POI Notes(29/02/2024)

Present status of Indian insurance

 Today there are 34 general insurance companies and 24
life insurance companies operating in the country.
 Together with banking services, insurance services add
about 7% of the country GDP.
 Among the life insurers, life insurance corporation(LIC)
sole public sector company. There are 6 public sector
insurers in the non-life insurance segment.
Recent government efforts
 Govt of India has taken no of initiative to boost the
insurance industry.(under the union budget 2021)
 Increase FDI limit in insurance from 49% to 74%.
 Initial public offering(IPO) of LIC was implemented in
financial year 2022 as part of the consolidation in the
banking and insurance sector.
 In 2021 budget speech finance minister announced the
privatisation of one of general insurance company.
 Accordingly, general insurance business(nationalization)
amendment bill 2021 is now passed by both the houses.
The key feature is the removal of the requirement that the
central govt should hold not less than 51% of the equity
capital in a specific insurer.
 Infusion of 3000 crore into the state-owned general
insurance companies to improve the overall financial
health of the companies.
Why privatise the insurance sector
 Robust demand
 Attracted opportunities
 Policy support
 Increasing investment
India’s insurance penetration is 3.76% while insurance density
stood at 78 US dollars in financial year 2020. This indicates the
large section of the population in India is uninsured
The govt has been repeatedly infusing capital the financial
position of the public sector general insurer continues to remain
weak. Privatisation will help augments of the financial
resources.
The solvency ratio of the public sector general insurance
company is lower than the regulatory minimum 1.5, which
affects the ability of insurance firm to settle claims privatising
them will create more capital and thus improve the solvency
ratio.
Privatisation is part of govt strategic disinvestment policy.
According to the policy in strategic sector such as banking,
insurance and financial services, their will be a bare minimum
presence public sector enterprise. The remaining public sector
enterprise in strategic sector will be privatise will be merged or
closed.
The insurance sector in the country is growing at a speedy rate
of 15% to 20%. Increasing private participation would help and
hence accelerate the trend.
The covid pandemic has made people release the importance
of having adequate health coverage more no of players could
make the insurance market more competitive as would bie to
offer accessible and low-cost insurance product.
By mobilising domestic saving , insurance sector terms
accumulated capital in productive Investment this in return
facilitates long term fund for infrastructure and the sustain
growth of economy.
General insurance levels are still very low in India which
indicates that industries where a significant proportion of risk
while doing business in India. By facilitating more insurer and
insurance product companies can reduce their risk in doing
business.

Challenges of insurance sector in India

 There is a likely hood that premiums will increase as a
result of this consolidation and private insurers will
strenuously deny claims to increase their profit. Both these
developments have chilling effect on the customers
 Govt often rely on public insurance companies for
stabilising the economy. Rescue aligning financial
institutions and make investment in govt undertaking with
privatisation this possibility is lost. E.g.-In august 2018 LIC
was brought in by the govt to rescue IDBI bank ltd.
 Privatization does not address issues that have lead to
inefficiencies in public general insurance companies e.g.-
in 3 of the 4 public insurers senior position have remain
vacant
 With more foreign private entities in the market the sector
will be more exposed to global markets. This means that
in case of global economic crises like the one in 2008 the
insurance sector could be severely affected.(global
recession)
Insurance penetration- it is defined as the ratio of total
premium to GDP.
What is insurance density- Insurance density is measured as
the ratio of total premium to the total population.
What is solvency ratio- it is the ratio between the size of an
insurers capital in relation to the risk.`