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BUSINESS MANAGEMENT SYMPOSIUM 2016, 26TH AUGUSTatSchool of Petroleum ManagementPandit Deendayal Petroleum University (PDPU)

SONJAI KUMAR, Vice President- Business RiskAviva India Life Insurance

Disclaimer: Views expressed in this presentation are mine and not necessarily of my employer

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WHAT IS THE EXAM QUESTION ? In the current growth in the domestic market how

does the Insurance sector is going to influence the trajectories of Indian Economy in future.

We shall see that how does the insurance sector influences the economy and vice versa

How does the current statistics indicates immense potential in the insurance sector compared to the developed market which in turn will impact the economic growth positively

What are the current and future challenges to watch out

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SOME LATEST INDICATORS Total insurance players in India are 53 insurance

companies of which 24 are in life insurance business and 29 are non-life insurers

Life insurance market is expected to grow over the next 10 years from its current size of US$ 60 billion to US$ 160 billion.

Between April 2015 to March 2016 the life insurance industry wrote new premium income of Rs 1.38 trillion (US$ 21 billion), @ growth rate of 22.5%

The general insurance industry recorded a 12 per cent growth in Gross Direct Premium underwritten in April 2016 at Rs 105.25 billion (US$ 1.55 billion).

The general insurance business currently at Rs 78,000 crore (US$ 11.44 billion) premium p.a. likely to grow @ 17 per cent.

US, UK

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INSURANCE PENETRATIONInsurance penetration measured as a percentage of insurance premium to GDP rose from 2.71% in 2001 to 5.20% in 2009, then declined to 3.3% in 2013-14, indicating the growth in insurance premium is lower than the growth in national GDP

World average of 6.3%,

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INSURANCE DENSITY DEVELOPING COUNTRIES

Insurance density which is measured as a ratio of premium to total population. It was 11.5 in 2001

Low ID in India is due to Insurance business largely skewed towards Urban area whereas total population accounts for rural which is largely uninsuredWhat about China?This indicates the potential India presents to insurance business and particularly “Rural India”

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INSURANCE DENSITY - DEVELOPED COUNTRIES

Impact of low population, high income and awareness towards protection

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IMPORTANCE OF LIFE AND HEALTH INSURANCE SECTOR

Financial Protection against death earlier than expected- Term Insurance

Financial Protection to meet the cost of health care – Health Insurance Products

Longevity protection- Living Longer than expected- Annuity Products

Savings- To meet long term guaranteed liability such as Education, marriage, build up pension corpus, Inheritance transfer – Endowment and Whole Life Products

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POTENTIAL IN THE INSURANCE SECTOR

0-14 15-24 25-54 55-64 65+ -

10

20

30

40

50

60

36 Cr, 29%

23 Cr, 18%

51 Cr, 41%

9 Cr, 7% 7 Cr, 6%

Population Profile as on 2014

Child Products

Term Insurance

Term Insurance

Endowment Insurance

Whole Insurance

Term Insurance

Annuity

Annuity

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RELATIONSHIP OF ECONOMIC PARAMETER AND INSURANCE SECTOR

Macro Economic Parameters

Insurance Sector

Improves Employment

Generates income

Growth in GDP

Increase Domestic Savings

Increase Disposable Income

Capacity to pay Premium

Customer

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RELATIONSHIP OF ECONOMIC ACTIVITY AND INSURANCE SECTOR

Macro Economic Parameters

Insurance Sector

Growth in GDPIncrease Disposable Income

Capacity to pay Premium

Support Capital Market

FDI increases more insurance players and so more money into capital market

Generate long term investible fund and improve GDP

Customer

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RELATIONSHIP OF ECONOMIC ACTIVITY AND INSURANCE SECTOR

Macro Economic Parameters

Insurance Sector

PremiumCustomer

Interest Rate

Inflation Increase in interest rate negatively correlated with increase in Premium income

Increase in inflation rate negatively correlated with increase in Premium income

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IMPACT OF ECONOMIC AND DEMOGRAPHIC FACTORS ON INSURANCE SECTOR

Macro Economic Factors

Insurance Sector

Demographic Factors

Interest Rate

Inflation

Equity Market

Longevity of Life

Willingness to pay Premium

New Business

Profit

Impacts savings products

Impacts cost of products

Moves customers to and away from Insurance

Impact on Economy

Impacts cost of products

Impacts cost of products

Customer

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HOW DO WE SEE THE FUTURE ?

Insurance Sector

Capital

Regulatory Regime

Taxes

Digital

Rural Market

Distribution

FDI- 49%, IPO,

Capital intensive, Long pay back Period , Risk Based Capital

GST, Tax Benefits

New Regulations Challenge

IT investment, cost saving by 15% to 20%

Expensive Agency Model, Bancassurance is limited,

New Opportunities- Online, NBFC,

Types of Products, Pension

Large untapped market – key to the future successRight Products for such market

Risk Based Capital will induce more application of risk management

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RISK MANAGEMENT & INSURANCE

Insurance Sector

Internal Risks

Economic Risk

Demographic Risk

Regulatory Risk

Global Risks

Operational Risk

Lapse Risk

Mortality Risk

Interest Rate Risk

Inflation RiskEquity Risk

Expense Risk

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CONCLUSION The insurance industry has contributed in the increasing the

employment both directly and indirectly Private Sector has contributed towards increase in premium

by around 10%; this also catalyst LIC to increase its productivity Insurance industry has contributed in the GDP over the last 10

years to peak at around 5%; however compared to the developed market, we have long way to go and tap its current potential

Willingness to invest capital, improving on the digital front from cost and automation perspective, focus on rural market and innovative distribution holds the key for the future of insurance industry.

These factors will be reflective in the future insurance penetration and insurance density.

Now, India no more being a closed economy, one critical factor that may affect Insurance sector and economy together is the Global risk factors

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THANKS

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GDP GROWTH RATE

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INSURANCE PENETRATIONNot enough compared to developed countries which is around 10%

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INSURANCE DENSITY

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

70

11.514.716.419.722.7

38.446.647.4

54.3

64.459

53.2 52 55

Insurance Density (USD)

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INCREASE IN EMPLOYMENT- EMPLOYEES AND AGENTS , FIGS IN LACS

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0

5.0

10.0

15.0

20.0

25.0

30.0

1.5 1.9 2.5 2.9 3.0 3.4 2.5 2.5 2.4 2.5 2.5

14

20

25

29 30

27

23.421.2 21.6

20.4320.16

No. of Employees No. of Agents

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PREMIUM INCOME

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1st Yr Premium Existing Business Total Premium

11%9%

11%11

%14%

14%

15%

17%

12%

10%7%

4%2%1%

% indicates Share of Private Sector

Cr

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GROSS DOMESTIC SAVINGS AS A % OF GDP

Definition of 'Gross Domestic Saving' Definition: Gross Domestic Saving is GDP minus final consumption expenditure. Gross Domestic Saving consists of savings of household sector, private corporate sector and public sector.

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DISPOSABLE INCOMEDisposable Personal Income in India increased to 138192890 INR Million in 2015 from 127880080 INR Million in 2014

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FDI IN INDIAFDI in India increased by 1547 USD Million in May of 2016. FDI in India averaged 1153.89 USD Million from 1995 until 2016, reaching an all time high of 5670 USD Million in February of 2008 and a record low of -60 USD Million in February of 2014.

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ASSETS INVESTMENTS (CR)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

Equity (Market Value) Fixed Income (Book Value)