Experience of Deregulation of Insurance Sector in India Sriram Taranikanti, Executive Director

Experience of Deregulation of Insurance
Sector in India
BY
Sriram Taranikanti, Executive Director
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
17th April, 2013
1
FRAMEWORK OF PRESENTATION
 Evolution of Indian Insurance Market
 Regulatory Architecture
 India Insurance Industry Status
 Gains of liberalization
 Issues in liberalization
 Regulatory Measures
2
EVOLUTION OF INDIAN
INSURANCE MARKET
NEED FOR REGULATORY
INTERVENTION
-Level playing field
-Consumer Protection
-Public Private
Partnership
Free
Market
Regulated
Market
IRDA Act, 1999
-contribution to
development of market
-untapped market
potential high
-absence of consumer
choice
-poor customer service
- No Regulations
- Plagued by
fraud
Insurance Act, 1938
Nationalised
Market
Regulated
Market
LIC Act, 1956
GIBNA, 1972
- Urban centric
-Planned Economy
--Optimum utilization
of resources
EVOLUTION OF INSURANCE IN INDIA
Life Insurance Companies Act of 1912
Provident Fund Act of 1912
Insurance Act of 1938 and amendments
Nationalization of Life Insurance - 1955
Life Insurance Act of 1956
Social Controls on General Insurance - 1968
General Insurance Business Nationalization Act of
1972
ECONOMIC REFORMS PROCESS
Insurance
Reforms
Financial
Sector
Reforms
Economic
Reforms
Reform process initiated in 1991
Abolition of Licensing, Permits & Quotas in
Industrial Sector
Financial Sector Reforms
Banking Sector Reforms
Freeing of interest rates by the Central Bank
Rationalization of priority sector lendings &
lowering of directed credit
Capital Market Sector Reforms
Abolition of Controller of Capital Issues and
Establishment of Securities and Exchange Board of
India in 1992
Issuance of regulations for mutual funds,
portfolio managers, registrars, merchant bankers,
depository and participants, etc
Insurance Sector Reforms
INSURANCE SECTOR REFORMS
Committee on Reforms in Insurance sector – 1994
Setting-up of Interim Insurance Regulatory Authority – May
1996
IRDA Act Passed – December 1999
Statutory Authority (IRDA) established – 19th April 2000
First set of Regulations notified – 19th July, 2000
First set of Certificate of Registration (Licenses) granted – 23rd
October 2000
 38 number of Regulations issued by IRDA
REGULATORY ARCHITECTURE
8
COMPOSITION OF AUTHORITY
• IRDA Act states that the Authority shall consist of the
following members
– Chairperson
– not more than five whole-time members
– not more than four part-time members
• Presently the Authority has a complement of following
members
– Chairman
– Three full-time members (Life, Non life, Finance & Investment)
– Four part-time members
• Organized in 14 departments
• 208 positions of which 150 are filled
INDIA INSURANCE INDUSTRY
10
Road travelled
2000
2012
No. of Insurers
6
52
No. of Offices
5,429
18,217
No. of Policies (in millions)
124.5
408.4
No. of Employees (in millions)
0.21
0.34
No. of Agents (in millions)
0.76
2.72
Total Annual Premium (in US$ billions)
7.5
67.8
Paid-up Capital (in US$ mns)
109.0
6,551.6
FDI (in US$ mns)
0.0
1,529.8
Investment (in US$ billions)
43.6
316.2
US$ 11.5
Insurance Density (Per Capita Premium)
2.32
4.10
US$ 59.0
11
FOREIGN DIRECT INVESTMENT
As on 31-03-2012 (in US$ mns)
FDI
Indian Promoter
Total
Life Insurers
1264.8
3701.6
4966.4
-
20
20
1264.8
3721.6
4986.4
264.8
884.4
1149.2
-
110
110
264.8
994.4
1259.2
ECGC
-
180
180
AIC
-
40
40
GIC
-
86
86
1529.6
5022
6551.6
Private
LIC
Total (Life industry)
Non life Insurers
Private
Public sector
Total (Non-life industry)
Grand Total Insurance
Industry
12
LIFE INSURANCE
13
1st YEAR PREMIUM - LIC & PVT. SECTOR (LIFE INSURERS)
in US$ million
Life Cos
2001-02
2011-12
PVT
54
6,544
(54.7%)
MKT Share
1%
29%
LIC
3,918
16,303
(13.8%)
MKT Share
99%
71%
Total
3,972
22,847
(17.2%)
Figures in bracket represent CAGR
14
TOTAL PREMIUM – LIFE INSURERS
in US $ millions
20 01-02
2011-12
Details
PVT
LIC
PVT
LIC
FYP
54
3,918
6,544
16,303
Renewal
0
6,047
10,125
24,258
Total
54
9,964
16,668
40,561
15
AVERAGE GROWTH OF TOTAL PREM – PRE & POST LIBERALIZATION
in US$ millions
Life Insurers
1996-97
2000-01
2001-02
2011-12
Private Sector
-
1
54
16,668
Public Sector
3,255
6,978
9,964
40,561
Grand Total
3,255
6,980
10,019
57,229
Av. growth
16.5%
17.2%
16
LIFE INSURANCE - TRENDS
 Growth of Life Insurance industry has been exceptional as compared to
other segments of the financial sector in India for (2004-12)
 Life Insurance penetration has increased from 1.77% in 2000 to 3.40%
in 2011 and density from USD 7.60 in 2000 to USD 49 in 2011
 The equity capital in life insurance industry stands at US$ 4.98 bns
 Life insurance industry is a significant investor in capital market
 Insurance Industry continues to mop retail household savings, which in
turn contribute to Capital Market
17
GENERAL INSURANCE
18
GROSS WRITTEN PREMIUM – GENERAL INSURERS
in US$ millions
General Insurers
2001-02
2011-12
PVT Sector
94
4,846
(43.3%)
4%
41.5%
2,383
6,825
(10%)
96 %
48.5%
2,477
11,671
(15.1%)
Mkt Share
PSU
Mkt Share
Total
Note: Figures in brackets represents CAGR
19
AV GROWTH OF TOTAL PREM – PRE & POST LIBERALIZATION
in US$ millions
General Insurers
1996-97
2000-01
2001-02
2011-12
Private Sector
-
1
94
4,846
Public Sector
1,469
1,960
2,383
6,825
Grand Total
1,469
1,961
2,477
11,671
Av. Growth
5.9%
15.1%
20
GENERAL INSURANCE - TRENDS
 Sustained Underwriting Losses – comfort of cross subsidy between
business segments no more available
 Unsustainable dependence on Investment Incomes
 High fixed Cost – a matter of concern due to high and increasing
expenses & commissions
 Strain on Profitability Position
 Deficit in 3rd Party Motor Pool. Creation of declined risk pool.
