There
is a fundamental relationship between demography and life insurance business.
India is a vast country and with its huge population around 100 crores,
is the second largest in the world. As such, in terms of population, India
has immense potential for extending life insurance cover. But to make a
realistic assessment of this potential, apart from the very important factors
like age group, income level, sex-wise distribution, literacy level, etc.,
it is necessary to consider other relevant factors like varieties of social
structure, composition of urban and rural population, etc. in various parts
of the country as also many 'invisible' factors like religious faiths and
social values.
Real assessment of the
life insurance potential of our country is also a very complex exercise
due to wide 'variance' in all aspects of Indian circumstances, and any
crude estimate for the Indian market without a carefully refined analysis
can only be misleading.
The changing economic
pattern of our country, the changing political scenario, the rapid proliferation
of information technology, the resulting changes in social values, etc.
will also, in the near future, virtually reshape the Indian financial market
and consequently the future potential of life insurance business in this
country.
In this context I would
like to make an overview indicating the influence of various factors in
the Indian context on the basis of my long experience in marketing and
administering life insurance business in various regions of the country.
Concept of Life Insurance
Potential.
Every person has unlimited
insurable interest on his own life. From this viewpoint every individual
is a prospect for life insurance. In reality, financial status effectually
limits this potential, not only because of the practical consideration
of insurable worth of a person to the insurer in financial terms but more
so owing to the prospect's capacity to pay insurance premium after meeting
other pressing needs. Then again, there are many practical factors affecting
'insurability', such as-old age, past and present illness, various physical
and mental impairments (including defective genes), etc. Apart from these
very basic aspects, at the time of assessing the real potential for life
insurance business it is important to consider the feasibility of reaching
all these prospects with available resources and also the profitability
of providing life insurance to them - in other terms, the cost and profitability
of exploiting the life insurance potential otherwise calculated.
In fact, the concept
of insurance potential has two dimensions. One dimension is the 'extension'
of coverage in terms of 'number' of prospects, the other dimension relates
to the 'intensity' of coverage, i.e., in terms of 'amount' of insurance
cover (and consequential insurance premium) in view of paying capacity
and real need for insurance.
The population in the
age group 15 to 59 is usually regarded as the insurable population,
since this can be considered as the main 'active' age group (in the sense
of working, earning, supporting others etc.) and beyond this range life
risk may be considered to be too low or too high, not worth insuring. The
intensity of insurance coverage will, however, be largely determined by
the pattern of distribution of income in society, level of employment in
the country, area-wise concentration of people in the middle to high income
range, level of insurance awareness, etc. One relative measure of insurance
penetration is defined in the international market as premium volume as
a share of the gross domestic product which measures the significance of
the insurance industry in relation to the country's entire economic productivity.
It is obvious that for
assessing the practical business potential of life insurance in terms of
population, the eligible population needs to be 'qualified' in relation
to other factors including those mentioned above. Thus, out of the population
in the insurable age group only main workers (i.e., excluding marginal
workers) with adequate income may be considered as the actual insurable
population.
However, realistic assessment
of insurance potential in terms of premium income is really a formidable
exercise not only because of the complications already indicated including
wide variance in each respect but also owing to various other social and
economic factors influencing the need and attraction of life insurance
to various sections of the people, although this aspect is really most
significant from the business point of view.
Life Insurance Potential
in Indian Context
Let us now consider
some important aspects in the Indian context affecting insurable potential
in India.
In our country the age
group 15 to 59 as the base is not totally suitable. Owing to various
factors including the unemployment problem, real earning starts from around
age 25 for salaried persons. For others, particularly the small entrepreneurs,
traders and businessmen, the starting age is a little higher. Only in the
affluent sector of society can life insurance be taken before personal
earning starts. Thus, life insurance below age 25 is not so significant.
On the other hand, persons above 50 rarely go in for fresh insurance mainly
because in India the normal retirement age is around 60. Also a high percentage
of the population in the lower income group does not remain 'insurable'
after age 50. Thus, in our country the practical age range for the insurable
population actually narrows down at 25 to 50.
