The Life Insurance Industry in India: Current State and Efficiency

111 Pages·2017·5.23 MB·English

by  Tapas Kumar Parida

The Life Insurance Industry in India
TapasKumarParida(cid:129)DebashisAcharya
The Life Insurance
Industry in India
fi
Current State and Ef ciency
TapasKumarParida DebashisAcharya
EconomicResearchDepartment SchoolofEconomics
StateBankofIndia, UniversityofHyderabad,
CorporateCentre CentralUniversity
Mumbai,Maharashtra,India Hyderabad,Telangana,India
ISBN978-981-10-2232-6 ISBN978-981-10-2233-3(eBook)
DOI10.1007/978-981-10-2233-3
LibraryofCongressControlNumber:2016955695
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P
REFACE
ThelifeinsuranceindustryhasalongpresenceinIndiabutthesectoropened
up for private and foreign participation in August 2000, that is, after the
formation of the Insurance Regulatory Development Authority India
(IRDAI), with a cap for foreign investment fixed at 26%. With the private
andforeignplayer’sparticipation,theindustrystructurehasmovedtowards
amorecompetitivemarketfromapuremonopoly.Inthepost-reformperiod
(2000–2001to2014–2015),theinsurancesectorhasrecordedanimpress-
ivegrowth,withlifeinsurancebusinessatacompoundannualgrowthrateof
17%intotalpremiumand21%innewbusinesspremiumcollections.There
has also been significant expansion of the customer base, product innova-
tionsandoperationalinnovationsduetoincreasedcompetitionamongthe
players. However, the insurers still grapple with the issue of profitability.
Though the sector has developed in many aspects of insurance, compared
to the developed countries like the United States, the United Kingdom
and France, the Indian life insurance sector still lags in terms of insurance
penetration (ratio of premium volume to gross domestic product) and
density (ratio of gross premium volume to total population in a country).
Life insurance penetration in India was only 2.72% in 2015 compared
to world average of 3.47%. To enhance insurance penetration, the
GovernmentofIndiahaspassedanumberofreforms,includingthepassing
of insurance bill to allow foreign direct investment limit up to 49%. This
movemayhelptheinsurerstoinfusemorecapitalforfurtheringbusinessin
the sector. Thus, it has been more than a decade since the sector was
liberalized. The sector merits a thorough review now. In light of this,
this book discusses the development and performance of life insurance
vii
viii PREFACE
companiesinIndiabymeasuringtheirchangingmarketstructure,efficiency
andprofitabilityofthelifeinsurancesegmentinIndia.
The book aims at a wider audience including students of economics,
finance and business, researchers and practitioners in the financial sector.
The attempts made in this book to discuss the issues on efficiency after
deregulationoftheIndianlifeinsurancesectorandmaymotivatedifferent
stakeholderstousetheresultsintheirrespectiveactionsandpolicies.The
stakeholders may alsopose new questions tobe researched further.
TapasKumar Parida
Debashis Acharya
A
CKNOWLEDGEMENTS
Theideaforthisworkoriginatedwithamajorresearchprojectfundedbythe
UniversityGrantsCommissionin2010andawardedtothesecondauthor.
Later,thefirstauthorraisedotherresearchquestionsandaddressedthemin
hisPhDthesis.Thepresentwokisapartialoutcomeofthesetwopieces.We
would like to thank all those friends and institutions that directly and
indirectly helped in completing this project. We express our deep sense of
gratitude to Prof. Bandi Kamaiah, Dean, School of Economics, and Prof.
GantiSubrahmanyam,FormerDirector,NIBM,Pune,andvisitingprofes-
sor, School of Economics, University of Hyderabad, for their continuous
inspirationduringourresearch.Wehavelearntalotfromdiscussionswith
Prof. BireshKumar Sahoo,Xavier Institute ofManagementBhubaneswar,
on this project. We thank Dr Swayamprava Mishra, presently with the
Faculty of Economics, Utkal University, for her research assistance in the
initial stages of this work. Several discussions with Mr Satyen Dash, AVP,
DFHLPRAMERICA,andMrKamalakrSai,formerdirectorofIndiaFirst
Life Insurance, shaped up our thoughts and approach to this work. We
thankfully acknowledge the support extended by the University of
Hyderabad in numerous ways in the process of writing this book. We
appreciate the encouragement and help received from Ms Nupoor Singh
andMsSagarikaGhoshofSpringerBooksformtheinitialstagetocomple-
tion of the project. We thank the reviewer for the useful comments in
improving uponthe work.Finally, without the unflinching supportofour
families,itwouldhavebeenimpossibletowritethisbook.
ix
C
ONTENTS
1 LifeInsurancein India:Origin,Evolution andthe Present
State 1
1.1 Introduction 1
1.2 Importanceof Insurance 2
1.3 Origin and Evolution ofthe Indian InsuranceIndustry 5
1.3.1 PhaseI ofLife Insurance Evolution 5
1.3.2 PhaseIIofLife Insurance Evolution 8
1.3.2.1 Major Achievements ofLIC 10
1.3.3 PhaseIIIof InsuranceEvolution 12
1.3.3.1 Life InsurancePerformance 14
1.3.3.2 Channels ofDistribution 16
1.3.3.3 Issuesin Bancassurance Modelin India 16
1.4 Microinsurance in India 19
1.5 Evolution and Progress ofPLI inIndia 19
1.5.1 Postal LifeInsurance 19
1.5.2 RuralPostal Life Insurance 20
1.6 Life Insurance Scenario:India VersusWorld 23
1.6.1 Global LifeInsurance Scenario 23
1.6.2 IndianInsurance in GlobalScenario 25
1.6.3 Insurance Penetrationand DensityinIndia 25
1.7 ReasonsofLowInsurancePenetrationandDensityinIndia 28
1.8 Challenges, Opportunitiesand FutureOutlook 29
1.8.1 Challenges 29
1.8.2 Opportunities 30
1.8.3 FutureProspects 30
xi
xii CONTENTS
1.9 Concluding Remarks 31
Notes 31
References 32
2 Analysingthe TechnicalEfficiencyandProductivity
Changeof LifeInsuranceCompanies in India 33
2.1 Introduction 33
2.2 Reviewof Literature 34
2.2.1 InternationalStudies 34
2.2.2 SomeIndian Studies 38
2.3 Data and Methodology 42
2.3.1 DataDescription 42
2.3.2 Inputs andOutputs 42
2.3.2.1 Inputs 42
2.3.2.2 Outputs 43
2.3.3 Methodology 44
2.3.3.1 MeasuringEfficiency 47
2.3.3.2 ProductivityChange 52
2.4 Results and Discussion 54
2.4.1 TEand ItsDecomposition 54
2.4.1.1 Individual Insurer’s MeanEfficiency
Score 59
2.4.2 MPIand Its Decomposition 59
2.5 Efficiency and ProductivityChange 66
2.6 Concluding Remarks 66
Appendix: Sample ofLife Insurance Companies 69
References 70
3 LifeInsurancein India:Efficiencyand Profitability 73
3.1 Introduction 74
3.2 Some PastStudies 74
3.3 Present Study, Dataand Method 76
3.3.1 MeasuringMarketStructure 76
3.3.2 MeasuringEfficiency 78
3.3.3 MeasuringProfitability 79
3.4 Empirical Results andDiscussion 81
3.4.1 DescriptiveStatistics 81
3.4.2 CorrelationMatrix 81