Insurance industry in India has seen a shift in terms of emerging product preferences, customer engagement patterns, service delivery, operations and processes, among others, as a result of COVID-19, says the listed insurer HDFC Life in its 2020 annual report.
In a segment on the outlook for the life industry, HDFC Life says insurance remains a decades-long opportunity in India. Some of the growth drivers are:
- Changing demographic profile
- Low insurance penetration
- Financialization of savings
Changing demographic profile
India is the second most populous country in the world with a median age of around 28 years. The life insurance industry helps mobilize long-term savings, provides long-term income and annuity protection and solutions. Each of these segments has different demand drivers and India’s changing demographics bode well for the future growth of the industry.
The proportion of the insurable population (people aged 20 to 64) is expected to reach nearly 1 billion by 2035, underscoring the need for long-term savings and protection plans.
Low insurance penetration
India remains largely underinsured, both in terms of penetration and density. Macroeconomic factors such as GDP growth and increased per capita income, coupled with growing awareness of the need for life insurance, higher financial savings as a percentage of GDP, increasing urbanization and l Increased digitization would continue to contribute to the growth of India’s life insurance industry.
The protection gap in India is 83%, as growth in savings and life insurance coverage has lagged behind economic and wage growth.
The retirement space is an equally important opportunity. The improvement in life expectancy has increased the length of life after retirement to around 20 years. The Indian pension market is under-penetrated and the number of people over 60 is expected to triple from 2015 to 2050, giving insurers the opportunity to offer long-term income and annuity products.
Financialization of savings
The share of financial savings, as a percentage of household savings, increased from 32% in fiscal year 2012-13 to 35% in fiscal year 2018-19, while the share of Life insurance as a percentage of financial savings remained stable at around 16-18%. .
The life insurance industry is uniquely positioned to cover a range of client needs across fixed income and equity platforms, the report said. In the longer term, higher personal disposable incomes, leading to increased household savings, are likely to be channeled into different financial savings instruments, including life insurance.
The government continues to promote financial inclusion and increase awareness of insurance with initiatives such as the creation of small finance and payments banks and the provision of low cost insurance schemes.
Technology is rapidly disrupting businesses. Customer behavior is also changing rapidly, accelerating the need and importance of providing a frictionless end-to-end shopping experience. Technology and data will be essential for generating new business, customer service, claims reimbursements, and risk management. The current pandemic has further accelerated the adoption of technology in several industries.
Risks and concerns
HDFC Life’s annual report also mentions certain risks facing life insurers. Risks and concerns relate to rapidly changing customer behavior, changing demographics, increasing competition and dynamic macroeconomic conditions. The financial conditions and future prospects of companies can be significantly affected by factors such as market fluctuations, changes in tax rates or interest rates. The ongoing pandemic is putting short-term pressures on the industry, including, but not limited to, growth, mortality, persistence, and solvency.