ECONOMIC SURVEY: CHAPTER 2
MONETARY & FINANCIAL SECTOR DEVELOPMENTS IN INDIA (PART 4)
India’s Insurance Sector
- Growth: Total insurance premiums in India grew by 7.7% in FY24, reaching ₹11.2 lakh crore, although insurance penetration slightly declined from 4% in FY23 to 3.7% in FY24.
- Life Insurance: Life insurance penetration saw a minor drop from 3% in FY23 to 2.8% in FY24, while non-life insurance penetration remained stable at 1%.
- Insurance Density: Insurance density rose modestly from USD 92 in FY23 to USD 95 in FY24, with non-life insurance density rising from USD 22 to USD 25, and life insurance density remaining at USD 70.
- Premium Income: The non-life insurance sector saw a 7.7% YoY growth, with gross premiums reaching ₹2.9 lakh crore. The life insurance sector recorded a 6.1% YoY growth, with premiums reaching ₹8.3 lakh crore in FY24.
Insurance Penetration:
It’s calculated by dividing the total amount of insurance premiums paid in a year by the country’s gross domestic product (GDP).
Insurance Density:
Insurance density is a measure of how much insurance premium is collected per person in a country. It’s calculated by dividing the total insurance premium collected by the total population of the country. It’s usually expressed in US dollars.
Insurance Penetration and Density
- Penetration Rate: With an overall insurance penetration of 7%, India remains below the global average of 7%, offering ample opportunity for insurers to expand their reach.
- Target Segments: Insurers can target tier 2 and 3 cities and rural areas, where awareness and access to insurance products are limited, to tap into new customer segments and drive growth.
Future Growth Projections
- Projections: According to the Swiss Re Institute, India’s insurance sector is expected to grow at 1% annually, making it the fastest-growing market among the G20 nations from 2024 to 2028. The expansion will be driven by an increasing middle class, advancements in technology, and supportive regulatory measures.
DEVELOPMENTS IN THE PENSION SECTOR
Pension Sector Growth
- National Pension System (NPS) and Atal Pension Yojana (APY): India’s pension sector has experienced significant growth since the introduction of the NPS and APY.
- As of September 2024, the total number of subscribers reached 783.4 lakh, marking a YoY growth of 16% from 675.2 lakh in September 2023.
- APY Subscribers: The number of APY subscribers increased from 538.2 lakh in March 2023 to 629.1 lakh in September 2024. APY subscribers now account for approximately 80.3% of the total pension subscriber base.
DEMOGRAPHIC SHIFTS
- Gender Distribution: There have been notable improvements in the gender distribution of APY The share of female subscribers grew from 37.9% in FY16 to 52% in FY24.
- Age Distribution: The age distribution has increasingly favored a younger cohort, specifically those aged 18-25, whose share rose from 29.2% in FY16 to 45.5% in FY24.
- