Life Insurance, as a unique asset class, will boom in next 10 years

Company Brief

Hyderabad, May 23, 2011

Life Insurance, as a unique asset class, is expected to not only boom but also out-perform during this decade. It will in fact complement and support other asset segments including equity, spurred by favorable demographic profile, high house-hold savings and expected manifold growth in economy in the next 10 years.

This upbeat sentiment and high confidence was reflected at the 4th Life Insurance CEO Round Table organized in Hyderabad today under the aegis of Life Insurance Council, the industry body of Life Insurance companies.

As per UN population division projections, India's population by 2015 will constitute of 30% individuals under age 14 and a whopping 60% in the age group of 15 to 59 years indicating a potential high-growth prospect for the Indian Life Insurance industry. Indian households also save more than those in other emerging markets such as China and Brazil. Household savings constitute 23% of India's gross domestic savings in 2009-10, as compared with 5% in Brazil and 15% in China. Thus, with favorable demographic structure, increasing incomes and financial inclusion, the Indian Life Insurance industry is set for a boom in this decade.

After opening up of insurance sector in 1999-00 the performance of Life Insurance industry has been quite encouraging. Eight Life Insurance firms have reported profits last year and many more are expected to break even in coming years.

As on 31st March 2011 the number of in-force policies stood at 32.54 crs, arguably the highest in the world. The Total Premium has also grown more than 10 times to Rs 2,86,500 crs, while the investment in infrastructure has grown five times to Rs. 1,53,750 crs as on 31st March 2011. The industry too has deployed more than Rs. 31,437 crs of capital in the same period.

As per the data released by Life Insurance Council, it is apparent that companies continue to trim cost. The number of direct employees has reduced from 2.67 lakh to 2.42 lakh y-o-y. The number of agents has also reduced by 29.78 lakh to 26.47 lakh y-o-y, with a view to professionalize agency force and to ensure informed decisions are taken at the point of sale.

Insurance being a long term contract with average tenure of 15 years, various initiatives were taken to curtail the expenses as much as possible like curtailing the maximum commission payable, lock in period increased to 5 years etc.

Despite an uncertain environment the Total Premium of life insurance industry increased by 8% as compared to Rs 2,86,500 crs last year. The New Business Premium grew 14.5% to Rs.1,25,800 cr in FY 2010-11 from Rs.1,09,894 cr in FY 2009-10. However Renewal Premium continues to remain flat with marginal increase in traditional business. It is noteworthy that in last five years (i.e. from FY 06-07 to FY 10-11) more than Rs. 2,18,061 cr of premium was collected at a commission of less than 2.0 %.

The Total Benefits paid to policy-holders in FY 2010-11 stood at Rs 1,41,806 crs, including death claims of Rs.10,270 crs.

Mr S B Mathur, Secretary General, Life Insurance Council, said: "It is a proud moment for India which was ranked 20th in the global insurance league table when the insurance industry opened to private players in 1999-00, and over past decade the Indian Insurance industry has risen to 9th position amongst 156 countries."

Lauding the achievements of the sector, Mr. Mathur said "The industry has not only strived to provide the best services to the policy holders, but have also worked towards enhancing the standard of living of the country through financial inclusion. He concluded by saying: "We are preparing for an unprecedented high-growth phase during this decade and aspiring to take life insurance to every strata of our society".

However, Mr. Mathur was apprehensive about the negative impact due to proposals in Direct Tax Code, which provided unfair treatment to pensions by Life Insurance companies. The withdrawal of tax benefits to policies less than 20 years of term was also a major dampener. This view was also echoed by CEO's of the life insurance companies present at the conference.

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