DEST Practice 18

The insurance sector in India, regulated by the Insurance Regulatory and Development Authority of India under the Insurance Regulatory and Development Authority of India Act of 1999, provides the financial protection mechanism that enables individuals, households, and businesses to transfer specified risks to professional risk-bearers, smoothing consumption and investment in the face of uncertain events that would otherwise cause catastrophic financial disruption. Life insurance protects dependants against the financial consequences of the premature death of the breadwinner, provides a mechanism for long-term savings, and serves the objective of retirement planning through endowment, term, whole life, and unit-linked products offered by public and private life insurers. The Life Insurance Corporation of India, the publicly owned life insurer established under the Life Insurance Corporation Act of 1956, remains the dominant player in the market with the largest policy and premium base, the widest distribution network including branch offices in almost every district headquarters, and a workforce of several lakh agents, though private insurers have captured a significant and growing share of new business particularly in unit-linked products and term insurance sold through digital channels and bancassurance partnerships. General insurance covers a range of non-life risks including motor insurance which is compulsory under the Motor Vehicles Act for all vehicles, health insurance which covers hospitalisation and medical expenses and is among the fastest-growing insurance lines in India, crop insurance offered under the Pradhan Mantri Fasal Bima Yojana with heavy government premium subsidy to protect farmers against crop loss, fire and allied perils insurance for property, marine cargo and hull insurance, engineering insurance, and liability insurance. The insurance penetration rate in India, measured as premium income as a percentage of GDP, remains significantly below the global average and well below levels in developed economies, reflecting the combination of low financial literacy, limited distribution reach particularly in rural areas, distrust of insurance products arising from past claim settlement experiences, and the perception of insurance as an expense rather than a risk management tool. IRDAI has been implementing a Vision 2047 agenda to increase insurance penetration substantially by promoting innovative and affordable products, simplifying policy wordings, mandating faster claim settlement, expanding distribution through new channels, and encouraging the entry of more players in underserved market segments. The composite licence concept, allowing entities to offer both life and non-life insurance products through a single corporate entity, is under consideration as a structural reform that could improve distribution efficiency. Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana are mass insurance schemes providing accident and term life coverage at highly affordable premium rates of one hundred and thirty-six rupees and four hundred and thirty-six rupees per year respectively, accessed through the banking system.