17

The insurance sector, particularly the general insurance (GI) sector, popularly called the non-life insurance sector has not been on a rising trajectory in India. There are mainly two broad categories in the insurance sector. One is the life insurance segment and the other is the GI segment. The GI covers areas like health, motor, property, and liability.

Indians buy a small amount of GI as compared to not only developed countries but also to many developing countries of the world. An IMF report pointed out about a year ago that Indians buy about `750 of GI per person per year as compared to over `6,500 in Russia, China or Brazil. But the picture is grimmer if one considers insurance premium as a portion of GDP. In India, it is 0.7% as compared to the world average of 2.8%.

PSU GI companies control a very big market but they are in crisis

There are four public sector companies in the Indian GI segment. These are National Insurance, Oriental Insurance, United India Insurance and New India Assurance. A few days ago, the Ministry of Finance, Government of India had asked the PSU GI companies to rationalise branches and cut down avoidable expenditure. This was done with a view to improve the financial health of the concerned companies. Earlier, the government decided to merge the first three PSUs mentioned above. But last January, the Indian government declared that there would not be any immediate merger plan for these units. It was decided that the financial health of each of the companies needed to improve before the merger could happen. The government approved `12,450 crore as a financial infusion plan to improve the regulatory parameters of the companies. The financial infusion plan was not fully based on budgetary allocations. The government also approved raising authorised share capital for the three companies. National Insurance was approved to raise `7,500 crore and United India Insurance Company and Oriental Insurance Company were each allowed to raise `5,000 crore. But in the 2019-20 budget, the government infused only a portion of the targeted amount and in the 2020-21 budget, the government had a provision of `6,950 as infusion to the three companies.

Covid impact on GI

In the Covid phase, India is one of the worst financially hit economies of the world. The insurance sector has also been highly affected. IIFL Securities sources reported (November 9, 2020) that the outbreak has decreased the global insurance index by 22.6% leading to a decline in share prices by 25.9%. PricewaterhouseCoopers, the second largest professional service company of the world, reportedly stated in one of its recent reports that in the two productive months for the insurance industry - March for life insurance and April for non-life - corporate renewals have been hit by around 30% and 15% respectively. The penetration of general insurance is heavily dependent on the performance of the industrial sector and growth of personal business and the lockdown has been a bad phase for the GI segment. It is expected that recovery would come in 2022 when the global economy is expected to stabilise.  

At present, the government has taken big steps to ensure health insurance for the common people. Initiatives like Ayushman Bharat which aims to cover the poor and vulnerable sections are inadequate. The gap should be filled by private insurance. But it is reported that out of the insurable population, only 18% of the urban population and 14% of the rural population have been covered till now.

Automobile insurance covers about 35% of the overall insurance premium collection and it was already witnessing a slowdown. This was further impacted by the lockdown. Moreover, the work from home policy has reduced the number of vehicles on the road. This has reduced the ‘kilometre driven’ of motor vehicles significantly. New innovative policies like ‘pay-as-you-drive’ may somewhat increase the premium amount but will eventually be limited. The digital disruption in the industry may affect premium collection. But it is known that the industry has been an employment generating sector as it requires one-to-one communication or face-to-face interaction. So, it is clear that the problem cannot be solved by higher computerisation. The long-term problem of the industry is that it is not easy to earn the desirable amount of premium by ‘pay-as-you-drive’ policies.   

Long-term problem of the industry

There are some existing problems that hamper buying insurance. First, various studies have noticed that many Indian buyers are not confident about insurance claims. Secondly, there is an impression that the cost of insurance is higher in India. Thirdly, distribution of insurance is known to be urban centric. In the case of PSU insurance companies, 57% of their customers are in tier 1 cities (population over 1,00,000) and surprisingly for the private sector, it is 97%. Moreover, a recent media report mentioned that brokers have 85% of their 385 corporate offices in just seven states. So, less accessibility of GI is a factor behind its low penetration. Another area is health insurance where out-patient medical expenditures - a major expenditure - are not under coverage. Insurance companies should reconsider the matter. Competitive bidding among the companies has also worsened the industry. Group health insurance is a big headache for most of the companies. In India, in many cases, there is no mandatory insurance provision. This is why insurance companies are unable to maintain positive operating profit, that is, the total collection of premiums is less than total claims. Corruption in GI has intensified the situation. Therefore, the requirement for nurturing a healthy GI sector in India is a holistic long-term policy.