Life mart may double to $100 bn by 2012

The total life insurance market premiums is likely to more than double from the current $40 billion to $80-$100 billion by 2012, according to a study by McKinsey & Co.

The study titled 'India Insurance 2012: Fortune favours the bold,' expects a rise in premiums between 5.1 and 6.2 per cent of the GDP in 2012 from the current 4.1 per cent. The reason: greater insurance intensity per capita as the average per capita income increases and rise in penetration in urban and rural areas.

Anu Madgavkar, associate partner, McKinsey & Company, "Four factors will drive this growth in the next five years. First, increasing per capita incomes will increase insurance intensity, resulting in average household premiums rising from Rs 1,300 to Rs 3,000 - Rs. 4,100.

Second, the emergence of new bankable households and substantial increase in supply-side growth will raise penetration in both urban and rural areas. By 2012, penetration in urban areas is likely to increase to 35-40 per cent and in rural areas to 35- 42 per cent from current levels of 30 per cent and 25 per cent."

"Thirdly, changes in the product mix as players make moves to lower the share of single premium products will lead to more regular premium collection. And finally, the growing demand for long-term savings and investments products, which in India is a gap that life insurance products bridge," she added.

The study states that consumers rank life insurance higher than other investment options because of its ease and convenience in investing, tax benefits, and protection. Also owing to LIC delivering stable returns over the years, people perceive insurance as a low-risk and high-return investment.

The research predicts emergence of various classes by 2012 such as rising affluents (whose annual household income greater than Rs 10 lakh will be 2.3 million), growing middle class and newly emerging bankable class.

The country's life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40 per cent per year owing to the entry of a host of new players with significant growth aspirations and capital commitments.

The study highlights that while players are at different stages of development and market presence, their strategies and business models are largely 'one-size-fits-all', with significant reliance of low-margin single-premium policies and unit-linked products as well as fairly undifferentiated distribution models.

It affirms that players wanting to capture a substantive share of this growth opportunity will need to make distinct plays to cater to the increasingly differentiated needs of different consumer segments in rural and urban areas in addition to addressing distinct challenges in the face of intensifying competition.

As competition intensifies and consumer base evolves, the four imperatives for insurers to be successful are crafting differentiated strategies for three emerging distinct customer segments; achieving excellence in distribution by raising agency productivity; improving operational efficiency as scale increases; and capturing the health and pensions opportunity profitably, the study said.

---

THE FOUR KEY CHALLENGES

Significant reliance on single-premium products and potentially volatile unit-linked policies

Underdeveloped agency channels - overall inactivity and attrition rates for agents in India is about 50 per cent to 55 per cent in comparison to the average global benchmark of 25 per cent

Under-utilisation of alternative channels, in particular bancassurance, which is an increasingly preferred channel for Indian customers

Lack of a meaningful presence in high growth areas such as health insurance and pensions. Today, only 1.5-2 per cent of the total health expenditure in India is covered by insurance and barely 10-11 per cent of the estimated working age population in India is covered by formal old-age social security mechanisms