The Indian life insurance industry has had an exciting journey, characterised by continuous change and evolution over the past decade. The sector has experienced phases of growth as well as slowdown, precipitated by various macro-economic developments.

Despite being in transition, the insurance industry is poised for sustainable growth. The foreign investment ceiling on insurance, if hiked, can spur the next decade of growth, apart from leading to enhanced value creation for customers.

Privatisation of the life insurance industry led to an influx and exchange of knowledge with international players.

As a result, various product and service innovations as well as a new distribution paradigm emerged, leading to enhanced penetration. The penetration of insurance, as a percentage to GDP, has increased from under 2 per cent in 2002 to around 3 per cent in 2013.

Estimates shared by industry body Life Insurance Council indicate that this is expected to grow to 5 per cent by 2020.This is encouraging, and points to the burgeoning potential of the sector.

While the industry has made strides, it is essential to understand the challenges to sustained growth.

The new regulations have had a positive impact on the industry. All categories of life insurance products have had to be re-structured, and now they offer a more compelling proposition to customers.

By making need-based products available for meeting long-term financial goals and encouraging customers to develop a disciplined savings habit, ‘protection and savings,’ are being emphasised at every stage. This is the basic objective of life insurance.

Technology is the key Further, technology is transforming various systems and processes in the industry like never before. The industry has understood the latent potential of this medium and has started integrating technology to not only ensure higher productivity and increase efficiency but to provide a superior customer experience and convenience.

Offering products and services online is the first small but definitive step taken by the industry. This has to be enhanced by empowering and enabling distributors to benefit from technology as well.

The dematerialisation of life insurance by Insurance Regulatory Development Authority (IRDA) further substantiates the fact that technology enables customers to have better control, strengthen the know-your-customer process, make it uniform and increase convenience when it comes to policy servicing.

It will help check the problem of missing documentation that can delay claim settlement.

As a catalyst for growth, technology is likely to herald a new era of customer centric offerings in the next decade. While the favourable economic demographics of India will continue to hold a bright future for the industry, it is imperative for the industry to enhance scale and penetration while continuing to grow in a profitable and sustained manner.

As per RBI estimates, the gross financial savings in India in 2000 stood at $37 billion, of which net inflows into life insurance were $4 billion. In 2012, the figures were $176 billion and $41 billion, respectively. It is estimated that by 2020, financial savings in the country will be about $540 billion, of which net inflows into life insurance are likely to be $125 billion.

This growth will catapult the Indian life insurance industry to the top league of the global insurance market. While this is an encouraging trend, a lot more needs to be done to ensure that the benefits of life insurance percolate to a larger proportion of the population. A vast majority of the population has been virtually untouched by the benefits of insurance.

Poised for growth The life insurance industry is poised to offer tremendous opportunities for growth.India’s fundamentals in term of high savings and rising per capita income along with a favourable demographic profile augur well in the long term. With this macro-economic backdrop, the demand for financial products and services will lead to long-term calibrated growth for the industry.

This is encouraging given the rising levels of financial literacy in India. The country’s population has reposed its faith in life insurance and this can be corroborated with the fact that after the industry was opened to private players in 2000, the collective assets under management stood at $32 billion in 2001 and is around $300 billion in 2013 (source: Life Council).

A well-developed and evolved life insurance sector is essential for the nation’s economic development as it provides long term funds required for the development of core sectors. The industry mobilises savings of the middle and lower income groups and channelises these funds towards economic development.

(The writer is Executive Director, ICICI Prudential Life Insurance)

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