For its size and potential, India has an abysmally low level of insurance penetration and density. The levels of protection (insurance sum assured as a percent ofGDP) for India is only about 55% while it ranges between 150% and 250% in some emerging and mature economies. India is under insured and the sector represents a clear case of a “missing market”.
Economist and political scientist Joseph Schumpeter, in the early 20th Century, had argued that financial intermediaries, aimed at mobilizing savings including insurance, are essential for economic development. Using data from 80 countries over the 1960-89 period, economists Robert G King and Ross Levine have presented cross country evidence consistent with Schumpeter’s view that the role of financial systems in promoting economic growth is not “over-stressed”. It is in this regard that insurance related measures announced in the Budget assume greater significance.
One of the big reasons for the low penetration, especially in general insurance, has been the near absence of insurance offices in smaller towns. There isn’t a single office of any private general insurance companies in any town of tier II level and below. Of the four PSU insurance companies, only 6% of offices are located in Tier IV towns and below. Having an office of public sector general insurance as well as LIC in every town with a population of 10,000 or more will go a long way in increasing insurance penetration.
The insurance business through Bancassurance is only about 7.5% of the total insurance premiums and only about one-sixth of the existing 100,000 bank branches are engaged in selling insurance. Permitting Banks to be a broker will enable them to sell insurance policies of more than one company and as broker, will now represent the interests of the customers. Since they will merely be an agent, it does not involve any risk on the banks. Banks will not be required to open a separate subsidiary for this purpose and can use the existing branch network. The move will provide customers a wider range of insurance products.
Motor insurance is the largest portfolio of general insurance industry, in premium and claims outgo. The number of outstanding third party claims on date is more than a million and involves Rs 22,000 crore. What’s more worrying is that almost one-third of these claims are pending for more than five year. Another 21% and 27% are pending for a period ranging from 3-5 years and 1-3 years. Recourse to “Lok-Adalats” to expedite settlement through a campaign throughout the country should enable quick disposal.
Source : The Economic times
Date : 21/3/2013