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Life Insurance Sector Contribution to Indian Economy

Life Insurance Sector Contribution to Indian Economy. Round Table Discussion on. 24 th June , 2009 New Delhi. Agenda. Snapshot of Indian Life Insurance Industry. Role of Indian Life Insurance Industry during 2008-09 Economic Meltdown. Assets Managed by Life insurance Industry.

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Life Insurance Sector Contribution to Indian Economy

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  1. Life Insurance SectorContribution to Indian Economy Round Table Discussion on 24th June , 2009 New Delhi

  2. Agenda Snapshot of Indian Life Insurance Industry Role of Indian Life Insurance Industry during 2008-09 Economic Meltdown Assets Managed by Life insurance Industry Meeting Consumer Expectation Expectation from Budget 2

  3. Agenda Snapshot of Indian Life Insurance Industry 3

  4. Snapshot of Indian Life Insurance Industry Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  5. Snapshot of Indian Life Insurance Industry Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  6. Snapshot of Indian Life Insurance Industry As per regulations Life Insurance Companies have to sell 18% policies in rural area. India has largest number of in-force policies in the world (IRDA Annual report). Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  7. Snapshot of Indian Life Insurance Industry Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  8. Snapshot of Indian Life Insurance Industry(2007-08) Source: IRDA report 2007-08, Life Insurance Council

  9. Agenda Role of Indian Life Insurance Industry during 2008-09 Economic meltdown Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  10. Role of Indian Life Insurance Industry during 2008-09 Economic meltdown A. New Offices • Life Insurance companies in India have opened 2,807 new offices. Total number branches of Life Insurance companies -11,720. 39% of the total offices are located in Class “C” location 31% of the total offices are located in less than Class “C” location. B. Employment Generation • Have provided direct employment to 30,333 people. • There was net addition of more than 3.8 lacs individual agents during the year. C. Improved Persistency • Increase in renewal premium collection by 24 % (Rs.1,07,638 Cr to Rs.1,33,318 Cr) • Increase in unit linked renewal premium collection by 106 % (Rs.22380 Cr. To Rs 46239 Cr) • Decrease in surrender value payment • Increase in Total Premium collection by 10% (Rs.2,01,351 Cr to Rs.2,20,184 Cr) Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  11. Role of Indian Life Insurance Industry during 2008-09 Economic meltdown Investment by Indian Insurance Companies • Insurance companies have invested approximately Rs.58,000 Cr in the Equity market. • FII pulled out approximately Rs.47,345 Cr from the domestic stock market. • Mutual funds invested approximately Rs.7,000Cr in the domestic stock market. • Increase in Infrastructure Investment by 26%(Rs.91,283 Cr to Rs.1,15,762 Cr) “Insurance industry was the saving grace for the domestic equity market”- Hindu Business Line Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  12. Role of Indian Life Insurance Industry during 2008-09 Economic meltdown Financial Savings Capital Formation Insurance Growth of economy results into increase in savings Investment in Govt. Securities, Infrastructure Projects, Capital Markets Higher Income – Greater Savings Direct Employment Employment Generation – Financial prosperity Indirect Employment Infrastructure Development Economic Development Better infrastructure results into growth of economy 12 12

  13. Agenda Assets Managed by Indian Life Insurance Industry Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  14. Assets managed by the industry • Rs.9,31,000 crores assets managed by life insurance industry. • Prudent asset management strategies aligned to regulations adopted by the industry have provided consumers healthy returns over long-term • Life Insurance Industry was a significant investors in Indian capital market during global economic meltdown when FII’s were nett-sellers. Source: Life Insurance Council

  15. Assets managed by the industry ‘Managing funds and providing long-term security in working life and in retirement’ • A unique combination of financial security and cushion against risk of death, disability & diseases. • Avenue for long-term savings combined with ‘risk cover’ • Investing money for long periods to provide policy benefits and post-retirement Annuities (Investment has always been an integral strong part of all forms of life insurance.) Source: Life Insurance Council

  16. Agenda Meeting Consumer Expectations Source: Life Insurance Council

  17. Meeting Consumer Expectations • Customised benefit illustration at point of sale Includes product benefits, break-up of charges Provides disclosures like premium allocation, avenues of investment and the potential value of investment (@6% and 10%). • Only retail financial product to provide 15-day free look period • Investment control lies with the policyholder Insurance companies disclose their ULIP portfolio at regular intervals. • During FY 2008-09,guaranteed products were introduced selectively in the market to provide comfort to consumers. • Increase in renewal premium with decreasing surrender value payment. • Total benefits paid in FY 2008-09 is Rs.57,383 cr. • Total death claim paid in FY 2008-09 is Rs.6,629 cr (up from Rs.5,762 Cr.in 2007-08). Source: Life Insurance Council

  18. Commission paid by Life Insurance Industry • Total premium of the Industry - Rs.2,20,184 Cr • Commission paid to intermediaries -Rs.15,337 Cr • Percentage of Commission as a percentage of total premium – 6.97 • Insurance is a long term contract with average tenure of 15 years. • Comparatively high start-up cost to be related to a long tenure. 18

  19. Insurance Company is a Capital Intensive Business AUM of Life insurance Companies (As on Mar-09) excluding LIC is Rs.1,18,400 Crs – Supported by Capital of Rs.24,833 Crs. AUM of mutual funds (As on Mar-09) is Rs.4,17,300 Cr- Supported by Capital of approx. Rs. 3,000-4,000 Crs 19

  20. Agenda Expectation from Budget Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  21. Expectations from Budget • Service Tax exemption for ULIP charges • ULIP and Mutual Fund offer products operating within the same sphere and competing with each other. • Service tax is paid by life insurance companies on ULIP products on all charges including entry load, exit load, policy administration charges ,asset management charges and other miscellaneous charges. Entry load charges includes recovery of stamp duty of insurance policy which is also subject to service tax. • Mutual Fund companies only pay service tax on Asset management charges. • The service tax implications on products offered by ULIP and Mutual Fund should be the same to ensure that ULIP do not become uncompetitive due to imposition of service tax levy. • Therefore their is disparity in service tax on similar products.

  22. Expectations from Budget • Stand Alone Deduction in Income Tax for long term investment. • Extension of period for carry forward of losses of life insurance companies • Exemption of annuities from taxation

  23. Thank You

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