Experience of Deregulation of Insurance Sector in India

Transcription

1 Experience of Deregulation of Insurance Sector in India BY Sriram Taranikanti, Executive Director INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY 17 th April,

2 FRAMEWORK OF PRESENTATION Evolution of Indian Insurance Market Regulatory Architecture India Insurance Industry Status Gains of liberalization Issues in liberalization Regulatory Measures 2

3 EVOLUTION OF INDIAN INSURANCE MARKET

4 NEED FOR REGULATORY INTERVENTION -Level playing field -Consumer Protection -Public Private Partnership Regulated Market Free Market - No Regulations - Plagued by fraud IRDA Act, 1999 Insurance Act, contribution to development of market -untapped market potential high -absence of consumer choice -poor customer service Nationalised Market LIC Act, 1956 GIBNA, 1972 Regulated Market - Urban centric -Planned Economy --Optimum utilization of resources

5 EVOLUTION OF INSURANCE IN INDIA Life Insurance Companies Act of 1912 Provident Fund Act of 1912 Insurance Act of 1938 and amendments Nationalization of Life Insurance Life Insurance Act of 1956 Social Controls on General Insurance General Insurance Business Nationalization Act of 1972

6 ECONOMIC REFORMS PROCESS Insurance Reforms Financial Sector Reforms Economic Reforms Reform process initiated in 1991 Abolition of Licensing, Permits & Quotas in Industrial Sector Financial Sector Reforms Banking Sector Reforms Freeing of interest rates by the Central Bank Rationalization of priority sector lendings & lowering of directed credit Capital Market Sector Reforms Abolition of Controller of Capital Issues and Establishment of Securities and Exchange Board of India in 1992 Issuance of regulations for mutual funds, portfolio managers, registrars, merchant bankers, depository and participants, etc Insurance Sector Reforms

7 INSURANCE SECTOR REFORMS Committee on Reforms in Insurance sector 1994 Setting-up of Interim Insurance Regulatory Authority May 1996 IRDA Act Passed December 1999 Statutory Authority (IRDA) established 19 th April 2000 First set of Regulations notified 19 th July, 2000 First set of Certificate of Registration (Licenses) granted 23 rd October number of Regulations issued by IRDA

8 REGULATORY ARCHITECTURE 8

9 COMPOSITION OF AUTHORITY IRDA Act states that the Authority shall consist of the following members Chairperson not more than five whole-time members not more than four part-time members Presently the Authority has a complement of following members Chairman Three full-time members (Life, Non life, Finance & Investment) Four part-time members Organized in 14 departments 208 positions of which 150 are filled

10 INDIA INSURANCE INDUSTRY 10

11 Road travelled No. of Insurers 6 52 No. of Offices 5,429 18,217 No. of Policies (in millions) No. of Employees (in millions) No. of Agents (in millions) Total Annual Premium (in US$ billions) Paid-up Capital (in US$ mns) ,551.6 FDI (in US$ mns) 0.0 1,529.8 Investment (in US$ billions) US$ Insurance Density (Per Capita Premium) US$

12 FOREIGN DIRECT INVESTMENT As on (in US$ mns) FDI Indian Promoter Total Life Insurers Private LIC Total (Life industry) Non life Insurers Private Public sector Total (Non-life industry) ECGC AIC GIC Grand Total Insurance Industry

13 LIFE INSURANCE 13

14 1st YEAR PREMIUM - LIC & PVT. SECTOR (LIFE INSURERS) in US$ million Life Cos PVT 54 6,544 (54.7%) MKT Share 1% 29% LIC 3,918 16,303 (13.8%) MKT Share 99% 71% Total 3,972 22,847 (17.2%) Figures in bracket represent CAGR 14

15 TOTAL PREMIUM LIFE INSURERS in US $ millions Details PVT LIC PVT LIC FYP 54 3,918 6,544 16,303 Renewal 0 6,047 10,125 24,258 Total 54 9,964 16,668 40,561 15

16 AVERAGE GROWTH OF TOTAL PREM PRE & POST LIBERALIZATION in US$ millions Life Insurers Private Sector ,668 Public Sector 3,255 6,978 9,964 40,561 Grand Total 3,255 6,980 10,019 57,229 Av. growth 16.5% 17.2% 16

