The number of policy holders to double at 530 million within the next five years
Indian insurance sector is poised for a massive expansion. And insurance companies have been recruiting more employees and coming out with newer products. On the other hand, the banks and other financial institutions have stopped the process of expansion, and also begun retrenching employees, according to Mr Puneet Nanda, Executive Vice-President & CIO of ICICI Prudential Life Insurance, and Mr Vikram Kotak, Chief Investment Officer of Birla Sun Life Insurance. They were addressing an interactive seminar on "Insurance as Long-term Investment Avenue" organized by Indian Merchants' Chamber on 27 January 2009.
Based on the present pace of insurance industry's growth, they expected the number of policy holders to double at 530 million within the next five years. All this was happening under a tight regulatory regime and strict vigilance of the Insurance Regulatory & Development Authority (IRDA), which was very conservative.
Mr Puneet Nanda said that insurance was becoming the most popular form of household savings and also the instrument of security to people. There was a great scope for growth, as at present insurance industry's share was only 16.9% of household financial savings.
The insurance industry enabled people to do savings by offering them its products such as the long-term regular premium and single premium insurance policies. It also catered to people's different needs by way of different policies such as such as life plan, child plan, health plan, pension plan etc.
The insurance industry started offering health insurance products recently, as the mediclaim insurance policies, which were in vogue, did not satisfactorily meet the needs of people, who looked for safety, transparency, consistency and good return from the insurance companies, he said.
For safeguarding itself against the erosion of its funds as a result of vagaries of the market, the insurance industry, as a rule, deployed its investible resources in diversified portfolios consisting of a large number of sound corporates and sectors -- each with sector-specific and company-specific limits -- in a disciplined manner. Also, they invested only in highly rated corporate debts, observing prudent regulatory norms.
Mr Puneet Nanda said that different asset mixes served different investor needs, and in all such cases optimal asset allocation was critical. "The Brinson study on investment by the US insurance industry in the past 100 years reveals that asset allocation was 91.50%, stock selection was 4.60%, market timing was 1.80% and others 2.10%," he said.
Mr Nanda said that the insurance industry was a major source of domestic finance for investment in key sectors, as the country could not rely on the funds of FIIs, "which quickly moved in and also quickly moved out. Inflow of funds from external sources is too volatile to cater to the need of long term investments. Also more than 95% of such funds are retail."
He said the insurance industry owned 6% of India's capital market and managed assets worth Rs.8,57,000 crore. It had emerged as the largest investor segment in the capital market in the past few years.
"The net market inflow during FY 2008 was Rs.55,000 crore from the life insurance sector, Rs.53,403 crore from FIIs, and Rs.16,305 crore from the Mutual Funds. This only goes to show that the insurance industry is one of the most important financial intermediary for both the individual consumers and the national economy", Mr Puneet Nanda.
Mr Vikram Kotak said that there were 21 life insurance companies with a capital of over Rs.16,235 crore in India in FY 2008. Despite some slowdown in growth under the impact of the global recession, he expected the Indian insurance industry would regain its growth momentum within a year.
As India did not have a social security system for the general public, life insurance was of cardinal importance to provide them security. And there products such as ULIP, the insurance-linked equity, that provided both security and value growth to consumers.
"In view of its popularity both in the urban and rural areas, the sale of ULIP has recorded 80% growth in FY 2008. ULIP has become most popular because it is among the most transparent retail financial investment avenue," Mr Vikram Kotak said.
source: Capital Market
