Challenges Before Insurance Industry

Summary

R. N. Jha, a former Executive Director of the Life Insurance Corporation of India, surveys the state of Indian insurance at the moment of its third turn — from the private-sector era of 1818–1955, through more than four decades under LIC and GIC monopoly, to the reopening of the market to domestic and foreign private insurers under the IRDA Act of 1999. The booklet reproduces a keynote delivered on 19 February 2000 at the A. D. Shroff Birth Centenary Celebrations, and frames liberalisation as a vindication of long-standing free-enterprise arguments: the public-sector insurers, Jha concedes, never met the customer-service, product-innovation or savings-mobilisation objectives that nationalisation had promised.

The core of the address is a benchmarking of how shallow Indian insurance penetration remains by international comparison — $8 per-capita premium against Japan’s $4,800, a 2% premium-to-GDP ratio against double-digit figures in developed economies, and only 25% of the insurable life population covered. From this diagnosis Jha sets out a six-fold challenge map for new insurers (capital lock-up, talent shortages, building distribution against entrenched incumbents) and for LIC and GIC (overstaffing, surplus employees post-computerisation, complacent products, dissatisfied policyholders, the risk of corporate clients defecting).

Jha then turns to the regulator. He warns that the Insurance Regulatory and Development Authority must balance its twin mandates — “no game is possible without rules but too many rules spoil the game” — by enforcing prudent solvency reserves and entry rules that are nonetheless light enough to encourage many new licensees, while pushing development into niche markets such as pensions, health, rural cover and insurance for weaker sections. He closes on a market-forecast note: a Rs. 3,44,000 crore potential market of which only 10% has been tapped, sustainable for around 100 insurers, with the customer — “the real king” of the liberalised market — as the ultimate arbiter of who survives. The booklet is bookended by an A. D. Shroff epigraph on free enterprise and a Eugene Black epigraph urging that private enterprise be embraced not as a necessary evil but as an affirmative good.

Key points

• Frames the 2000 reopening of insurance to private players as the completion of a full circle — private sector 1818–1955, public sector 1956–1999, private once again from 2000 — closing four decades of LIC/GIC monopoly.

• Treats the very existence of the Malhotra Committee (1993) and the IRDA Act 1999 as a tacit official admission that public-sector insurers failed to extend cover to the needy.

• Benchmarks Indian penetration as far below world norms: per-capita premium of only $8 vs. $4,800 in Japan; premium-to-GDP of 2% vs. 9–14% in OECD economies; only 0.3% share of the global insurance market.

• Maps challenges separately for new entrants (Rs. 100 crore capital lock-up, no profit for five years, talent shortages, building distribution against established incumbents) and for the incumbents LIC and GIC (overstaffing, mass surrender risk, corporate-client defection, sub-standard service).

• Argues the deepest challenge for LIC and GIC is not structural but cultural — a change of mindset ‘from top to bottom’ to become genuinely customer-responsive.

• Calls on IRDA to balance regulation against development — easy entry rules, realistic solvency reserves, niche-market emphasis on pensions, health, rural and weaker-section cover.

• Sizes the market at roughly Rs. 3,44,000 crore ($80 billion) of which only 10% has been tapped, growing 10% a year and capable of sustaining about 100 insurers.

• Positions the liberalised consumer — ‘the real king’ — as the final arbiter, and treats the insurance life fund as a strategic pool for financing infrastructure.