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An insight into the ways of improving Insurance Penetration

The CII 13th Insurance summit focused on the issues facing the industry and debated a way forward in recasting the business models to align with growth objectives.

Bienu Vaghela

05 Oct 2010

The CII 13th insurance summit which concluded on the September 28, 2010 focused on the issues facing the industry and debated a way forward in recasting the business models to align with growth objectives. The Summit witnessed the congregation of Who's Who of the insurance industry who had come from all over India.


Mr. J. Hari Narayan, Chairman, IRDA released a CII-E&Y exclusive report, "Indian insurance Sector: Stepping Into The Next Decade Of Growth" on the occasion.


The insurance sector has grown tremendously in the past 10 years since the sector was opened up in 2000. It has a made a huge contribution to the economy in terms of bringing in FDI, generating employment and channeling of capital to capital markets and infrastructure projects. However the sector today is at an inflexion point with multitude of changes driving a rethink of the way the business

was conducted. The industry is today on the threshold of change and looking for direction to sustain the growth rate.


The Summit in its four sessions comprising of eminent panel of industry leaders and practitioners, debated on the economic and social importance of the sector and the new challenges facing the industry.


Besides recent regulatory changes which are bound to impact the growth of the industry, what are the implications and what is in store for the industry in the near future and its impact of these changes in the long-term was also discussed.

The issue of market development with regard to low penetration and the density not withstanding the market also needs to focus on financial inclusion with the additional challenge to the role of intermediaries was also touched upon in one of the sessions.


Given the recent changes in the regulatory landscape, what needs to be changed to align the future strategy with the growth objective? How will the business be re cast in the near future and where will the future growth come from were also point of discussions in one of the sessions.


The consumer should be the focus of the Indian insurance industry" said Mr. J Hari Narayan, Chairman, IRDA in his address to the distinguished gathering at the CII's 13th insurance Summit in Mumbai. 


He added, "If the insurance industry wants to increase penetration they have to

be consumer friendly and make products which will be helpful to them."

He gave the example of complex, legal language used even for simple policies. "If we make products simpler and make it easier to understand, it will automatically increase penetration." He highlighted the various ways in which regulation works, both to help consumers and insurance firms. "Primary focus of regulation is to ensure, enable and enforce the industry to make available products that are robust and fair. That is the promise to the Indian insurance consumer. Any product will be tested against the concept of fairness and robustness and only then will they be permitted into the market. This is the message that should be given to the consumer as well."


We present here the excerpts from the press conference addressed by IRDA Chairman:


On Universal life policies: Similar to ULIP guidelines, we will be putting in place guidelines for Universal Life policies. These are new products and raise different challenges, risks and regulatory concerns.


On traditional policies: They have withstood the test of the time for 40-50 years and not just in India but across the world. I do not see any fundamental weakness in the product.


On outsourcing: We are in the preliminary stage where we are mapping the various processes of different companies to see which might be far enough from the core business of insurance to permit outsourcing.


On Portability: The idea is open for discussions. Country is ready for portability. Largely it will be for health and to some extent motor.


On improving penetration: Certain plain vanilla products do not need the density of legal construct, the need is to make products simpler to understand, that will improve penetration. 


He also highlighted that from a regulators point of view the question was how to improve, widen and enable the market in India.


Mr T S Vijayan, Chairman, CII National Committee on insurance and

Pensions & Chairman - LIC stated that, "Condition in India provides

both challenges and opportunities for the insurance sector. Indian insurance is at the brink of an exciting journey. More than 70% Indians are uninsured and since more than two third of India lives in rural areas, there's a need for micro insurance to reach them."


The Indian insurance industry has progressed significantly since it was opened up for the private sector in 2000. Yet, there are many concern areas that remain and demand more attention. Mr Gerry Grimstone, Chairman - Standard Life Plc, talked about one such issue - FDI in insurance. Talking about the Insurance bill that has been in the parliament for long, he said, "The Insurance bill is not just

about raising equity of a foreign investment company from 26% to 49%

but also to allow specialized insurers to do more work in the Indian

insurance market. This will only help the insurance sector."


Praising the work of the regulator in ensuring stronger insurance companies, he said, "Strong, well capitalized companies that are listed on the stock market, provide well designed products that are fair to customer and create a flow of finances that contributes to the infrastructure of the nation. It can play a full role in the emergence of India as one of the great economic powers."


Mr. S L Mohan, Secretary General, General Insurance Council said, "If you remove the people below poverty line, there are still 600 million Indians who are uninsured. With a strong track record, robust regulatory framework and well-set infrastructure, it has the capability and financial strength to insure them all. The challenge is how to devise products which are market driven and innovative yet have an affordable price. It is also time to give equal importance to distribution and after-sales service."


Mr Ashvin Parekh, Partner, National Leader - Global Financial Services

Ernst & Young Ltd, reiterated the need for consumer focus when he said, "For years the insurance sector has been looking at grabbing the market, it's time to think of consumer needs and of servicing them satisfactorily."


From four and eight players in life and non-life insurance respectively in 2000, today India has 23 in life and 24 in non-life insurance, with the industry estimated to reach 1 trillion dollars by 2030. With 17% branches of insurance companies in the semi-urban and rural sector, it is also working on financial inclusion and by channeling domestic savings into various segments like infrastructure, it creates strong advances for the nation overall. The challenge, despite these positive indicators, remains growth was the underlying theme of the Summit.