17 LIFE INSURANCE - TRENDS Growth of Life Insurance industry has been exceptional as compared to other segments of the financial sector in India for ( ) Life Insurance penetration has increased from 1.77% in 2000 to 3.40% in 2011 and density from USD 7.60 in 2000 to USD 49 in 2011 The equity capital in life insurance industry stands at US$ 4.98 bns Life insurance industry is a significant investor in capital market Insurance Industry continues to mop retail household savings, which in turn contribute to Capital Market 17

18 GENERAL INSURANCE 18

19 GROSS WRITTEN PREMIUM GENERAL INSURERS in US$ millions General Insurers PVT Sector 94 4,846 (43.3%) Mkt Share 4 % 41.5% PSU 2,383 6,825 (10%) Mkt Share 96 % 48.5% Total 2,477 11,671 (15.1%) Note: Figures in brackets represents CAGR 19

20 AV GROWTH OF TOTAL PREM PRE & POST LIBERALIZATION in US$ millions General Insurers Private Sector ,846 Public Sector 1,469 1,960 2,383 6,825 Grand Total 1,469 1,961 2,477 11,671 Av. Growth 5.9% 15.1% 20

21 GENERAL INSURANCE - TRENDS Sustained Underwriting Losses comfort of cross subsidy between business segments no more available Unsustainable dependence on Investment Incomes High fixed Cost a matter of concern due to high and increasing expenses & commissions Strain on Profitability Position Deficit in 3 rd Party Motor Pool. Creation of declined risk pool.

22 GAINS AND ISSUES OF LIBERALIZATION

23 TRENDS IN LIFE INSURANCE Year GDP at Market Prices Rate of GDS ^^ Total Insurance Premium (Life) Penetration of Life Insurance Proportion of Life Insurance in Savings Million USD % Million USD (%) (%) ^^ Handbook of Statistics on Indian Economy, RBI. Source for data on Insurance Premium , , & : Tapan Sinha paper. the exchange rate for has been assumed as 2.5 exchange rate for the remaining years: Handbook of Statistics on Indian Economy, RBI 23

24 PER CENT 14 Penetration of Life Insurance Proportion of Life Insurance in Savings YEAR

25 TREND IN NON-LIFE INSURANCE Year GDP at Market Prices Gross Direct Premium (NL) Penetration of Non Life Insurance Million USD Million USD * ^^ Handbook of Statistics on Indian Economy, RBI. Source for data on Insurance Premium , , & : Tapan Sinha paper. the exchange rate for has been assumed as 2.5 exchange rate for the remaining years: Handbook of Statistics on Indian Economy, RBI * is the premium figure of

26 PER CENT Penetration of Non Life Insurance YEAR

27 GAINS OF LIBERALIZATION Flow of Foreign Direct Investment in India Growth of insurance business Competition for benefit of consumer Multiple distribution channels for wider reach Variety of new innovative products to meet customer needs Significant improvements in policyholder servicing Wider rural reach and financial inclusion Increasing use of technology to increase efficiency and productivity Significant flow of funds to infrastructure sector Imparting of new management skills and capabilities

28 ISSUES IN LIBERALIZATION Market misconduct and mi-selling adversely affecting image of the industry Margins under pressure due to excessive competition amongst market players Loss making motor third party premium rates ULIPs/ Non Standard Product Issues Challenges in distribution of insurance products in a cost-effective manner Clamour for profitable geographies Availability of reliable and accurate data Capacity building and need for skill up-gradation Supervisory challenges in Regulation Challenges in group wide supervision

29 REGULATORY MEASURES

30 REGULATORY MEASURES Increasing the Insurance awareness among the customers Financial Literacy measures New guidelines for better product design Close supervision on underwriting design Bancassurance Regulations Fraud Analytics/Establishment of Insurance Information Bureau (IIB) Automation of regulatory processes Rural and Social Sector Regulations Supervision of Financial Conglomerates Exposure to supervisory staff and periodic meetings with insurers/ stakeholders Off-site and on-site supervision

31 Current Focus Areas Insurance Penetration Reach to Rural and Remote Areas Insurance Education Consumer Education and Protection IT initiatives Insurance Repositories, ETASS, Analytics etc. Convergence with other Financial Sectors 31

32 THANK YOU 32