Saturday, June 07, 2008

On the spectacular growth of the insurance sector in India

If you are asked to say something about the benefits of opening up of the insurance sector in India, what could your answer be?

  • Insurance penetration has increased from a niggardly 2.32 % at the time the sector was opened up to private sector participation in 2000 to more than 5% in 2007.
  • The first year premium collections in life insurance, a measure of new business secured, has gone up from Rs 9,700 crore in 2000-01 to Rs 75,600 crore in 2006-07.
  • Industrial houses which have forayed into this sunrise sector have seen spectacular growth and have overtaken the valuations of their parent companies. For example Bajaj Auto’s seven-year-old insurance business has overtaken its 60-year-old parent company in market value. Bajaj Auto is not an exception. Multinational companies that were smart enough to see the potential in the sunrise sector, despite the low 26% ceiling for foreign direct investment, have been amply rewarded.
  • It is not only insurance companies and individuals who have benefited in the process. The close link of the insurance sector with infrastructure is widely acknowledged — insurance companies typically look for avenues for long-term investment while infrastructure companies need long-term funds — so a rapidly growing insurance sector is good news for all concerned.