LIC structuring and regulatory implications for insurance industry

Abstract

Insurance sector forms a large as well as critical division of the overall financial system in the world, with its services ranging from the individual or retail consumer to corporate, institutional and industrial insurance. Insurance industries worldwide find themselves muddling through a variety of challenges as they try to recover from the after effects of the global recession and work to improve profitability, growth and competition. With the fall of the largest insurance company AIG, the insurance companies now need to keep up with the increasing regulatory scrutiny around security and capital requirements while enduring the increasing competition. Global insurance premiums grew by 11% in 2007 (compared to 6.6% in 2006) to reach $4.1 trillion. This was despite the unkind macro-economic environment which was characterized by slower economic growth in 2007 as well as rising inflation. In 2011, the market is forecast to have a value of $4,367.1 billion. The same year life insurance premiums grew by 12.6% and the non-life insurance premiums by 7.6%. 1 Advanced economies account for the bulk of global insurance. With premium income of $1,681bn, Europe was the most important region, followed by North America ($1,330bn) and Asia ($814bn). The top four countries accounted for nearly 60% of premiums in 2007. The US and UK alone accounted for 42% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums. India and China find their way into the list of the most attractive markets for the growth of the industry. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34 per cent annually. 2 Premium income for just the private life insurance companies in India grew registered a CAGR of 94% in 2009 (over the previous five years). With the internet and other forms of high-speed communication, companies and individuals are now able to purchase insurance and related financial products from almost anywhere in the world. Increasing affluence, especially in developing countries, and a rising understanding of the need to protect wealth and human capital has led to significant growth in the insurance industry. Given the evolving and growing socio-economic conditions worldwide, insurance companies are increasingly reaching out across borders and are offering more competitive and customized products than ever before. Over the past ten years, global insurance premiums have raised by more than 50%, with annual growth rates ranging between 2 and 10%. In 2004, global insurance premiums amounted to $3.3 trillion. The majority of insurance comes from developed nations such as most of Europe, the US, and Japan.