Introduction:
We can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. If the same thing happens to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. From here came the concept of Insurance. Now with the growth of our civilization and with it the growing importance of trade and industrialization there has been a growing demand for insurance.
The basic human trait is to be averse to the idea of taking risk. There is always an urge to minimize the risk and take protection against possible failures. Any risk may be insured against at a premium commensurate with the risk involved. Insurance is a complex mechanism and it is consequently hard to define. However in simple terms it has two fundamental characteristics:
(a) Transferring or shifting of a risk from one individual to a group; (b) Sharing loses, on some equitable basis, by all members of the group.
India is a perfect market for Insurance:
With a population of 1.1 billion, India is a perfect market for insurance and can generate sufficient long-term funds for development of infrastructure sector. "You cannot be anything but bullish about the Indian market if you are a multinational. With 1.1 billion population, relatively young population, relatively well educated population, this is a perfect market for insurance," says MDRT President James E Rogers. Insurance is also important as it leads to capital formation. Countries with strong insurance industries should have strong infrastructure and strong capital formation. According to Rogers, “It generates long term capital to build super highways, mortgages for buildings, at the same time it protects families and businesses in case somebody dies." Since India and China are fast growing economies. So in respect to it he suggests “It would be foolish not to be interested in this part of the world, especially India, and increasing our membership because this is an economic story that is very exciting and we want to be a part of it. The country has the potential to add 40,000 members to the organization, which is an international association of professionals representing 476 companies spread over 76 nations. In terms of the financial sector, he added, India is in an excellent position to grow in exponential fashion in the short run”.
“Indian Insurance Industry Forecast (2007-2009)”, provides extensive research and objective analysis of the growing insurance industry, its product quality, and services in India. This report helps to analyze the leading-edge opportunities critical to the success of the insurance Industry in India. Detailed data and analysis helps investors, financial service providers, and global banking players to navigate through the evolving insurance market in India.
Key Findings:
(1) Taking into account the changing socio-economic demographics, rate of GDP growth, changing consumer behavior and occurrences of natural calamities at regular intervals, the Indian life insurance market is expected to reach the value of around Rs 1683 Billion in the year 2009. The market is expected to grow at a CAGR of more than 200% YOY from the year 2006.
(2) In 2006-07, pension premium contributed about 22.11% to total premium income of insurers. Interestingly, the figure in the first nine months to December 2005 was 25.22%.
(3) In the non-life segment, the established players control 65% of the market. So it is their monthly performance that determines how the market as a whole would perform.
(4) In Motor Insurance Business, Public sector covers almost 68% of the market value whereas the private sector just had 32% market share till September 2006.
(5) In Accident Insurance Business, private sector players have almost 53% market share with ICICI Lombard as the lead player. Public sector players constitute about 47% market value with New India as the leading player followed by United India.
Liberalization of the Insurance Industry
An insurance policy protects the buyer at some cost against financial loss arising from a specified risk. Different situations require different mix of risk – cost combinations. Insurance companies thereby offers scheme of different kinds. Among the emerging economies, India is one of the least insured countries but the potential for the further growth is phenomenal. The demand for insurance is likely to increase with rising per capita incomes, rising literacy rates and increase of the service sector. After the Korean and Taiwanese insurance sectors were liberalized, the Korean market has grown 3 times faster than GDP and Taiwanese market has grown at a rate of almost 4 times than that of its GDP. Further opening of sectors to private firms will foster competition, innovation and a variety of products.
Role of the IRDA:
IRDA’s primary function is to protect consumer interests. This means ensuring proper disclosure, keeping prices affordable but also insisting on some mandatory products and most importantly making sure that consumers get paid by insurers. Further ensuring the solvency of insurers is a very important function of regulatory authority. IRDA has evolved a set of operational guidelines to deal with maintaining the solvency of the insurers. Growth of insurance business entails better education and production to customers, creating better incentives for agents and intermediaries.
Conclusion:
Privatization of insurance is a now a reality towards further liberalization of the Indian economy. With the opening up of the industry after reforms, private sector operators in collaboration with their overseas partners are likely to bring in a more professional and focused approach. Hence in this millennium, Insurance Industry is likely to play an important role in changing the economic landscape of the country.
