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The Indian insurance sector is witnessing a slow and steady change. Though the sector is yet to come out of the Government control completely, the new entrants are hopeful of competing head-on with the state-owned monopolies and create a niche for themselves.
The Indian insurance industry which until now was a controlled sector, with only two players for the last four and half decades, has suddenly turned itself into a battleground. Though the sector remained in the strong clutches of the government enterprises, the growth has been slow. The industry is characterized by a number of players, both domestic and international, competing for the huge untapped market. Indian insurance is ranked 51 in the world with a low insurance penetration of 1.95 percent and less than 5 percent being spent on insurance out of the available 22 percent savings. This low penetration and huge growth potential has already attracted many multinational insurance giants like Allianz, Royal Insurance, etc.
Today global insurance companies see only two countries having a great market potential. Incidentally both the countries, China and India, have a high population and relatively high savings rates. Though the savings rate hovers around 25 percent in India, less than 5 percent is being spent on insurance. In spite of the high savings rate, owning to poor reach and consumer awareness, the insurance sector has not grown that fast as anticipated. In spite of the fact that there are two government enterprises taking care of life and general insurance, their contribution to the gross domestic product is less than three percent. This only indicates the extent of growth potential of this sector in India. Despite the monopolistic control over the market by Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) and its four subsidiaries, market penetration has remained low especially in non-life insurance business.
However, the life insurance business has witnessed considerable growth because of the increasing customer awareness and better marketing strategies by LIC. In the last two decades, the number of nuclear families both in urban and rural areas has gone up, leading to increased need for life coverage for the breadwinner and this has resulted in a moderate growth of business. However, low consumer awareness still prevails in the non-life segment. Non-life business today can be attributed to the statutory requirements being laid down by the Government. For example, motor vehicle insurance is compulsory at the time of registration of the vehicle. But most of the owners do not renew it whenever it expires unless the vehicle is being used for commercial purposes. Perhaps the monopolistic status of the insurers is one major reason for low penetration in this segment. In the absence of competition, the government entities did not bother about developing the market and were content with the business they were getting.
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