Insurance Sector in India

Introduction

• As of Financial Year 2022, India's insurance market stands at $131 billion. Over the last two decades, India's insurance industry grew at a compound annual growth rate (CAGR) of 17%. This growth rate is expected to continue in the future also.
• Today, India is at 11th rank in the global insurance business. In 2020, India's share in the global insurance market was 1.72%. In terms of the size of the insurance industry in India, the share of life insurance in total premium in India is 75.24% and that of non-life premium is 24.76% (according to statistics for the year 2020).
• Government schemes and financial inclusion initiatives shall have helped in driving the adoption and penetration across all segments. The government's flagship initiative for crop insurance (PMFBY) has led to significant growth in the premium income for crop insurance, and now covers over 55 million farmers' applications year-on-year. During the COVID-19 lockdown period, nearly 70 lakh farmers have benefitted from it.
• AB PM-JAY is an entitlement-based scheme under Ayushman Bharat and is fully funded by the government. It is the largest health insurance scheme in the world and aims at providing health cover of Rs.500000 per family per year for secondary and tertiary hospitalization to over 107 million vulnerable families. 
• Through the Union Budget 2021-22, the FDI limit in the insurance sector has been raised from the existing 49% to 74%.
• Insurance is a subject listed in the Union list in the Seventh Schedule to the Constitution of India where only centre can legislate.
• Life insurance, in India, was nationalized in 1956 when about 154 Indian insurance companies and 16 non-Indian companies were operating in India.
• The insurance sector in India consists of a total of 57 insurance companies - out of which 24 companies are life insurance providers and the remaining are general insurance providers - out of these seven public sector companies are there.
• In 1972, the Government of India passed the General Insurance Business (Nationalisation) Act, under which the government took control of all the private insurance companies of India and created 4 companies; National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd, United India Insurance Company Ltd. LIC was created in 1956 is owned 100% by GOI.
• The Indian insurance sector is divided into two categories - life insurance and non-life insurance (general insurance). Both life insurance and non-life insurance are governed by the Insurance Regulatory and Development Authority of India (IRDAI).

IRDA

• IRDA is the statutory body that regulates the insurance sector in India.
• It was formed in 1999 on Malhotra Committee's recommendation.
• It has a 10-member governing body appointed by the GOI:

1. Chairman
2. Five full-time members
3. Four part-time members

• Its role

1. to monitor the entire insurance sector in India;
2. to act like a custodian of the rights of consumers of insurance services

• It functions autonomously and is responsible for managing and regulating both the insurance and re-insurance industry in India.
• All insurers in India must have to abide by the rules and regulations of the IRDA.

Insurance Ombudsman (IO)

• The offices of Insurance Ombudsman are under the administrative control of the Council for Insurance Ombudsman (CIO) which has been constituted under the Insurance Ombudsman Rules 2017.
• The IOs are appointed by the CIO.
• Role of IO is to receive and consider complaints in respect of insurance from any person who has any problem against an insurer. In normal circumstances it has to pass an award within 3 months after receiving complaint.
• The award of IO can be challenged in other venues like Consumer Forums and Courts of law for redressal of his grievances.
• A committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government select the Insurance Ombudsman appoint the IO from Insurance Industry, Civil Services and Judicial Services.

Pension Sector in India

• Pension both as an instrument of financial savings and a means of old-age income security, is emerging as an important financial product for individuals.
• India's pension sector provides a flexible mode of old-age income security both for salaried individuals and common persons.
• The framework of the pension system can be broadly cast into three pillars:

1. Pillar-1: non-contributory basic social pension financed mostly by the government;
2. Pillar-2: occupational contributory pension schemes that could be either voluntary or mandatory;
3. Pillar-3: voluntary fully-funded pension schemes

• In India, before the introduction of the National Pension Scheme (NPS) in 2004, the main pension system was for government employees while some other institutions such as defence, seamen's, railways, coal mines, Assam Tea Plantation, etc. had their own independent pension plans. All these schemes taken together could be considered as the categories of occupational pension that could be categorized under Pillar-2. The private corporate sector mostly opted for the provident fund under the EPFO.
• There is no comprehensive Pillar-1 in India. However, some specific government-sponsored schemes do exist in India such as Indira Gandhi National Old Age Pension Scheme (IGNOAPS).

