The Finance Minister, Shri Pranab Mukherjee has asked insurance industry to give more focus to generate the required level of awareness about the benefits of insurance to rural people particularly those living in semi-urban and rural areas. They should make all efforts to take the necessary steps to ensure the reach of insurance to general masses. The Finance Minister assured that ULIPs issue will be resolved shortly. The Finance Minister was speaking after inaugurating the new building of Insurance Institute of India in Bandra Kurla Complex in Mumbai today. On this occasion the Finance Minister also released a corporate replica. Shri Ashok Rao Chavan, Chief Minister of Maharashtra, Shri J. Hari Narayan, Chairman of Insurance Regulatory Development Authority (IRDA) and Secretary, Financial Services, Shri R. Gopalan were also present on this occasion. Following is the text of FM’s whole speech:
“It gives me immense pleasure to be here at this historic moment when the Insurance Institute of India is re-emphasizing its commitment to Insurance professionalism in India.
While regulatory policies do contribute to orderly growth and stability of the market, professionalism is another equally important aspect. I am happy to note that Insurance Institute of India has all along been striving to develop professionalism in the industry in this country. That is why, I am here with you all on this occasion when the Institute has re-endorsed its commitment to the cause of professionalism.
When the Institute was formed in 1955, the economy was in its infancy. Even in the year 1966 when the College of Insurance was established and the 11th Annual Conference of the Federation of Indian Insurance Institutes was inaugurated by the then Prime Minister Late Smt. Indira Gandhi, there were only 39 insurance institutes and 13,000 members under the Federation. From then, the Institute has changed into the Insurance Institute of India with 91 associated institutes in India and a few Institutes abroad. Its membership has crossed 2 lakhs and it has produced more than 34,000 Associate and 13,000 Fellow Members. Developing around 47,000 insurance professionals is not a small achievement.
With the opening of the insurance sector and entry of private sector companies, the competition has intensified not only between private and public sector companies but also amongst public sector companies. There is now a sense of benchmarking globally which is indeed a very healthy trend. This has resulted in development of new insurance products, reduction of premium, improved customer service, increased visibility through print & electronic media, discussions, symposia and seminars etc. ultimately benefiting the insuring public.
Since opening up, the number of participants in the industry has gone up from six insurers (including Life Insurance Corporation of India, four public sector general insurers and General Insurance Corporation as the national re-insurer) in the year 2000 to 47 insurers operating in the life, non-life and re-insurance segments as on date (including specialized insurers, viz., Export Credit Guarantee Corporation and Agricultural Insurance Company).
The post liberalization period has witnessed tremendous growth in the insurance industry, more particularly so in the life segment. The total premium underwritten by the industry has grown from Rs.34,898 crore in 2000-01 to Rs. 2,23,556 crore in 2008-09. The non-life insurers underwrote premium within India of Rs.30,601.20 crore in 2008-09, as against Rs.9,806.95 crore in 2000-01.
As we all know the insurance penetration and insurance density are two important indications of the potential and performance of the insurance sector. Insurance penetration which was 1.84% of GDP in 1996, has grown to 4.60 % of GDP in 2009. The low insurance penetration is partly due to lack of awareness on the part of general masses regarding the benefit flowing from the insurance and partly because of the lack of availability of insurance services to the large masses. Though there has been an effective outreach in life insurance, the general insurance still needs to work harder.
One of the important challenges before the insurance industry today is to generate the required level of awareness about the benefits of insurance to our people particularly living in semi-urban and rural areas. It should be our endeavor to take all necessary steps to ensure the reach of insurance to masses.
As for meeting their rural and social obligation, the insurance companies are now increasingly tapping the semi-urban and rural areas to spread the message of protection of life and property through insurance cover. The Government of India have also introduced many special products aimed at the rural markets like Jan Shree Bima Yojana, Universal Health Insurance Scheme, Aam Admi Bima Yojana, Crop Insurance, etc. for the benefit of poor and needy populace in the country.
