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A Review of Life Insurance Distribution in India
Large gaps exist in life insurance coverage in India. The paper examines this issue through a supply-side lens by examining the two key features—the distinction between the agent and the broker model and the alignment of incentive structures with product life-cycle servicing. Regulations rely on disclosures to clarify the agent–broker distinction to customers, but conflicts of interest may prevent intermediaries from making these disclosures. Without such transparency, commission-driven sales can result in mis-selling, irrespective of the intermediary being a broker or an agent. The Insurance Regulatory and Development Authority of India has sought to address the issue of mis-selling through the product disclosure and suitability guidelines. However, these measures are inadequate and might not be effective.
Life insurance penetration (the ratio of premium to gross domestic product) in India stood at 2.82% by the end of financial year (FY) 2019–20. Insurance density (premium per capita) was at $58 for the same year. These figures are among the lowest in the world and have not seen significant growth in the past few years (Figure 1, p 51). The Insurance Regulatory and Development Authority of India’s (IRDAI) data indicates that the growth in the life insurance business in terms of premium income and the number of policies in force has been subdued in the second decade (between FY 2010–11 and FY 2019–20) as compared to the first decade (between FY 2000–01 and FY 2009–10), post liberalisation of the insurance sector. While the premium income of life insurers grew at 12.7% in FY 2019–20 from `5.08 trillion to `5.73 trillion, there was no overall growth observed in the total number of policies in force for the same year when compared to the previous year (Figure 2, p 51). As of March 2021, this number stood at 333.2 million policies.
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