The overall 'Work Participation
Rate' (i.e. total workers as percentage of total population) as per the
1991 census was 37.46%. Main workers (i.e. working for at least 183 days
a year) were 34.10% and Marginal workers (i.e., working less than 183 days
a year) were 3.36% of the total population. Marginal workers are to be
excluded to arrive at the really insurable population in view of their
low income levels.
Now if we consider the
percentage of main workers engaged in the primary sector (agriculture,
fishing, mining etc.), in the secondary sector (manufacturing, processing,
servicing etc.) and in the tertiary sector(trade and commerce, transport,
storage etc.), the secondary sector and tertiary sector may be considered
to be lucrative sectors for insurance. According to the 1991 census, 36.4%
of the male main workers and 18.8% of the female main workers were engaged
in these sectors i.e. number-wise 80.68 million male main workers and 12.08
million female main workers; the sum total being 92.76 million.
In this context a household-wise
analysis will also throw some light. According to studies conducted by
the National Council of Applied Economic Research, New Delhi, out of the
estimated number of 157.3 million households in 1993-94, urban households
were 27.3% and rural households were 72.7%. According to sub-division by
income group, the percentage of the households belonging to the low income
group (up to Rs. 20,000 p a) was 51.8, lower-middle income group (Rs. 20,001
to 40,000 p a) 20 and middle-to-high income group (above Rs. 40,000) was
28.2. The middle-to-high income group, i.e. 44.4 million households were
clearly in a position to become life insurance clients. The average number
of persons per household according to the 1991 census was 5.52. If we take
on an average of two persons per household to be potential prospects for
life insurance, the number of such prospects was around 88.8 million in
1993-94. Even if the lower-middle income-group is included, 75.82 million
households could be considered to have enough income to afford insurance,
i.e. the total eligible population for insurance would be roughly 152 million.
Apart from income, the
level of education also highly influences the level of insurance awareness.
The overall literacy rate (1991 census) was 52.21% varying from State to
State. Improvements in the level of education in our country in the recent
years have really taken into their fold the population in the lower age
groups, the impact of which may be evident gradually in the future years.
Another important aspect
is urban and rural population. Job opportunities and income levels are
much better in urban areas and therefore a higher percentage of the population
is able to afford insurance premium. The literacy level is also usually
high in the urban areas and consequently the level of general awareness
including insurance consciousness. A high density population in urban areas
also contributes to better propagation of general knowledge including insurance.
This density of population in urban areas also helps the insurer to reach
the insurable urban population with relatively less effort and expense
and with a more compact network. On the other hand, it is much more difficult
to reach the relatively 'inferior' rural insurable population widely scattered
in distant rural areas. Hence, insurance business in urban areas is a more
'feasible' proposition. But 1991 census reveals that the urban population
percentage was only 25.73%. Over the years there has been an increasing
shift in the urban percentage. Nevertheless, until the rural population
is properly insured, the overall insurable population will remain significantly
uncovered.
Social backwardness should
also be taken into account. For example, Scheduled Castes and Scheduled
Tribes form around 25% of the total population. Over the years with social
patronage, this section of the population has come up in education and
employment. Even then, since they were in the lowest rung of society for
ages together, a major portion of this population still has not come out
of the lowest level of education and earning. Most of them are labourers
hardly able to afford insurance although they are included in the insurable
population because of age and work participation.
Religion and social customs
also play a role in respect of life insurance in our country. The Sanyasis
and Missionaries are rarely its prospects for insurance and also in some
areas life insurance is considered to be inconsistent with some religious
faiths.
Sex-wise, 'Work participation
Rate' was 51.55% for males and 22.25% for females in 1991. The rate for
females was much lower in a number of populous States and a larger percentage
of the female workers were marginal workers. Literacy rates for males and
females were 64.13% and 39.29% respectively. It also came out of the census
in 1991 that the number of females per thousand males was more in rural
areas than in the urban areas. Apart from these basic indicators there
are also many other negative factors like various social customs inhibiting
women, secondary roles played by women in the families in the interior
parts of the country, age-old mental blocks and superstitions etc. As a
result, a large part of the female population in the insurable age group
can not be readily considered as insurance prospects and since around 50%
of the population is female, this exclusion significantly reduces the real
insurable population.
