Insurance Sector in India

What’s in today’s article?

• Why in the News?
• Insurance Sector in India
• Challenges of Insurance Sector in India
• FDI in Insurance Sector
• News Summary

Why in the News?

• The Insurance Regulatory and Development Authority of India (IRDAI) has removed the age limit for purchasing health insurance policies, with effect from April 1.

Insurance Sector in India

• India’s Insurance industry is one of the premium sectors experiencing upward growth.
• India is the fifth largest life insurance market in the world's emerging insurance markets, growing at a rate of 32-34% each year.
• The insurance industry of India has 57 insurance companies - 24 are in the life insurance business, while 34 are non-life insurers.
• Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. There are six public sector insurers in the non-life insurance segment.
• Regulation:
  • The Insurance Regulatory and Development Authority of India (IRDAI) is the regulatory body that oversees and regulates the insurance sector in India.
  • It ensures that insurance companies comply with regulations, protect policyholders' interests, and maintain the stability of the insurance market.

Challenges of Insurance Sector in India

• The insurance sector in India faces several challenges that impact its growth and development. Some of the key challenges include:
• Low Insurance Penetration and Awareness: Despite the increasing awareness about financial planning, insurance penetration remains low in India. The insurance penetration is only 4 per cent. Many people are still unaware of the importance of insurance and its benefits, leading to a large uninsured population.
• Distribution Challenges: Limited access to insurance products and services in rural and remote areas due to inadequate infrastructure and distribution networks hinders the expansion of the insurance market.
• Regulatory Constraints: While regulations are essential for ensuring consumer protection and market stability, stringent regulatory requirements can sometimes be a barrier for innovation and growth in the insurance sector.
• Fraud and Mis-selling: The insurance sector grapples with issues related to fraud and mis-selling of insurance products. Unscrupulous practices by some agents and intermediaries can erode consumer trust and confidence in insurance products.
• Technological Adaptation: Adopting new technologies and digital platforms to enhance customer experience, streamline operations, and offer innovative products is a challenge for traditional insurance companies.
• Underwriting Risks: Assessing and pricing risks accurately is crucial for the sustainability of insurance companies. Inadequate data and analytics capabilities can lead to mispricing of risks, impacting profitability.
• Competitive Landscape: With the entry of new players, both domestic and foreign, the competitive landscape in the insurance sector has become intense. Established players need to differentiate their offerings and adapt to changing market dynamics to maintain their market share.
• Healthcare Inflation: Rising healthcare costs and increasing prevalence of lifestyle-related diseases pose challenges for health insurance providers in managing claims and maintaining profitability.
• Macro-economic Factors: Economic downturns, inflation, and fluctuations in interest rates can impact investment returns and profitability of insurance companies, affecting their ability to meet policyholder obligations.
• Product Innovation and Customization: Developing customized and innovative insurance products that cater to the diverse needs of consumers while ensuring affordability and profitability is a continuous challenge for insurers.

FDI in Insurance Sector

• The insurance sector has received close to Rs 54,000 crore as foreign direct investment (FDI) in the last 9 years.
• The government increased the permissible FDI limit from 26 per cent in 2014 to 49 per cent in 2015 and then to 74 per cent in 2021.

News Summary

• The Insurance Regulatory and Development Authority of India (IRDAI) has removed the age limit for purchasing health insurance policies, with effect from April 1.
• Previously, only individuals up to 65 years old were eligible for insurance, leaving senior citizens, who often need healthcare the most, without coverage.
• IRDAI’s latest move is aimed at bringing in extended health benefits to the elderly.
• The IRDAI mandates health insurance providers to develop specialised policies catering to senior citizens, and to establish dedicated channels for addressing their claims and grievances.
• Companies are also encouraged to develop tailored products to meet specific age-related requirements, fostering a more inclusive healthcare ecosystem.
• This change will greatly benefit those in need of medical insurance, including children, maternity cases, and senior citizens, ensuring a healthier life for many.

Q1. When was IRDA established?

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000.

Q2. Is LIC a government company or statutory Corporation?

 The Life Insurance Corporation of India is a statutory Corporation constituted under the LIC Act, 1956.

Source: IRDAI removes age bar for purchasing health insurance

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