All about Insurance

Introduction

The insurance industry is critical for any country’s economic development. A well-developed insurance sector boosts risk-taking in the economy, as it provides some security in the event of an unforeseen, loss-causing incident. It also provides much-needed support to family members in the case of loss of life or health. Since the assets under management of insurance companies represent long-term capital, they also act as a pool in which to invest in long-term projects such as infrastructure development.
The insurance industry in India has also grown along with the country’s economy. Several insurance companies in the country are expanding their operations, across both the public and private sector.

History

The history of India’s insurance industry reflects the history of India’s economy. Insurance companies in India were nationalised during pre-liberalisation. This was done to protect the interests of policyholders. Two state-owned insurance companies were thus created: the Life Insurance Corporation in 1956, and the General Insurance Corporation in 1972 for the non-life insurance business.
Post liberalization, the industry was opened up. The Insurance Regulatory and Development Authority of India (IRDAI) was created in 1999 to regulate the insurance industry in India. Thus, the insurance sector was opened to private players. This allowed foreign players to collaborate with Indian entities to enter the sector.
The number of insurance companies in India has increased quickly and continuously, and this has led to a vibrant insurance sector- with more variety and affordability for the consumer.

Present scenario

There are currently 57 insurance companies in India, of which 46 are from the private sector. There are 24 life insurance and 33 non-life insurance companies in India. The major names in the sector are:

Life insurance:

Life Insurance Corporation (LIC)
HDFC Standard Life
SBI Life Insurance
ICICI Prudential Life Insurance

Non-life insurance:

New India Assurance
United India Assurance
National Insurance Company
ICICI Lombard
Oriental Insurance Company
Bajaj Allianz

The market share of private sector players has increased over the years. In the non-life insurance sector, private companies had a market share of 54.68 % in FY 19 (as of Jan ‘19). In the life insurance sector, private companies had a market share of 33.74 % in FY 19 (as of Jan ‘19). 

Market size

The overall market for insurance is expected to be $ 280 bn by 2020.
Gross premiums in India reached $ 94.48 bn in FY 18. Of this number, the split between life insurance and non-life insurance was as follows:
    Life insurance: $ 71.1 bn
    Non-life insurance: $ 23.38 bn

Recent developments in the sector:

The last few years have seen a lot of activity in the sector. This is a testament to the vibrancy of the industry in India. Here are a few examples from different categories of deals/ developments:

Strategic deals: HDFC ERGO General Insurance Co. is in talks to acquire Apollo Munich Health Insurance (Reported valuation: $ 370 mn)

Financial investors: A consortium of private equity firms- Westbridge Capital and Madison Capital, as well as billionaire investor Rakesh Jhunjhunwala, are in discussions to acquire over 90% stake in Star Health and Allied Insurance. (Estimated deal size: $ 1 bn)

Initiatives by non-sector players: Indian e-commerce giant Flipkart has tied up with Bajaj Allianz General Insurance to provide customised insurance products for mobile phones sold on Flipkart.

New product offerings: HDFC ERGO launched a new product called E@Secure: a cyber insurance policy to protect individuals and families from cyber-attacks. 

Future outlook and Growth drivers:

The insurance industry in India is expected to register healthy, consistent growth based on the following drivers:
1.    Low insurance penetration in India: 3.69% (2017), compared to 6.3% globally (2016)
2.    Government programs to increase insurance cover: Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Ayushman Bharat etc
3.    Strong growth in the automotive industry is expected to boost motor insurance
4.    Increasing interest in buying insurance; rising internet usage has contributed to this increasing interest
5.    Innovative products like Unit Linked Insurance Plans (ULIPs) have contributed to the growth of insurance cover.
6.    New distribution channels such as bancassurance, online distribution and NBFCs are contributing to the growth in insurance cover

Government initiatives / policies

1.    Foreign Direct Investment (FDI) limit for the insurance sector increased from 26% to 49%.
2.    Life insurance companies operational for 10+ years are now allowed to go public by IRDA
3.    Government plans to divest a significant stake in PSU general insurance companies in order to execute the steep disinvestment target
4.    Several flagship schemes have been launched by the government to boost the insurance sector. 

Flagship schemes:

•    Pradhan Mantri Jan Suraksha Bima Yojana: This scheme focuses on providing affordable insurance to people below the poverty line, in rural areas
•    Pradhan Mantri Jeevan Jyoti Bima Yojana: This initiative provides life insurance for people employed in the unorganised sector
•    Atal Pension Yojana: This guarantees pension Coverage to all citizens in the unorganised sector who join the National Pension System (NPS)
•    Ayushman Bharat Yojana: Each beneficiary family will receive medical insurance cover of INR 5 lakh, which they can use to get treatment at public or private hospitals.

1. What is Insurance?

Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on happening of the insured contingency.

The contingency is the event which causes a loss. It can be the death of the policyholder or damage/destruction of the property. It’s called a contingency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by the insurer.

2. How does insurance work?

The insurer and the insured get a legal contract for the insurance, which is called the insurance policy. The insurance policy has details about the conditions and circumstances under which the insurance company will pay out the insurance amount to either the insured person or the nominees.

Insurance is a way of protecting yourself and your family from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid. The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance. This is why you get insurance for a big amount at a low price.

Any individual or company can seek insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies refuse to provide insurance to high-risk applicants.

3. What are the types of insurance available in India?

Insurance in India can be broadly divided into three categories:

Life insurance

As the name suggests, life insurance is insurance on your life. You buy life insurance to make sure your dependents are financially secured in the event of your untimely demise. Life insurance is particularly important if you are the sole breadwinner for your family or if your family is heavily reliant on your income. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of the policy.

Health insurance

Health insurance is bought to cover medical costs for expensive treatments. Different types of health insurance policies cover an array of diseases and ailments. You can buy a generic health insurance policy as well as policies for specific diseases. The premium paid towards a health insurance policy usually covers treatment, hospitalization and medication costs.

Car insurance

In today’s world, a car insurance is an important policy for every car owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners.

Education Insurance

The child education insurance is akin to a life insurance policy which has been specially designed as a saving tool. An education insurance can be a great way to provide a lump sum amount of money when your child reaches the age for higher education and gains entry into college (18 years and above). This fund can then be used to pay for your child’s higher education expenses. Under this insurance, the child is the life assured or the recipient of the funds, while the parent/legal guardian is the owner of the policy.

You can estimate the amount of money that will go into funding your children’s higher education using Education Planning Calculator.

Home insurance

We all dreaming of owning our own homes. Home insurance can help with covering loss or damage caused to your home due to accidents like fire and other natural calamities or perils. Home insurance covers other instances like lightning, earthquakes etc.

4. What are the tax benefits on insurance?

Apart from the safety and security benefits of buying insurance, there are also the income tax benefits that you can avail.

• Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving deduction under Section 80C
• Medical insurance premium of up to ₹25,000 for yourself and your family and ₹25,000 for your parents can be claimed as a tax-saving deduction under Section 80D

These claims have to be made at the time of e-filing income tax returns.

Conclusion

Be it life insurance, health insurance or general insurance, you can buy an insurance policy offline as well as online. Just like there are insurance agents who will help you buy a policy, there are websites as well that you can buy a policy from. Ensure that you have done your research before choosing and investing in an insurance policy.