50,000 crore.
The assets under management were at Rs 6,00,130 crore as on March 31, 2007.

Our Bureau

Mumbai, Sept. 18 The average Indian now spends 5.4 times as much on life insurance as what he/she did seven years ago when the industry was yet to be opened up for private participation.

The finding came up in the course of an insurance roundtable discussion organised by the Life Insurance Council, the apex body of the life insurance companies. The life insurance premium contributions per capita has jumped from Rs 280 in 1999-2000 (pre-liberalisation) to Rs 1,510 in 2006-07.

Indians are also setting aside a greater percentage of their income on life insurance when measured as a percentage of GDP.

Contribution by way of insurance premia has shot up from 1.2 per cent to 4.1 per cent of the GDP during the same period. Interestingly, insurance penetration in the US stands at 4 per cent of the GDP. But some of the participants pointed out that India still has some distance to cover in improving penetration. The US which ranks poorly in GDP terms has a stronger social security system with the Government spending much more on the average American.

India is, however, ahead of China where insurance accounts for just 1.7 per cent of the GDP.

In other developed markets such as the UK and Japan, insurance penetration stands much higher at 13.1 per cent and 8.3 per cent of the GDP, respectively.

According to data collected by the Life Insurance Council, the life insurance industry has made a huge leap across several other parameters in the liberalised era.

The growth in insurance premium collections has spelt an opportunity for the equity market. The industry’s investment in the equity market stood at Rs 1,50,000 crore and the assets under management were at Rs 6,00,130 crore as on March 31, 2007.

Raising capital, however, remains a constraining factor for the industry since Foreign Direct Investment Regulations limit the foreign joint venture partner from increasing its stake beyond 26 per cent.

Ms Shikha Sharma, MD and CEO, ICICI Prudential Life Insurance, said that the capital requirement in India was higher than international standards and that it was a constraint on the growth of companies.

“It is matter of time before we look at options like raising capital through hybrid capital instruments or using a risk-weighted capital approach,” added Mr Deepak Satwalekar, MD and CEO, HDFC Standard Life.

At present, life insurers have to follow a blanket formula and maintain a solvency margin of 150 per cent. Solvency margin means the excess of assets an insurance company is required to maintain over its liabilities.

According to Mr S.V. Mony, Secretary-General, Life Insurance Council, the key challenge would be to manage growth as resources are stretched to the maximum. Resources would include manpower, where the supply continued to be less than the demand.