We can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. If the same thing happens to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. From here came the concept of Insurance. Now with the growth of our civilization and with it the growing importance of trade and industrialization there has been a growing demand for insurance.
The basic human trait is to be averse to the idea of taking risk. There is always an urge to minimize the risk and take protection against possible failures. Any risk may be insured against at a premium commensurate with the risk involved. Insurance is a complex mechanism and it is consequently hard to define. However in simple terms it has two fundamental characteristics:
(a) Transferring or shifting of a risk from one individual to a group; (b) Sharing loses, on some equitable basis, by all members of the group.
India is a perfect market for Insurance:
With a population of 1.1 billion, India is a perfect market for insurance and can generate sufficient long-term funds for development of infrastructure sector. "You cannot be anything but bullish about the Indian market if you are a multinational. With 1.1 billion population, relatively young population, relatively well educated population, this is a perfect market for insurance," says MDRT President James E Rogers. Insurance is also important as it leads to capital formation. Countries with strong insurance industries should have strong infrastructure and strong capital formation. According to Rogers, “It generates long term capital to build super highways, mortgages for buildings, at the same time it protects families and businesses in case somebody dies." Since India and China are fast growing economies. So in respect to it he suggests “It would be foolish not to be interested in this part of the world, especially India, and increasing our membership because this is an economic story that is very exciting and we want to be a part of it. The country has the potential to add 40,000 members to the organization, which is an international association of professionals representing 476 companies spread over 76 nations. In terms of the financial sector, he added, India is in an excellent position to grow in exponential fashion in the short run”.
“Indian Insurance Industry Forecast (2007-2009)”, provides extensive research and objective analysis of the growing insurance industry, its product quality, and services in India. This report helps to analyze the leading-edge opportunities critical to the success of the insurance Industry in India. Detailed data and analysis helps investors, financial service providers, and global banking players to navigate through the evolving insurance market in India.
Key Findings:
(1) Taking into account the changing socio-economic demographics, rate of GDP growth, changing consumer behavior and occurrences of natural calamities at regular intervals, the Indian life insurance market is expected to reach the value of around Rs 1683 Billion in the year 2009. The market is expected to grow at a CAGR of more than 200% YOY from the year 2006.
(2) In 2006-07, pension premium contributed about 22.11% to total premium income of insurers. Interestingly, the figure in the first nine months to December 2005 was 25.22%.
(3) In the non-life segment, the established players control 65% of the market. So it is their monthly performance that determines how the market as a whole would perform.
(4) In Motor Insurance Business, Public sector covers almost 68% of the market value whereas the private sector just had 32% market share till September 2006.
(5) In Accident Insurance Business, private sector players have almost 53% market share with ICICI Lombard as the lead player. Public sector players constitute about 47% market value with New India as the leading player followed by United India.
Liberalization of the Insurance Industry
An insurance policy protects the buyer at some cost against financial loss arising from a specified risk. Different situations require different mix of risk – cost combinations. Insurance companies thereby offers scheme of different kinds. Among the emerging economies, India is one of the least insured countries but the potential for the further growth is phenomenal. The demand for insurance is likely to increase with rising per capita incomes, rising literacy rates and increase of the service sector. After the Korean and Taiwanese insurance sectors were liberalized, the Korean market has grown 3 times faster than GDP and Taiwanese market has grown at a rate of almost 4 times than that of its GDP. Further opening of sectors to private firms will foster competition, innovation and a variety of products.
Role of the IRDA:
IRDA’s primary function is to protect consumer interests. This means ensuring proper disclosure, keeping prices affordable but also insisting on some mandatory products and most importantly making sure that consumers get paid by insurers. Further ensuring the solvency of insurers is a very important function of regulatory authority. IRDA has evolved a set of operational guidelines to deal with maintaining the solvency of the insurers. Growth of insurance business entails better education and production to customers, creating better incentives for agents and intermediaries.
Conclusion:
Privatization of insurance is a now a reality towards further liberalization of the Indian economy. With the opening up of the industry after reforms, private sector operators in collaboration with their overseas partners are likely to bring in a more professional and focused approach. Hence in this millennium, Insurance Industry is likely to play an important role in changing the economic landscape of the country.
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