National Pension System (NPS)

• Introduced in 2004.
• It was made mandatory for government employees joining services from 2004.
• Except for Rajasthan and Chhattisgarh, all Central and State Governments are on the NPS.
• In 2009, it was opened to all citizens irrespective of their employment status - anyone in the age group of 18-70 could open an NPS account.
• In 2011, NPS has been opened to the corporate sector also - so, corporates have a choice to either go with EPFO or NPS for their employees.
• NPS is also open to NRIs and OCIs.
• NPS is managed by professional fund managers - the value of the pension corpus is marked-to-market and accordingly, the rate of return is market determined.
• An individual's NPS account is unique and portable also - so, NPS is a highly flexible scheme without any barrier as one could join the scheme with a contribution of just Rs.500.
• NPS is mandatory for government employees, but it is so in the case of private individuals and corporate employees.
• NPS can also be considered as Pillar-3 as anyone can open an NPS account as a voluntary contribution scheme.

Atal Pension Yojana (APY)

• Introduced in 2015 as part of the overarching objective of providing universal social security.
• This pension scheme is open to all individuals in the age group of 18-40 years.
• It is particularly aimed at underprivileged, unorganized, and low-income individuals.
• It is a defined-benefit and defined-contribution pension plan where an individual knows beforehand how much he would have to contribute and what amount of pension he will get.
• APY has triple benefits:

1. It gives a lifetime monthly fixed pension in the range of Rs.1000-Rs.5000 post-60 years of age depending on a person's choice and corresponding contribution.
2. The spouse gets the same amount of pension for a lifetime on the subscriber's demise.
3. The accumulated corpus with interest is returned to the nominee on the demise of both the subscriber and the spouse.

• So, APY is not just a pension scheme, it serves as a long-term saving instrument also.
• It is risk-free also - guaranteed by the government and administrated by the pension regulator, PFRDA.

Pension Fund Regulatory and Development Authority (PFRDA)

• It is a statutory regulatory body set up under the PFRDA Act enacted in 2014.
• Its objectives include

1. promotion of old-age income security;
2. protection of interests of NPS subscribers

• It was initially designed for government employees exclusively, but its services were subsequently expanded to cover all Indian nationals and NRIs including self-employed persons.
• Its headquarters are in New Delhi with regional offices located around the country.
• Functions of PFRDA:

1. promote pension plans in the country by encouraging both obligatory and voluntary pension schemes to meet the retirement income demands of retired workers;
2. the National Pension System is overseen and governed by the PFRDA;
3. educating the general public and stakeholders on the significance of pensions;
4. training for intermediaries who are in-charge of popularizing and teaching individuals about the value of pensions;
5. addressing and resolving issues between various intermediaries, such as banks, as well as, between consumers and intermediaries

Progress of Pension Sector in India

To conclude

1. These are the early days for the pension sector in India. There is tremendous scope for growth as India's per capita income rises further and India is transitioning to a middle-income country. Since longevity is inching up, so also need for a steady stream of income is increasing to mitigate old-age poverty. Further, as the traditional family support system changes with increasing urbanization, there is an even greater necessity for an independent source of income in old age.  
2. As the pension sector progresses, there will be a need for a sound regulatory architecture to ensure that pension funds are managed on prudent lines while safeguarding overall financial stability. In this direction, PFRDA became as statutory pension sector regulator in 2014. PFRDA has an oversight role over the pension sector and has taken a number of steps to ensure that the intermediaries involved in the relevant pension architecture function seamlessly. Entry and exit of pensioners have been made easy with greater usage of technology. The mechanism for quick redressal of pensioners' grievances needs to be strengthened further.
3. Financial literacy is important for people to reap the benefit of the formal financial sector. Financial literacy is a major challenge not only in emerging market economies (like India) but also in advanced economies. This calls for a multi-pronged strategy. This has got the attention at the highest levels of financial regulators and the government under the aegis of the Financial Stability and Development Council (FSDC). There is a national strategy for financial inclusion which is being implemented on an ongoing basis. Each regulator including PFRDA have taken a number of steps to enhance financial education so that the customers make informed decisions and reap the benefit of the formal financial sector.
4. Financial inclusion and empowerment will remain incomplete without each member in a family having got a pension account. So, it needs a nudge by all concerned - the employers, intermediaries, the government, and the pension regulator - to induce people particularly young adults to join a pension scheme.