Life Insurance Penetration in India & the World Explained
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What Is The Life Insurance Penetration In India And How Does It Compare Globally?

Term Insurance Quote
  • 15th Mar 2021
  • 1,425

What Is The Life Insurance Penetration In India And How Does It Compare Globally?

Life insurance comes with many advantages. It offers different products types, such as term insurance, whole life insurance, unit-linked investment insurance, retirement based life annuity and endowment insurance, and more. There is a plan for every income group and budget, and the risk involved is quite low. However, despite these benefits, life penetration in the country has been rather low. This article talks about life penetration in India and how it compares to other countries.

What is life insurance penetration?

Life insurance penetration is a parameter to determine the ratio of premiums from life insurance plans to the gross domestic product (GDP) of the country. High life insurance penetration indicates the development of the insurance sector and reflects on the popularity of insurance products among the citizens.

What is the life insurance penetration ratio in India?

Unfortunately, life insurance penetration figures in India are quite low. If you consider the rate of insurance penetration in the country from the early 2000s, you will notice an increase. Life insurance penetration was recorded at 2.15% in 2001, which had substantially risen to 4.60% in 2009. However, after 2014, there has been a disappointing trend in the country. Insurance penetration in 2015 was recorded at only 2.72%. This marginally increased in 2017 with 2.76%. The financial year 2018-19 showed an upward graph with numbers reaching 3.70%. However, the overall picture still seems bleak.

What does global insurance penetration compare to India?

As per a report, the global penetration in 2019 was the highest at 19.97% in Taiwan. This was closely followed by Hong Kong that stood at 19.74%. The United States of America reported an insurance penetration rate of 11.43% while the United Kingdom stood at 10.3%. India’s neighbour, China, also recorded a higher life penetration at 4.3%. The world average was reported at 7.23%. These numbers are a lot higher than India’s insurance penetration.

Why is life insurance penetration in India so low?

Reasons that contribute to low insurance penetration numbers in the country:

1. Illiteracy:

A significant number of India’s population is not educated. As a result, a low financial acumen is a prime cause of low insurance purchases in the country. People still do not know about the benefits of insurance plans and how the different types of insurance policies can offer them relief in the case of financial emergencies.

2. Limited customer base:

Many insurance companies follow an agent-based model. The insurance agent finds clients, sells them an insurance policy, and in return earns a commission on every sale. This has led agents to pursue only a limited group of upper-middle-class or high-class Indians, completely ignoring other income groups, who in reality form the majority of the population.

3. Unstable economy:

With increasing unemployment, political unrest, and a widening gap between the rich and the poor, people have less disposable income in hand. This leaves them with very little to invest. The pandemic also added to people’s insecurities. In such circumstances, people are more occupied with sustaining in the present and have little interest and resources to safeguard their future financial needs.

What can be done to increase the insurance penetration rate?

An increased level of knowledge can encourage people to buy insurance. Many insurers like kotak life are now offering their plans online without the interference of agents. Insurance companies also post myth-busting blogs with accurate information on insurance products. This can enable people to compare different insurance products, check the claim settlement ratio of the insurer, and pick a suitable product without hassles.

- A Consumer Education Initiative series by Kotak Life

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