The life insurance segment is still dominated by a public sector player when the government is promoting private and foreign investment in the Indian market. The Life Insurance Corporation of India (LICI) remains the largest player in the Indian life insurance market despite having 23 private companies operating competitively in the segment. As of January 2019, the share of private players was 33.74% in the Indian life insurance market. However, each year, the consolidated share of private players is noting a prominent increase whereas the share of LICI is recording a decline.
Marking a definite improvement in FY 17, the life insurance density was at $55 while its penetration in India had gone up to 2.76%. According to various industry insiders, rising digitalisation and new product offerings are well-placed to push the growth of this segment in coming years.
Market share, profit and growth
The total market value of LICI stood at Rs 28.74 lakh crore at the end of FY 19 which was up by 8.61% as compared to the previous FY. The ‘Annual Report 2017-18’ of the Insurance Regulatory and Development Authority (IRDAI) states, “On the basis of total premium income, the market shares of LICI decreased from 71.81% in 2016-17 to 69.36% in 2017-18. The market share of private insurers has increased from 28.19% in 2016-17 to 30.64% in 2017-18. The market share of private insurers in new business premium was 30.64% in 2017-18 as compared to 28.89% in previous year. The same for LICI was 69.36% in the 2017-18 fiscal as compared to 71.11% in previous year.”
According to latest data, during FY 18, the life insurance segment as a whole reported a profit after tax (PAT) of Rs 8511.99 crore that was increased as against Rs 7727.89 crore of PAT collected in FY 17. LICI reported a PAT of Rs 2446.41 crore with an increase of 9.62% over its performance in the previous fiscal. Additionally, out of 24 life insurance companies, 19 companies reported profits in FY 18.
The public-private tussle
The life insurance segment recorded a premium income of Rs 458809.44 crore during FY 18 as against Rs 418476.62 crore in the previous FY, registering growth of 9.64%. In FY 18, private sector insurers had 19.15% growth which was 17.40% in the previous FY in their premium income. LICI, during FY 18, recorded a 5.90% growth as compared to a much higher 12.78% growth in FY 17.
According to the IRDAI, the market share of LICI fell to 69.36% based on total premium in FY 18 from 71.81% in the previous FY. The same for private companies was 30.64% in FY 18 which and was 28.89% in the previous year. Additionally, LICI’s share in the renewal premium segment also recorded a downturn in FY 18. The private insurers, on the other hand, recorded a surge in their share of renewal premium.
The latest Annual Report of IRDAI states that during FY 2018, out of total 281.97 lakh new policies, LICI issued 213.38 lakh which amounted to 75.7% of the total new policies. It was also observed that the private sector achieved a growth of 8.47% in the number of new policies issued against the previous year while LICI achieved only a growth of 5.99%. The data indicates towards the contraction of the LICI’s market.
Apurba Dutta, Associate Financial Services Manager, ICICI Prudential, told BE, “Though LICI had initiated the whole conception of life insurance in India, after the private players arrived in the market in around 2000, people started to get more aware about the sector due to higher campaign penetrations. Today people prefer private life insurers because the premium amount of LICI is about twice or thrice in maximum cases. As for example, ICICI Prudential gives coverage of `50 lakh against a premium amount of around Rs 5500. However, it will be much higher for LICI. Additionally, LICI was the only life insurer for a very long time. But with the private players gaining market trust through expedient claim settlements, the life insurance segment has opened up to competition and the market share of private players are gradually increasing.”
LICI’s record in claim settlement has been exemplary throughout its journey. However, according to the IRDAI’s recent report, while LICI could settle 98.04% claims, Max Life settled 98.26% claims in the last fiscal. It was the first time that a private player surpassed the LICI’s record in claim settlement.
Pradip Gargari, Joint Secretary, All India Insurance Employees’s Union (AIIEU) who is associated with LICI, told BE, “The volume of claim settlement by LICI is quite larger than any other private company.”
The life insurance segment has not been able to evade the economic slowdown in India and it is struggling with its expansion. Gargari said, “Whereas LICI is including around two crore new policy holders, around the same number of policy holders are leaving the ambit of life insurance for the last three years. The surrender rate of policies has also doubled in the last fiscal year. People are being unable to pay their premiums.” The Individual Annual Premium Equivalent (APE) has also dropped by 3% in September 2019.
Gargari stated, “Unlike the LICI, private life insurance companies are mainly operational in urban areas. But to fulfil the objective of nationalisation, LICI gives cross-subsidy for rural areas. In that case, after the central government imposed GST on insurance premium, it is becoming challenging for us.”
Along with new ones, existing customers play vital role in the strength of this sector. LICI arranges for special revival packages every year for those who cannot continue with their policies with the current premium amount. But industry data shows that the state-run organisation has experienced a 13% less revival in FY 19 as compared to FY 18. In case of policy surrender, these two fiscal years show a 26% difference.
How to boost
The government is trying to list LICI under the stock market. This move might give some much needed impetus to the PSU. However, AIIEU is critical of this strategy. The insurance sector gets the provision of income tax (IT) exemption under the overall 80C clause. Gargari informed BE that to boost the insurance sector, AIIEU along with other organisations have recently appealed to the government to create a separate IT clause and push for an exemption limit for insurance.
Majority of life insurer companies in India operate from semi-urban and urban towns. Only 2% offices are identified in rural areas. To encourage rural involvement in the sector, the government has initiated Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) having risk coverage of Rs 2 lakh. This move might give a much needed impetus to the insurance industry and add to its penetration. Increasing rural penetration, giving a support to LICI and creating a favourable situation for private players can, collectively, give a boost to the life insurance segment in India.