Search the Internet          Tips  Sites: Finance, Investment

Need to increase insurance market penetration rate: Naidu

Syed Amin Jafri in Hyderabad

The two-day CII Seventh Insurance Summit 2002 opened in Hyderabad on Wednesday with a call to develop the Indian insurance market by increasing the penetration rate three-fold from 1.5 per cent to 5 per cent within three years.

Chief Minister N Chandrababu Naidu, who inaugurated the summit, said: "India has to go a long way, if we compared insurance business here with other countries." While the insurance premium as a percentage of GDP was just 2.32 per cent in India, it was 16.86 per cent in South Africa and 15.78 per cent in UK in the year 2000.

He noted that the per capita premium was a measly $9.9 in India, compared to $3,973.3 in Japan and $3,759.2 in the UK. India's premium per capita was thus 39 times lower than the world average of $385.4.

Pointing out that there was great inequality in the insurance sector among countries, he said the United States and Japan together accounted for 56 per cent of the total world premia while the entire African continent accounted for only one per cent share of the world market.

He said the theme of the summit "Developing the market from 1.5 per cent to five per cent penetration in 3 years" was extremely relevant given the low level of insurance penetration in India.

"India and China are considered as the most lucrative insurance markets in the world today. Despite having a population of over one billion, the population insured in India is only 70 million. Also, a vibrant insurance sector can contribute greatly to financial stability and efficient allocation of resources," he pointed out.

The chief minister observed that in the 1990s, the total assets of insurance companies were growing faster than those of banks in the developed countries. Studies also showed that while in the early stages of economic development, insurance expenditures relative to GDP are low, the importance of insurance in the national economy tends to increase rapidly with increasing per capita incomes.

Recalling how the insurance industry in India has witnessed far-reaching changes after the enactment of IRDA Act in 1999, he said 20 new insurance companies entered the market and these companies have been rapidly gaining market share.

"With new players entering the insurance sector, we have seen the induction of state of art technology and introduction of innovative insurance products," he added.

He said LIC that held the monopoly in the country's life insurance sector since 1956 was often criticised for charging premium rates that were supposed to be among the highest in the world. But now with competition leading to higher standards of service, product innovation and customer focus, insurance companies have begun selling innovative products offer features such as a trial period and flexibility in payment of premia.

Insurance was a big business in the developed countries. The world's largest life insurance company, the ING Group of Netherlands, had revenues of $83 billion last year. Allianz of Germany, the world's largest property/casualty insurance company, had revenues of $86 billion. But insurance was a risky business and it has become even more so post-9/11.

The costliest insurance losses for 2001 were caused by the terrorist attacks on World Trade Centre, Pentagon and other buildings on September 9, 2001. These losses worked out to $19 billion or the equivalent of Rs 100,000 crore. In South Asian region, when the terrorists destroyed an aircraft of Sri Lankan Air at Colombo on July 24, 2001, the insurance outgo was $398 million.

Terrorism, therefore, has suddenly increased risk in the insurance business. On Tuesday, President George W Bush signed the Terrorism Insurance Bill providing $100 billion as US government backing to insurance companies for offering terrorism coverage in their policies.

The past two years had been very difficult for the insurance industry, with many insurers facing substantial claim payments, dwindling stock valuations and shrinking profit margins, world-wide. "It is felt that economic conditions are not likely to improve in 2003 and therefore insurers will be driven to increase efficiency and productivity, reduce losses and contain costs," he pointed out.

Stating that IDRA is now located in Hyderabad, he hoped that its presence here would help in attracting and developing the insurance industry in the state. He invited insurance companies to set up their back office operations here, as also locate their regional offices in Hyderabad.

He said an International Institute for Insurance and Finance has been established in Hyderabad in collaboration with Georgia State University (USA) and Osmania University. The institute, which is first of its kind in the country, has been set up with the support of well-known experts Dr Harold Skipper and Dr Gibbons.

"We are setting up a financial district over an area of 100 acres at Manikonda on the city outskirts. This will house regulators, corporate offices, back-office operations, data recovery centres, data management centres pertaining to all segments of the financial services sector. We are hopeful that Hyderabad will emerge as a major center for the insurance industry in this part of the world," he added.

ALSO READ:
More Money Headlines

Tell us what you think of this report