In August 2000, the insurance industry in India opened its gates for the private firms. Till then the state owned insurer- Life Insurance Corporation of India took the largest share of insurance sector pie in India—LIC in the life assurance market and General Insurance Corporation and its four subsidiaries in the general insurance market.
The liberalization in India had bought many opportunities along with it, mainly for the domestic private firms and industrial groups. It offered a great opportunity to private life insurers to offer insurance and financial services in association with national insurance corporations. There are around 23 private life insurance firms and a public life insurer as on 30thDecember, 2011 which are operating in India. These new companies bought their expertise, products and a high-quality campaign to assemble their corporate brand and to market their policies and also spread awareness and financial education.
The life Insurance sector has showed an impressive growth in the post liberalization phase. The whole life premium collected multiplied more than eight times with an annual Compounded Annual Growth Rate (CAGR) of 23.65 % per annum.
The first year Premium recorded an extraordinary CAGR of 29.26% in the decade multiplying to thirteen times its base. During the decade, the economic growth though strong, varied between 6% to 10% p.a. of the GDP. Without any doubt it is clear that the life insurance industry considerably out-performed the economy by significant multiples.
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LIC during Liberalization
Life Insurance Corporation, the state owned insurance company appeared as the largest beneficiary of liberalisation in the insurance industry. It also showed an outstanding performance, although on a base substantially more than the private industry. The first year premium of this organization was CAGR of 24.53% and total life premium CAGR of 19.28% corresponding to the growth of the sector and also out-performing the financial growth.
The arrival of private competition in the sector has seen LIC losing market share, but it has still managed to be the largest life insurer. Regarding the same, it would be not wrong to say that LIC has also been a beneficiary of liberalization. The extraordinary performance of LIC must alleviate the doubts of other public sector enterprises that fear private sector competition.
Increase in Insurance Consumption
The main factors aiding utilization of term plan are insurance density, calculated as the ratio of premium to the population, and insurance access, calculated as the ratio of premium to the GDP. Both density and insurance penetration have shown sizable increase in the last few years. However, it is significantly lower than the other countries and also UK & USA which can be attributed to the fact that the per capita income of India is still low with less disposable income.
The emergence of several players in the industry can also be attributed to impactful awareness campaigns being run in the form of ads and advertorials which have offered the much needed stimulus to demand. The marketing campaigns aim to educate the consumer about the benefits of life insurance for both financial protection as well as for long-term wealth creation.