Insurance sector needs Rs 50,000 cr capital each year to double penetration

In order to double insurance penetration in the country, there is a need to infuse an additional Rs 50,000 crore in the sector every year by existing players by way of ploughing back their profits as well as through new investment, Debasish Panda, Chairman, Insurance Regulatory and Development Authority (Irdai) on Friday.

“After March, I intend to meet the chairpersons of all the insurance companies to drive home the point that they have to factor this and start planning to infuse more capital. I am glad some players have already started around that”, Panda said at a CII insurance event.

The Rs 50,000 crore figure was arrived at by making assumptions on the country’s gross domestic product (GDP), inflation, and how the world GDP will grow during this period, Panda explained.

“We want to double the penetration and for that one needs capital to come into the sector. We have taken assumptions on how the GDP will grow, what kind of inflation will be there, and what will be the world GDP and tried to do some kind of modelling and roughly arrived at the fact that if Rs 50,000 crore is committed to the sector, then we will be able to double insurance penetration in 5-7 years”, he said.

Insurance penetration in India during 2021-22 remained the same as in 2020-21 at 4.2 per cent, with life insurance at 3.2 per cent, and non-life at 1 per cent. But insurance density increased from $78 in 2020-21 to $91 in 2021-22. While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).

Panda also made a pitch to the conglomerates and individual investors present in the country to invest in the insurance sector. “I would like to reach out to the conglomerates who are present in this country and individual investors who are interested to invest their money”, the Chairman said.

"If you look at the return on equity (RoE) of insurers, the top five insurers have an RoE of around 20 per cent. The average RoE is around 16 per cent and 14 per cent for the non-life and life insurance sectors respectively. This is the time when funds, which are available should get channelised into the insurance sector", Panda said.

Meanwhile, Panda urged the insurance companies to widen their distribution network to reach the underserved and unserved sections of the country’s population. He asked them to look beyond the scheduled commercial banks and perhaps focus on non-banking finance companies, cooperative banks, microfinance institutions to include them as corporate agents because they generally tend to the niche segments.

“What we are saying is insurers can have more distribution points to reach the unserved and underserved areas. For example, micro-finance institutions work in small geographies. They can be roped in as corporate agents”, Panda said.