Over the years a large
section of Indian people has become acquainted with the concept of life
insurance, but the amount of life insurance per individual is still quite
low. For the low to middle income group, low paying capacity is the main
reason but in the present family oriented system the need for life insurance
also is somehow not always extremely acute, mainly because of the general
low standard of living and the family backing and social support available
in dire need. For the high income group, life insurance may not seem attractive,
and owing to the prevailing family-based business activities and supporting
social system including employers' provisions, life insurance is not looked
upon as the primary saviour.
Indian Life Insurance
Market at Present
Since nationalisation
the Indian life insurance market is virtually the monopoly of the nationalised
life insurance organisation, namely the LIFE INSURANCE CORPORATION OF INDIA.
Central Government's Postal Life Insurance is open mainly to Government
employees and the Central Government has allowed some State Government
and Central Government Departments and organisations to self-insure their
own employees.
The primary avowed objective
of LICI is to spread the message of life insurance to every insurable person
in the country. For more than 40 years since 1956, LICI has made continuous
efforts in this direction. More than 2000 Branches under 100 Divisional
Offices, spread all over the country including rural areas, provide the
vast network of sales and service of life insurance to the Indian public
at their doorsteps. Side by side, group insurance activities have been
expanded more and more through increasing number of P&GS units all
over the country not only covering the organised sector under various group
schemes but also coming out with innovative group schemes to cover the
unorganised sector. LICI has been able to reach illiterate people, females
with unearned income or persons living in interior rural areas, and also
people in the marginal income group or below the poverty line-although
a lot of ground is yet to be covered. LIC's reach should be considered
in the background of poverty level, literacy problems, lack of insurance
awareness, prevailing social customers and also the problems of communication
to the interior rural areas.
In fact, LIC's continuing
process of covering the entire insurable population is expected to have
a snowball effect in the future.
However,
mopping up domestic savings and ensuring adequate life insurance cover
is another direction of covering insurance potential. From the level of
average income in India, it is apparent that there is much greater scope
to mop up more domestic savings through life insurance. There is also enough
scope for the life cover per person to increase.
From comparative international
picture of market penetration in 1996. (measured as Premium/GDP), in the
Swiss Re Magazine 'Sigma', it is apparent that but for a few exceptional
countries, India is not far behind other countries with comparable per
capita incomes, although there seems to be a lot more scope for further
penetration.
Long-term Health Insurance
appears to be an expanding area of life business where LIC is virtually
a new entrant as a life insurer. It is interesting to note that although
compared to other countries in the Asian continent, Indians are heavy users
of health care services (about 6% of the GDP being spent on health care,
80% of which is private expenditure), health insurance in India is not
yet that popular. The health care field in India is mainly shared by the
Government Organisations and the non-life monopoly insurer GIC. In respect
of long-term health care products, LIC came out with the ASHA DEEP plan
for disease cover and later with JEEVAN ASHA covering a number of surgical
procedures.
Another allied area is
Annuity. In India since nationalisation LIC enjoys monopoly in annuity
business too. However, the pension market in India is yet to grow although
the potential is unlimited. So far, mainly some old-time British Companies
and a few reputable employers have introduced pension schemes for their
employees, many of them being self-managed althoug vested pensions are
purchased from LIC. The main group of pensioners in this country, i.e.
the Government employees, are paid pension by the respective State or Central
Governments. Recently, employees in many public sector undertakings including
Banks, LIC and GIC have been offered pension schemes by the respective
organisations. The employees of various organisations covered by the Central
Provident Fund have also been brought under a PF-linked pension scheme
by the Central Government. However, movement is growing in favour of group
pension schemes for employees mainly by funding through LIC and there is
increasing awareness amongst individuals having sufficient income for making
independent provision for income after retirement or in old age.
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Undoubtedly India has a vast
insurance potential and this potential will definitely increase further
in future.
