Consumers have quickly adapted to online channels and increasingly prefer to transact digitally at all insurance touchpoints.
Introduction
The Indian insurance industry has experienced significant growth in recent years, with historical growth rates ranging from 12% to 15% over a five to six-year period. However, the COVID-19 pandemic has both created opportunities and risks for the industry, impacting its growth trajectory. The pandemic has highlighted the need for insurance coverage, especially in areas such as health and life insurance. At the same time, the economic impact of the pandemic has posed challenges to the industry. In this context, it is important to understand how the Indian insurance industry is responding to these challenges and adapting to the new normal.
Impact of the Pandemic on the Insurance Industry
COVID-19 has disrupted the global economy, and the insurance industry is no exception. The Indian insurance industry has also faced enormous challenges due to the pandemic, and it has led to new business strategies, prioritized investments, rethinking industry verticals and customer segments, and developing new products, services, and pricing strategies for prioritized segments. The pandemic has accelerated the trend toward automation and digitization, which was already fueled by changing demographics, customer expectations, and competitive pressures. Consumers have quickly adapted to online channels and increasingly prefer to transact digitally at all insurance touchpoints.
Opportunities Created by the Pandemic
Life insurance prices in the US remained consistent throughout the year, with only nominal changes from January to December. Insurers made strategic pricing adjustments, but the impact was minimal and mostly beneficial to consumers. In India, the life insurance penetration was 3.2% in 2021, which was almost twice the emerging market and slightly above the global average. The life insurance density stood at US$ 69 in 2021. Globally, the insurance penetration and density were 3.0% and USD 382, respectively, for the life segment. Most life insurance products sold in India are savings-linked, with just a small protection component. Hence households remain exposed to a large financing gap in the event of the premature death of a main breadwinner.
Historical Growth and Driving Factors
The domestic life insurance industry registered a growth of 12.9% for new business premium in FY 2022. Private players grew by 22.7%, while Life Insurance Corporation (LIC) grew by 7.9%. More than 29 million policies were sold in FY 2022 by all insurance players, including LIC. While LIC grabbed a market share of 63.2% of total new business premium, private players took a share of 36.8% in FY 2022. In terms of individual-rated premium, private players fared better, capturing a market share of 62.9%, while LIC held a share of 37.1% in FY 2022. The traditional products registered a growth of 10.0% in 2021-22, with gross written premium of Rs. 5.91 lakh crore, as against Rs. 5.37 lakh crore in the previous year. On the other hand, Unit-linked products (ULIPs) registered a growth of 10.2%, with an increase in premium from Rs. 90,992 crore in 2020-21 to Rs. 100,315 crore in 2021-22. The share of unit-linked products in total premium marginally increased to 14.50% in 2021-22, as against 14.48% in 2020-21.
Under-Penetration of the Sector
The individual agents continue to be the major distribution channel for individual new business. However, the contribution of individual agents to the individual new business premium decreased to 55.03% during the year 2021-22, compared to 58.14% in 2020-21. For LIC, individual agents are the dominant channel of distribution with a share of 96.26% in individual new business premium, while it was 22.90% for the private sector. The contribution of corporate agents in individual new business premium of the industry has increased to 33.94% in the year 2021-22, from 30.78% in the year 2020-21.
Future Outlook for the Indian Insurance Industry
The pandemic has created both opportunities and risks for the Indian insurance industry. The industry has historically witnessed growth between 12% to 15% over a five to six-year time horizon, primarily driven by the inherent under-penetration of the sector, as well as concerted efforts by the government and insurers to increase awareness and access to insurance. However, the pandemic has brought about significant challenges for the industry, including increased claims payouts, decreased sales due to economic uncertainty, and a shift in consumer priorities towards essential products and services.
Efforts to Boost the Insurance Industry
On the other hand, the pandemic has also presented opportunities for the Indian insurance industry to adapt and innovate, particularly in the areas of digitalization and product development. Insurers have rapidly adopted digital channels for sales and customer service, and there has been a surge in demand for health and life insurance products. Additionally, the pandemic has highlighted the importance of insurance as a risk management tool, which could potentially increase awareness and demand for insurance in the long term.
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