Life insurance growth to double in five years

MUMBAI: Management consultancy firm McKinsey has forecast that India’s life insurance industry will double in the next five years from $40 billion to $80-100 billion in 2012. This growth would improve the level of insurance penetration from 5.1% of gross domestic product to 6.2% in 2010-2012.

India’s life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40% per year. “Our research suggests that the Indian life insurance industry could witness a rise in the insurance sector premiums between 5.1% and 6.2% of GDP in 2012, from the current 4.1%. Total market premiums are likely to more than double during this period, from about $40 billion to $80-100 billion. This implies a higher annual growth in new business annual premium equivalent (APE) of 19% to 23% from 2007 to 2012,” the report said.

Recommending business strategies to new entrants, the management consultancy firm said that large part of the growth would come from second- and third-tier cities and small towns. “Based on MGI forecasts, 26 tier-II cities with population greater than one million and 33 tier-III towns with the population of more than 5 lakh will account for 25% of the middle class and newly bankable class in 2025. Over 5,000 tier-IV small towns will account for as much as 40% of these two classes in 2025,” the report added.

However, if an insurer decided to be a niche player and concentrated on metros and their suburbs, they will have a big market, since 60% of the very rich (annual income over Rs 10 lakh) would be concentrated in the top eight cities. “Although these consumers will be highly accessible, players will have to reckon with intense competition that is only going to increase and extend to other segments as well,” the report said.

According to Mckinsey, insurance penetration in India is currently about 4% of its GDP, much lower than the developed market level of 6-9%. In several segments of the population, the penetration is lower than potential. For example, in urban areas, the penetration of life insurance in the mass market is about 65%, and it’s considerably less in the low-income unbanked segment. In rural areas, life insurance penetration in the banked segment is estimated to be about 40%, while it is marginal at best in the unbanked segment.