Insurance penetration and density in India and across the globe

Insurance penetration and density are two metrics, that so often used to assess the level of development of the insurance sector in a country. These metrics are normally expressed in terms of US$.

Insurance Penetration: Insurance penetration is measured as the percentage of insurance premiums to the GDP of the country.

For instance, if a country generates a total insurance premium of say, US$10 billion and that country’s GDP for the same period is US$100 billion, insurance penetration translates to 10%.

Insurance Density: Insurance density is calculated as the ratio of premiums to population (per capita premium). In other words, it is the per capita premium for the country, calculated by dividing the total insurance premium by the population of the country. It indicates how much each person in a country spends on insurance in terms of premiums.

For instance, if the population of the country in the above example is 10 million people, the insurance density (per capita premium) would be US$1000. [Calculation 10 billion/10 million i.e. 10,000,000,000/10,000,000=1000]

As of today, there are 58 insurance companies in India. 34 insurance companies are general insurance companies including ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in India.

India’s insurance density in 2021 was $91 (69$ for life and $ 22 for general) which is far below the global average of $874. Both in terms of life and general insurance density India is far behind developed economies such as the USA, Canada, advanced EMEA (Europe, Middle East, and Africa), and advanced Asia Pacific Japan, Korea, Australia, New Zealand, Singapore, and Taiwan.

In the financial year 2023, India’s insurance penetration stood at 4 percent, with the majority coming from the life insurance sector. However, inclusive growth in penetration over the last five years is a positive sign for the overall development and maturity of the insurance market in India.

In the life insurance business, India is ranked 10^th in the world. India’s share in the global life insurance market was 2.73 per cent during 2019. During the fiscal 2019-20, the Life insurance industry recorded a premium income of ₹5,72,910 crores as against ₹5,08,132 crores in the previous financial year, registering a growth of 12.75 percent. While renewal premiums accounted for 54.75 percent of the total premium received by the life insurers, new businesses contributed the remaining 45.25 percent.

In the non-life insurance business, India is ranked 15th in the world. In FY 2023 non-life insurers (comprising general insurers, standalone health insurers, and specialized insurers) recorded 16.4% growth in gross direct premiums. Driven by strong growth, the gross premium written off by non-life insurers during this period reached US$ 31 billion from 28.14 billion in FY 2021-22 and US$ 17.29 billion in FY 2023-24 (Until September 2023). India’s share in the global non-life insurance market was 0.79 per cent in 2019. Compared to the previous year, the non-life insurance premium in India increased by 7.98 per cent whereas global non-life insurance premium increased by 3.35 per cent. During the fiscal 2019-20, the gross direct premium of non-life insurers was ₹1,88,916 crores as against ₹1,69,448 crores, in the previous financial year 2018-19 registering a growth of 11.49 percent. Motor and health segments primarily helped the industry to report this growth. Global life insurance premiums collected during the above period increased by 1.18 per cent. Globally, the share of the life insurance business in total premiums was 46.34 per cent and the share of non-life insurance premiums was 53.66 per cent in 2019. However, the share of life insurance business in India was high at 74.94 per cent while the share of non-life insurance business was at 25.06 percent. (Data Source: Swiss Re sigma).

The Government of India has taken several initiatives to boost the insurance industry. The state insurance plan launched by the IRDAI is increasing awareness about insurance and making it accessible across states and in under-penetrated areas. 16 Under this program, the insurance industry will collaborate with the IRDAI and state governments to uplift insurance penetration to the last mile. Some of the government’s socially Oriented Insurance Schemes are Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) Pradhan Mantri Suraksha Bima Yojana(PMSBY) Life Cover under Pradhan Mantri Jan Dhan Yojana (PMJDY). The Union Budget 2023-24 has introduced a new tax rule for life insurance policies that will have a significant impact on policyholders, especially those who have high-premium policies. Under the new rule, any amount received from a life insurance policy with an annual premium of over INR 500,000 will be taxable. Mooted as part of an emphasis on better targeting of tax concessions and exemptions, the proposal means that income from life insurance policies with an aggregate premium of up to Rs.5 lakh will be exempt from taxation. Besides section 80D of the Income Tax Act 1961 offers tax deductions of up to Rs.25000 on health insurance premiums paid in a financial year. The Tax deduction limit increases to Rs.50000 per fiscal year for Senior Citizens aged 60 years and above. The government intends to encourage typical policyholders to take advantage of section 80 C and EEE while saving with insurance. An Income Tax deduction under section 80C up to Rs.150000 is permitted under the old tax scheme. IRDA has been taking various proactive steps for healthy growth in the insurance sector like Bima Bharosa. Notably, the Bima Bharosa policy is the refined version of the IGMS (Integrated Grievance Redressal System) launched in 2011. Notably, ‘The Ombudsman Policy’ is cited as one of the significant initiatives taken by IRDA to optimise the insurance redressal industry in the country. The primary goal of the Ombudsman policy is to settle the complaints regarding any personal lines of insurance, group insurance policies, and policies issued to sole proprietorships and micro enterprises by insurance firms, their agents, and intermediaries. The effective initiatives taken by IRDA have drastically enhanced the functioning of the insurance claims sector by facilitating cost-effective and proficient measures to resolve insurance-centric grievances.

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