However, the future of the life insurance
market in India will largely depend on how the increasing potential is
exploited by the future insurance operating system in the country which
will depend on the marketing strategies adopted, improved information technology
used, and effective regulation of the insurance market by the authorities,
keeping in view the insurance needs of the entire Indian population and
security for the insuring masses.
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Future
Perspectives
India is currently undergoing
rapid changes mainly because of the liberalisation of the economy. Along
with the economic changes, political attitudes, social values, cultural
patterns and social structures are also rapidly changing and affecting
one another. The all-embracing effects of rapidly progressing information
technology are also reaching the remotest rural areas transforming the
pattern of life style. Altogether, Indian society is facing radical changes
in various aspects and hence the future perspectives of the Indian economy
are expected to be quite different from the present.
The literacy rate and
level of education are certainly going to improve rapidly in the future
years. Steps are also being taken to improve the level of female education,
female employment and female status in society. All these will significantly
enhance the insurance potential in our country.
The age structure-wise
population projection also indicates that the population in the insurable
age range will gradually increase in future. Once projection by an expert
team indicates that the percentage of population in the age range 20 to
59 will increase from 46.6% in 1990 to 55.9% in 2025. Coupled with the
regular population growth the total increase in the number of insurable
population will be enormous.
It may also be expected
that as a result of the economic measures taken and the process of economic
development going on in the country, more and more people will come above
the poverty line and more and more people will enter the high income level.
This will certainly increase the insurance potential in financial terms.
However, development
of insurance potential as a result of the economic changes may not be straightforward.
The changing economic pattern is going to change the present social pattern
of the country as also the distribution pattern of income in society. If
the purchasing power and financial worth of the general masses do not increase
in real terms as a result of the economic reforms, the overall development
of the economy may not develop the insurance potential in real terms.
Another
uncertain factor relating to the changing economy is the consumers' behaviour.
Consumerism has an overwhelming influence over the buyers of new generations.
If this trend continues or increases with increasing income, there will
be less propensity to save or insure, as a result of which the increasing
purchasing power may not be reflected in the insurance market.
On the other hand, the
need for insurance and awareness about insurance will grow more and more
in Indian society. The inherent social support system of the Indian social
structure will no longer be operative in the future economic pattern of
society. Joint families in India have already largely been replaced by
nuclear families, the changing socio-economic pattern will also force every
adult to make adequate provision for himself/herself and his/her family.
There will be increasing privatisation and reduction of subsidised State
provisions. As a result, the increasing need for individualised private
provision for financial security will certainly require life insurance,
health insurance and pension as major support systems in future.
High value life insurance
business where premium is paid by the companies for Partnership insurance,
Keyman insurance, etc. is also expected to flourish in the changing circumstances
where knowledge and expertise shall play a key role in the market. This
may significantly add to the life insurance business potential in our country.
Now the insurance field
is opened up, naturally there will be many players in the field and their
multiple marketing activities and campaign will obviously increase the
level of insurance-awareness among the public.
But it may also be necessary
to consider the effect of multiple life insurance providers on the public
mind in India. The level of insurance awareness in India is still low by
global standards and it may take a long time for a radical change in mindset
towards insurance. The entire insurable generation in India has been accustomed
to one nationalised life insurance company operating in the country as
a monopoly organisation where the financial security of the insurer was
never a question in the public mind. In the changing circumstances of competition,
the ordinary insuring public may get confused and their experience with
other private financial companies operating in other areas may affect the
decision and attitude towards life insurance.
If more than one insurance
provider operates in the market, the framework of insurance regulations
and the way the companies will be allowed to operate, particularly in relation
to working in rural areas, will also have a great influence on the shape
and size of the future life insurance market.
Conclusion
Undoubtedly
India has a vast insurance potential and this potential will definitely
increase further in future.
However, the future of
the life insurance market in India will largely depend on how the increasing
potential is exploited by the future insurance operating system in the
country which will depend on the marketing strategies adopted, improved
information technology used, and effective regulation of the insurance
market by the authorities, keeping in view the insurance needs of the entire
Indian population and security for the insuring masses.