The main function of the insurance is to provide protection against the probable chances of loss. In its social responsibility and providing relief in sufferings it is different from any other enterprise which are solely motivated by maximising profit. It is primarily business of mitigating suffering due to unfortunate events. Insurance today is inseparable part of social welfare in any country.
At a more macro level the industry supports our economy and protects the taxpayer.
First, it pays approx. Rs 120000 crs in claims every year. That removes the burden on the government and individuals who would otherwise have to support the loss. It frees up funds to be used in more productive ways. When people drop out of insurance it is ultimately the taxpayer who foots the bill when disaster strikes.
Second, the industry underpins nation building – economic activity is possible because insurance protects the industries and individuals in all pursuits, whether that be building a national highway or giving professional advice in business and private practice.
It’s also worth noting this financial services industry is an employer and generator of wealth. The general insurance industry provides jobs to over one million people out of which 140000 are regular employees. Its outstanding growth rate of approx. 15% for last many years prior to pandemic distinguishes it from any other sector of economy. Even after pandemic the growth rate has picked up and it still has a CAGR of 11% for last 10 years. In 2021-22 it has generated premium of Rs 220000 crores. Every year it issues over 25 crores policies and handles over 11 crores claims and is tirelessly trying to increase its reach.
Let us look at the various sectors where insurance plays a useful role in the country.
Agriculture accounted for 16% of India’s Gross Domestic Product (‘GDP’) and employs 50% of the country's total workforce.
Agriculture in India is highly susceptible to various risks like droughts, floods, storms etc. which lead to extensive crop damage. Reducing risk of loss in the agricultural sector through insurance has a direct implication for agricultural productivity and farmer welfare. It also intersects with some of the key development goals for the economy such as ending poverty, achieving food security and curbing hunger. Under Pradhan Mantri Fasal Bima Yojana (PMFBY) a comprehensive Crop insurance scheme covers major part of the country.
2.Health & other personal insurances
The mounting medical expenses and hospitalization costs are a concern world over and India market is no exception. A comprehensive health insurance and its effective delivery can be a real relief to people.
A policy covering personal accident can provide a much-needed monetary compensation to the sufferer whereas home insurance can protect people from theft fire natural calamities like flood earthquake or even public liability caused by motor accident
During recent pandemic when lives of people were badly affected the general insurance industry rose to the challenge and worked tirelessly to provide relief to the covid patients. In two years of pandemic it paid over 25000 crs of claims which nearly wiped out the 5 years of profit the industry generated.
The insurance thus enables all citizens to live life free from fear of loss life or their savings in the event of an unfortunate event. .
3.Business and commerce
Business and commerce cannot do without insurance. Industrial insurance protects against fire, burglary, natural calamities, various liabilities, loss of profit etc. No export import or trade of goods is possible without transport insurance. Thus, insurance enables the entrepreneurial spirit to express itself fully free from fear of loss.
A widespread insurance protection ensures smooth running of the economic system, contributes to the wellbeing of individuals and vitality of entrepreneurial spirit.
Challenges Ahead and Conclusion
Despite over 20 years of opening of the sector the penetration of general insurance is still around 1% with low density as compared to the global average of over 3.9%. The recent push and spate of reforms led by the regulator it is hoped that in a very short time the not only the penetration level and the density of the premium would increase but India could be the 4th largest insurance market in the world by 2027.
While in its ambitious journey the industry strives to contribute to the nation and the society in a massive way and sometimes going beyond its capacity resulting into losses it will need support and confidence of its customers and other stakeholders to improve its services increase the penetration and reach out to all sections of people.
Apart from recent pandemic the number of natural disasters India has faced in recent times like Floods, Cyclones, and massive losses to crop insurance due to drought and floods is unprecedented. Insurance industry is sometimes unjustifiably criticized for its lack of response. Add to those pressures of confronting live television coverage or a newspaper report with images of loss, destruction, and in the most tragic of circumstances, death.
In the wake of the worst disasters on record for natural events the performance of insurance companies is always placed in the spotlight. The government directives to speed up claims in such events results in many cases uncovered pay-outs and presents a solvency issue for insurers which places all insurance customers in danger. An insurer in such situations accept such claims just because the scale of this event was large and received so much media and community attention. By and large insurance industry has risen to the occasion and acquitted itself well even in the face of criticism. But then support required for the industry should also be forthcoming from its customers and other stakeholders and there is dire need for urgent steps to help this sector in continuing to achieve its objectives. General insurance industry in India faces huge challenges on account of thin margins, lack of awareness, lack of preferential tax treatment etc. Considering the above, the sector needs several policy initiatives to ensure expansion and profitability. Fortunately, recent wave of reforms is signaling a very positive future for the industry.
A well-developed and evolved insurance sector is a prerequisite for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk-taking capability of the country. General Insurance industry is evolving rapidly to meet all expectations of its customers and rise to any challenge in future.