The private life insurance industry is celebrating 20 years in India this year. There have been major milestones in this journey of growth, backed by a rise in per capita income, demographics and favourable policy interventions, but the biggest catalyst of transformation so far has been the covid pandemic. This has put the spotlight on changes in consumer behaviour that alter people’s approach to life insurance, the mode of selling policies by insurers and the product’s imperative overall.
From push to nudge: The life insurance sector has shown more resilience than many other industries and started witnessing month-on-month growth after the initial pandemic-induced shock. It is now clear that covid is a big inflexion point for the industry. Buying life insurance is not just about getting a tax incentive anymore, as uncertainty has heightened consumer awareness and driven them to proactively include it in their financial plan. It is therefore a small wonder that on the 20th anniversary of our existence, we have seen life insurance make a transition from being a ‘push’ to a ‘nudge’ proposition.
Pivot to purpose: Most of India’s young working population, who are employed in the unorganized sector, will need life insurance to ensure a financial safety net for their family as well as to build long-term savings. Life insurance companies, on their part, would need to rise to the occasion and customize products for this section. In crises, what people need is support, stability and reliability. Since life insurance claims are really the moment of truth in this business, many insurers pivoted to their purpose of serving customers and standing behind them and their families in their hour of need. Companies made sure that claims were settled quickly and in a hassle-free manner.
Physical to virtual handshake: While covid catalysed greater technology adoption, some leading players had already moved down the digital transformation path, which helped them move with agility to respond to customer needs during the lockdown. Insurers with digital prowess had an advantage as transactions at both ends—customer and company—became more prevalent and preferred through digital channels and apps.
Robust technology solutions and training helped employees and distribution partners transition to working remotely, as also to serve customers in meeting their policy-buying and claim settlement needs from the safety and comfort of their homes. The life insurance industry is largely relationship-oriented and depends heavily on personal meetings to sell products, but travel restrictions and social distancing norms changed that format. And, for the first time in 20 years, the industry’s selling activity moved from a system of physical handshakes to a virtual one.
The journey: Over the last two decades, the industry’s total assets under management have increased 25 times from ₹1.5 trillion in 2000-01 to ₹37.75 trillion in 2019-20. India’s gross domestic product (GDP) in the same period grew 10 times from about ₹19.8 trillion in 2000-01 to ₹203.4 trillion in 2019-20. Similarly, the sum assured as a proportion of GDP has grown from 50.1% in 2002 to 85% now, reflecting the market’s maturity. With this maturity, the product mix too has changed from being dependent on traditional savings products to a scenario where 18% of the market comprises linked products, with the balance being others.
The distribution mix of the industry, which has seen three initial public offers, has also evolved with over 50% of its business now coming from bancassurance, corporate agency and broking, which was entirely agent-driven when we began. According to a Swiss Re sigma study, India is poised to be among the top 10 largest insurance markets of the world.
Future outlook: Though industry data shows a promising future, the pandemic also revealed India’s protection gap. The number of covid-related death claims is a fraction of the number of overall lives lost, highlighting the vulnerability of Indian families. Swiss Re puts the protection gap for India at $16.5 trillion.
While the industry’s new-business premium collection has grown at a compound annual growth rate (CAGR) of 10.4% from 2001-02 to 2020-21, insurance density at $58 in 2020 is just about a sixth of China’s. In addition, our internal analysis of government data shows that India’s retail-protection sum assured as a proportion of GDP is only 19%. As against this, the sum assured as a percentage of GDP in other Asian economies such as Thailand, South Korea and Malaysia is 113%, 131% and 142% respectively, pointing to India’s vast growth potential.
Assuming two different CAGRs of 20% and 25%, our analysis indicates that over the next 15 years, India’s retail-protection sum assured as a proportion of GDP should reach 75% and 145% respectively. In 2019-20, the total number of policies sold by the industry stood at about 6 million. The total number of new policies will reach around 70 million assuming a CAGR of 15% and 115 million at a CAGR of 20% over the next 15 years, which would result in a market-penetration figure of 45.6%. I see this data pointing to significant headroom for growth.
Covid improved the awareness levels of consumers and sharpened the need felt for health and life insurance. It also accelerated the adoption of digital tools, which over time could help us deepen penetration. As awareness levels of life insurance increase, I see it making a fuller transition from ‘push’ to ‘nudge’ and eventually to a ‘pull’ product (actively in demand) over the next decade.
Satyan Jambunathan is chief financial officer, ICICI Prudential Life Insurance Company
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