Indian now spends 5.4 times as much on life insurance

he 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. 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.

Pension is big business for life insurance companies

Pension has emerged as a big business for life insurance companies. Data released by the Life Insurance Council reveals that the total pension premium for the life insurance industry saw a growth of 159 per cent at Rs 22,268 crore for FY07 compared with Rs 8,568 crore in FY06. Of this, Life Insurance Corporation had a premium income of Rs 11282.58 crore from pension and group schemes. Pension fund assets grew by 20 per cent for FY07 at Rs 44,684 crore compared with Rs 37,264 crore in FY06. Pension fund assets for FY05 was Rs 12,024 crore.

Unit linked insurance plans were the favourite of insurance buyers in FY07. Data released by the Life Insurance Council for the year on year growth of Ulips and traditional business premium shows that regular premium from Ulips grew by 210 per cent for FY 07 at Rs 19,365 crore compared with Rs 6,248 crore in FY06. On the other hand, traditional regular premium business grew at a much lower rate of 36 per cent at Rs 18,512 crore in FY07 compared with Rs 13,610 crore in FY06.

Single premium unit linked plans grew by 140 per cent at Rs 22,296 crore for FY 07 compared with Rs 9,307 crore in FY06. Single premium traditional products declined 26 per cent at Rs 1,250 crore compared with Rs 1,692 crore in FY06.

The weighted received premium (WRP), which is calculated by taking into account 100 per cent regular premium in addition to 10 per cent single premium, showed that Ulips premium grew by 201 per cent at Rs 21,595 crore compared with Rs 7,179 crore in Fy 06.

The WRP for traditional policies grew by 35 per cent at Rs 18,637 crore compared to Rs 13,779 crore in FY06.

Unit-linked plans make up for 92 per cent of the single premium products.

The industry has recorded a growth of 20.5 per cent in terms of renewal premiums. The total renewal premium for FY 07 was Rs 76,502 crore compared with Rs 63,462 crore in FY06. Total number of policies in force grew by 15 per cent.

The total premium (which includes new business premium, renewal premium and pension premium) jumped 54 per cent in FY07 at Rs 1,53,000 crore compared with Rs 99,360 crore in FY06. Assets managed by life insurance companies grew by 9.2 per cent to Rs 6,00,130 crore compared to Rs 5,49,553.7 crore.

Life insurance companies investing money in equity market

The rising equity market has attracted the fancy of life insurance companies. Life insurance companies are inching their way to becoming the largest institutional investors.
Rs 150,000 crore. That’s what 16 Life insurance companies have invested in capital markets till March this year. LIC the largest life insurer contributed about 75% of this investment which comes to about Rs1, 24,000 crores. LIC has already invested Rs 17,000 crore in equities as against Rs 24,000 crore last year. Private insurers too are not lagging behind. Over the last one year, their equity portfolio has swelled immensely.


"About 2 years back we had one third of our total investments into equity today its about two thirds. Of the total money coming in about 80% is going into equity,” says Puneet Nanda, Exec VP & CIO, ICICI Prudential Life Insurance



ICICI Prudential Life Insurance doubled its equity exposure from Rs 5,900 crores last August to Rs 12,200 crores in August this year. Equity exposure of Bajaj Allianz too has more than doubled from Rs 2,150 crores last August to Rs 5,850 crores this year. SBI Life Insurance has trebled its equity investments from Rs 633 crores in August 2006 to Rs 2,600 crores in 2007.


Insurers say the increased equity exposure is driven by ULIPs, which now constitute upto 80% of their total portfolio. And with equity markets on the roll, insurers feel their equity exposure will only grow with time.

Insurance in India

Wealthier, aging Indians will help transform the country’s largely untapped life insurance market into one of the world’s fastest growing over the next five years, a global consultancy says.

Life insurance is already the most popular financial product among Indians because of the tax benefits and income protection it offers in a country where there is no social security.

But with household earnings accelerating in the fast-growing economy, the life insurance income premiums market could double from 40 billion dollars to 80 billion or even 100 billion dollars by 2012,

“All factors are in place for the Indian life insurance industry to blossom into one of the fastest-growing financial services markets in the world,”
“At the size of the market and potential the only one with similar potential is China.The next five years will be very exciting.

Key to insurers’ enthusiasm about India is its increasing affluence, aging population and low penetration of insurance coverage at a time when the market in industrialised countries is relatively saturated.

The potential in the country of 1.1 billion people can be seen from the fact the ratio of life insurance premiums to GDP, a common measure for penetration is 4.1 percent, far lower than developed market levels of 6-9 percent.

“This will change as India sees strongly accelerating household income and a more favourable demographic profile over the next two decades.Demand for pension cover is also seen raising, with 113 million Indians expected to be over 60 by 2016, a figure seen swelling to 179 million by 2026.
Just 10 to 11 percent of India’s working population is covered by formal old-age social security schemes & There are currently close to 30 public and private firms in India’s insurance market with state-owned Life Insurance Corp of India (LIC) still holding a stranglehold of over 70 percent,But private players have moved aggressively, chasing for business after being allowed to compete with LIC in 2000. And overseas insurers have raced into the market despite rules limiting foreign direct investment in domestic insurers to 26 percent
global bank HSBC Holdings signed a deal for an insurance venture with two state-run Indian banks, gaining access to over 40 million customers.HSBC will hold a 26-percent stake,the maximum allowed to overseas insurance partners, while India’s Bangalore-based Canara Bank will take 51 percent.