Insurance Business

Why More Insurance Players Needed for 1.4 Billion Population?

The biggest challenge India has been facing is to ensure financial protection and economic stability for its huge and diversified population, with over 1.4 billion people residing in different corners of the country. Insurance plays a critical role in ensuring the mitigation of risks and the protection of livelihood.

However, the sector is under-equipped with regard to meeting the increasingly varied needs of an expanding population. Debasish Panda, Chairperson of IRDAI, recently emphasised the need for expediting the insurance ecosystem in India on many aspects, including growth in numbers among insurers and building stronger distribution channels.

In this blog, we will explore why more insurance players are required in India and how expanding the industry will promote greater accessibility, affordability, and inclusiveness.

The Current Landscape of Insurance in India

The insurance market in India, though growing at a fast pace, has significant untapped potential. There are approximately 70 insurance companies in the country, catering to its huge population. This includes both life and non-life insurers. While the growth in insurance premiums, especially in life insurance, has been impressive, the coverage gap remains alarmingly wide.

• Low Penetration Rates: Insurance penetration (premiums as a percentage of GDP) in India is estimated at around 4.2% which is lower when compared to the global average. The majority is contributed by life insurance, with the rest correspondingly accounted for by non-life insurance.
• Uneven Access: Most of the insurance products are owned within urban centres, leaving the rural and semi-urban areas underserved.
• Limited Distribution Networks: The traditional agents and brokers can’t reach out to diverse geographies and populations.

Why 70 Insurance Companies Aren’t Enough?

70 Insurance companies are not enough due to the reasons listed below:

1. Vast and diverse population:

The demographic composition in India has a diverse range of urban and rural masses, multiple income groups, and varied risk profiles. This diversity cannot be met by a ‘one-size-fits-all’ approach. The need is felt to have more and more insurance companies coming up with products tailor-made for particular needs, such as:

• Crop insurance for farmers
• Health insurance for low-income groups
• Specialised motor and home insurance for urban dwellers

2. Increasing Risk Awareness:

The increasing vulnerability to the vicissitudes of modern life, ranging from climate-related disasters to health emergencies and cybersecurity threats grows with the Indian economy’s growth. More players in the market would foster innovation and competition, leading to:

• Cheaper premiums
• A wider variety of products.
• Enhanced customer service

3. Underserved Segments:

Millions of Indians are either uninsured or underinsured, and a larger proportion of them come from rural areas. According to Panda, all new distributors, for instance, petrol pumps, seed stores, or local markets, could serve as touchpoints. Further expansion by more insurers would be required to build and manage these channels.

Role of Capital in the Expansion of Insurance Sector

Adequate capital infusion will lead to an increase in the number of insurance companies. A higher capital base ensures companies can:

• Design innovative insurance products.
• Develop strong digital and physical distribution channels.
• The Insurer shall meet the solvency requirements mandated by IRDAI.

Moreover, foreign direct investment and public-private partnerships will accelerate the growth of the industry and enable insurers to serve such a massive population effectively.

The Growth Story – A Positive Outlook

The Indian insurance industry has seen remarkable growth, in particular in life insurance, despite the considerable odds.

• In September, 2024, life insurers reported a 14% year-on-year (YoY) increase in premium collection.
• The segment has posted an impressive 19% YoY growth in premiums during the first half of FY25.

The private players have driven this momentum with a 16% YoY increase in September premiums and a 27% YoY surge in Annual Premium Equivalent in the first half of FY25.

This growth is indicative of increasing demand for insurance products. However, sustaining and expanding this trend requires more licensing of insurance providers to fill existing gaps and spur innovation.

Key Challenges Hindering Insurance Accessibility

Despite the noticeable growth in the sector, there are several challenges that need to be addressed in order to reach the goal of universal insurance coverage. Some of the challenges faced by the industry are as follows:

1. Limited Awareness:

A large share of the population in India remains ignorant about the benefits accruing from insurance. There is a dire need for programs on financial literacy that can make people understand and recognise insurance as a tool for safety against unforeseen incidents.

2. High Distribution Costs:

The traditional model of distribution relies on agents and brokers and is cost-intensive. These often fail to reach the people living in the remote areas. According to the suggestion by Panda, alternative channels can reduce cost and improve reach.

3. Complex Products:

People often interpret insurance products as complicated and cumbersome. This may be the sole perception that drives away any potential buyer. Simplification of policies and increased transparency might attract more customers.

4. Regulatory Constraints:

While IRDAI has been proactive in fostering growth, further regulatory reforms can make entry easier for new players and expansion easy for existing players.

Recommendations to Scale Up the Insurance Ecosystem

It is desirable to adopt a multi-pronged approach to meet the needs of 1.4 billion people in India:

1. Encouraging New Entrants:

• Encouraging Domestic Players: Providing tax benefits or subsidies to domestic companies entering the insurance sector.
• Attracting Foreign Insurers: Easing FDI norms can bring global expertise and capital. FDI through automatic route works in the insurance ecosystem.

2. Diversification of Distribution Networks:

• Expansion into petrol pumps, seed stores, and mandis is advised by Panda.
• Facing the challenge of leveraging digital platforms and mobile applications to reach urban techno-savvy customers and remote rural populations.

3. Leveraging Technology:

• Telematics: This is utilised for insurance on motors, it may provide dynamic pricing based on the driving behaviour.
• Blockchain: This improves transparency while reducing fraud.

4. Promoting Public Awareness:

The creation of massive awareness is needed to make insurance relevant and within the reach of all. Schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY) have shown that government-backed initiatives can drive awareness, but private players need to step up.

With the emergence of insurance marketing firms and corporate agencies, the insurance industry seems to be full of untapped potential.

To Wrap Up

There is a need for more insurance players in the country. A population base of 1.4 billion can at no rate be provided adequately on account of risk premiums by the infrastructure currently in place. Competition also helps in overcoming some of the shortcomings of the sector like innovation and distribution networks in serving the population.

Our IRDAI vision is about making the insurance ecosystem more inclusive, which does indeed fit into the larger objectives of financial inclusion and economic resilience for India. For this policymakers, industry stakeholders, and new entrants shall have to come together to build an insurance industry that caters to the needs of every Indian whether they are from urban or rural and rich or poor.

Expanding this sector is not just about numbers but about ensuring every Indian has access to the finance safety net that they deserve. To dominate the insurance industry and for consulting support, visit https://enterslice.com/.

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