Tuesday September 11, 01:58 AM
Life insurance market will double by 2012: McKinsey
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By Economy Bureau
A major study on the Indian insurance sector by consultancy firm McKinsey & Co says less than a third of the life insurance agents meet minimum training and sales standards set by their companies. It said the life insurance market could easily double to $100 billion in five years, but has cautioned that it would need to move beyond narrow single-premium policies and unit-linked insurance products like ULIP for that to happen. The report tracked the potential of the Indian life insurance industry to uncover key challenges to its growth. Entitled India Insurance 2012: Fortune Favours the Bold, it estimates that higher per capita income will be the key driver of higher demand for insurance products. Anu Madgavkar, associate partner, McKinsey & Co, and co-author of the report, told FE, "It has been found that unit-linked policies are prone to volatility as they are linked to equity markets. Companies should look at products that provide cheaper, de-risked policies." ULIPs are a combination of insurance cover and equity investments packaged in a single policy. The two products are a staple for insurance firms in India. ULIPs account for almost half the fresh premiums in 2007. As a result, the non-unit-linked, long-term investible asset base of the domestic life insurance industry is only 16% of GDP against up to 70% in the European market. On the quality of agents, the study says there is very little to differentiate between those who have spent more than two years in a company and freshers without any sales experience. By 2012, Indian household will be paying premia of up to Rs 4,100 from the current Rs 1,300. India's ratio of life insurance premium to its GDP is around 4% against 6-9% in the developed world. But, the report claims it could rise to 6.2% by 2012, in tandem with the country's demographic profile. It also says Indians rank life insurance higher than other investment options for tax benefits, unlike other markets. The protection cover offered by the policies also helps, it notes. By 2012, almost 40% of the urban population is likely to have some form of life insurance cover, while in rural areas too it could touch 35%. Current levels are 30% and 25%, respectively.
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