Indian Insurance Market Expected To Grow At 12-14% Over Next 5 Years

Indian Insurance Market Set to Expand Rapidly at 12-14% CAGR by 2028

Insurance demand is positively correlated with economic growth and grows at a multiple to the GDP.

Industry analysts expect the life insurance industry to continue to grow at around 12-14% over a three-to-five-year horizon.

The growth would be driven by strong demand for annuity and protection plans. Meanwhile, growth in ULIP could be muted given the volatile market conditions. Other factors include an intense push to increase insurance coverage, especially in the rural populace, product innovations/customisation, and distribution channels being coupled with digitalised infrastructure for easier user interaction.

However, frauds, lapse ratio, any unfavourable changes in macro-economic factors, and uncertainties in the regulatory landscape could be characterised as key challenges to the industry growth. Overall, the outlook is expected to be positive in the medium term.

The first-year premium of life insurers rose to Rs 24,480 crore in May 2022 from Rs 12,977 crore in May 2021, exhibiting a robust y-o-y growth rate of 88.6%. Meanwhile, the year-to-date first-year premium numbers, too, grew by 86.7%.

This growth can be attributed to a continuous increase in group single premiums, with LIC outpacing its private peers for the two-month period, while private companies grew faster in May 2022. This growth can also be accounted for by a low base, which saw subdued levels due to the pandemic-induced (Covid-19 second wave) lockdowns.

LIC’s first-year premium has continued to grow at high double digits and stood at 77% for May 2022, which was lower than the growth of 141.2% in April 2022 but was more than the 50.6% growth in March 2022 and 35.4% in February 2022. The May 2022 growth due to group single premiums also compares favourably vs the decrease of 12.4% in May 2021 (base effect/ lockdown disruptions).

Private insurers grew at 114.4% in May 2022 vs. 27.5% in April 2022, 12.9% in March 2022, and 14.2% in April 2021 (base effect/ lockdown disruptions). For the first two months of FY23, LIC has outgrown the marginal growth reported for the similar period of FY22 and its private peers gave LIC’s dominant share of the group single insurance business.

LIC maintains its dominant share in the first-year premium (65% vs. 35% share of private companies).

For May 2022, non-single premiums grew by 106.4%, while single premiums reported a robust growth rate of 82.2%. Meanwhile, in May 2021, a diverging pattern was observed with single premiums showing growth, while non-single premiums declined.

Single premiums continue to account for a substantial portion of the overall premiums. The share of single premiums has increased from 60% for FY20 to 69% in FY22 and is at 71% for the two months of FY23.

The private sector has a larger share in the non-single sub-segment (mainly individual premiums), while LIC continues to dominate the single premium sub-segment, especially the group business.

The growth of single premiums can also be attributed to individuals seeking a predictable rate of return. Pension plans, General Annuity and Group Gratuity Schemes continue to account for a significant chunk of the group, while General annuity plans dominate individual single premiums.

For May 2022, the group premiums increased by 92.2%, while individual premiums grew by 82%. This is in sharp contrast to May 2021, when both the segments had declined. For the two months of FY23, growth in group premiums continues to outpace growth in individual premiums. Individual premiums continue to remain smaller in size compared to group premiums.

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