GAINS AND ISSUES OF
LIBERALIZATION
TRENDS IN LIFE INSURANCE
Year
GDP at Market
Prices
Rate of
GDS ^^
Total
Insurance
Premium
(Life)
Million USD
%
Million USD
Penetration Proportion of
of Life
Life Insurance
Insurance
in Savings
1956-57
52560
11.9
139
(%)
0.26
(%)
1972-73
72246
14.3
516.2
0.71
5.01
1991-92
288567
21.5
2836
0.98
4.56
2000-01
467804
23.7
7766
1.66
6.99
2010-11
1727111
32.3
63948
4.40
11.46
2.23
^^ Handbook of Statistics on Indian Economy, RBI.
Source for data on Insurance Premium
1956-57, 1972-73, & 1991-92: Tapan Sinha paper.
the exchange rate for 1956-57 has been assumed as 2.5
exchange rate for the remaining years: Handbook of Statistics on Indian Economy, RBI
23
Penetration of Life Insurance
Proportion of Life Insurance in Savings
14
12
10
PER CENT
8
6
4
2
0
1956-57
1972-73
1991-92
YEAR
2000-01
2010-11
TREND IN NON-LIFE INSURANCE
Year
GDP at Market
Prices
Gross Direct
Premium (NL)
Million USD
Million USD
Penetration of
Non Life
Insurance
1991-92
288567
1542.67
0.53
2000-01
467804
2750*
0.59
2010-11
1727111
9951.21
0.58
^^ Handbook of Statistics on Indian Economy, RBI.
Source for data on Insurance Premium
1956-57, 1972-73, & 1991-92: Tapan Sinha paper.
the exchange rate for 1956-57 has been assumed as 2.5
exchange rate for the remaining years: Handbook of Statistics on Indian Economy, RBI
* is the premium figure of 2001-02
Penetration of Non Life Insurance
0.7
0.6
PER CENT
0.5
0.4
0.3
0.2
0.1
0
1991-92
2000-01
YEAR
2010-11
GAINS OF LIBERALIZATION
 Flow of Foreign Direct Investment in India
 Growth of insurance business
 Competition for benefit of consumer
 Multiple distribution channels for wider reach
 Variety of new innovative products to meet customer needs
 Significant improvements in policyholder servicing
 Wider rural reach and financial inclusion
 Increasing use of technology to increase efficiency and productivity
 Significant flow of funds to infrastructure sector
 Imparting of new management skills and capabilities
ISSUES IN LIBERALIZATION
 Market misconduct and mi-selling adversely affecting image of the industry
 Margins under pressure due to excessive competition amongst market players
 Loss making motor third party premium rates
 ULIPs/ Non Standard Product Issues
 Challenges in distribution of insurance products in a cost-effective manner
 Clamour for profitable geographies
 Availability of reliable and accurate data
 Capacity building and need for skill up-gradation
 Supervisory challenges in Regulation
 Challenges in group wide supervision
REGULATORY MEASURES
REGULATORY MEASURES
•
•
•
•
•
•
•
•
•
•
Increasing the Insurance awareness among the customers
Financial Literacy measures
New guidelines for better product design
Close supervision on underwriting design
Bancassurance Regulations
Fraud Analytics/Establishment of Insurance Information Bureau (IIB)
Automation of regulatory processes
Rural and Social Sector Regulations
Supervision of Financial Conglomerates
Exposure to supervisory staff and periodic meetings with insurers/
stakeholders
• Off-site and on-site supervision
Current Focus Areas
•
•
•
•
•
Insurance Penetration
Reach to Rural and Remote Areas
Insurance Education
Consumer Education and Protection
IT initiatives – Insurance Repositories, ETASS,
Analytics etc.
• Convergence with other Financial Sectors
31
THANK YOU
32