One of the main objectives of promoting financial inclusion packages is to economically empower those sections of society which are otherwise denied access to financial services, by providing banking and credit services thereby focusing on bridging the rural credit gap. Lack of protective elements may do not serve the objective of promoting financial inclusion packages as the targeted section may fall back into the clutches of poverty in the event of unforeseen contingencies. Hence, to provide a hedge against these unforeseen risks, I would like popularization of micro insurance as one of the essential ingredients of financial inclusion packages.
India is a country where large section of people are engaged in agriculture and the farmers are mostly dependent on monsoons. The crop insurance is still not popular among the farmers. At present only 20% farmers are covered under Agriculture Insurance Schemes. The schemes are implemented by 25 States and 2 Union Territories in the Country. Recognizing the importance of crop insurance as a critical risk management tool, we have taken a serious view of the huge gap between the amount of crop loan disbursed and that covered under the scheme.
We are a disaster prone country and have seen many devastating disasters in the recent past. There is immense need of disaster management in controlling catastrophic risk in India. The insurance industry should prepare to deal with any kind of catastrophic losses. The insurance companies should concentrate on exploring the world reinsurance market, so that the impact of heavy losses can be mitigated.
Growth in insurance industry has been spurred by product innovation, vibrant distribution channels coupled with targeted publicity and promotional campaigns by the insurers. Innovations have come not only in the form of benefits attached to the products, but also in the delivery mechanism through various marketing tie-ups both within the realm of financial services and outside. All these efforts have brought insurance closer to the customer as well as made it more relevant.
One of the crucial areas in the insurance sector is the adoption of new technology in the industry. It is an accepted fact that insurance business is technology driven. It has the potential to save cost and hence, the scope for reducing price of product. Coming years will witness a total revolution in the ways of doing business. I request you all to make maximum use of technology to extend outreach. E-commerce will be increasingly used in all sectors including banks and insurance and products will be sold on Internet.
I am fully aware and appreciate the contribution of the insurance sector to the growth of the economy. With a fund size exceeding Rs.11 lakh crore, the insurance industry has contributed to the borrowing programme of both the Central Government and the State Governments as also to that of the public sector and the private sector. I am also aware of some recent issues arising in the life insurance industry especially concerning Unit Linked Insurance Policies. We will resolve this issue soon. I understand that Insurance Regulatory and Development Authority has taken some very positive steps in respect of regulations of ULIPs which are in the interest of both the insurance industry as also the policyholders. Some of these measures like cap on charges, extending the minimum term of the policy to 5 years, bringing the concept of compulsory annuitisation in pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much needed reforms in the ULIP products. I am sure that the insurance industry and IRDA would continue to bring in these reforms so that the interest of all the stake holders are secured.
I also take this opportunity to commend the role of the intermediaries specially the agents in the insurance industry who have contributed in ensuring that the insurance products reach every nook and corner of the country. With a force of around 30 lakh agents, it is a matter of pride that insurance industry is perhaps the only financial services arm that reaches out to almost all the villages in this country. This is also borne out by the fact that 25% of the life policies i.e. approximately 1.5 crore policies every year are sold in the rural areas.
However, there is still a very long way to go and further need to increase the penetration of insurance. With rising incomes in the country, the need for insurance is bound to rise and provides opportunity for the insurance industry to tap this growing need and provide insurance cover both life and non-life to the large masses of this country. I am sure, the industry will rise to the occasion.
The Institute has to change with the times. It is heartening to note that they have initiated the change process. I understand that the Institute is in the process of modernizing its curriculum, translating books into local languages, conducting examinations online and having a programme for continuous professional development for active practitioners. I am happy that these initiatives are being taken. I appreciate the determination of the Institute’s Board and the Chairmen of the Insurance Companies seated here. I see the seven-storied edifice that has hosted this august gathering as a standing monument to their commitment to the cause of building professionalism and developing the insurance industry.
On this occasion, I will leave you with some thoughts and vision for the Institute’s future development:
(i) The Institute could spread the message of insurance to every nook and corner of the country, especially to the rural population of the country;
(ii) There is a need for continuous academic research for giving a scientific backing to the practice of insurance. The Institute should have a regular Knowledge-cum-Research Wing studying the common issues of the industry.
I am sure the industry, the regulator and the policy makers would be interested in the outcomes of objective scientific studies.
I am happy to declare open this temple of insurance education and dedicate it to the nation.”