Impact of liberalisation of insurance sector?

Answer 1

Impact of Liberalisation can be viewed as a two tier process, First is impact on overall functioning of the market and second is the impact on financial performance. When seen in the context of overall performance, the insurance sector is seen to have made a robust growth in the post liberalisation era in terms of huge volume of business underwritten by the companies and overall growth of the market. The indicator insurance premium reflects that the share of insurance premium is increasing in the total GDP of the country and presently India figures second in the subcontinent in terms of insurance penetration. However, when seen in the context of per capita expenditure on insurance, it is still low. Overall the market is widening, and insurers are competing hard to have more market share. Rural and under penetrated segments are receiving a good amount of attention by the insurers to reap benefits. The market has transformed from sellers to buyers, which is a bigger benefit ever the people had.

When talking about the impact on the financial performance of the insurance industry, the industry suddenly had a paradigm shift, insurers are seen to act efficiently in terms of luring customers to their products resulting in growth recorded by each insurer, innovative distribution systems are taken in service for that matter, however, competition is the fierce, which compels the insurers to price their products lower, resulting in the thining margins of profitability. The situation is even worse for non life insurers, where the underwriting losses are at the highest ever. However, regulation to invest in government and semi government securities promises steady returns for the insurers which surely is a silver lining.

Given the situation when governmnt is being presurised by the FII to relax the FDI cap, more surprises are expected within the coming years, who knows what it may turn out to b,. first example of bankrupt insurance company in India can not be ruled out in the competitive market or we may learn from our mistakes and come up with a better and promising market both for customers and insurance companies.

Tanveer A Darzi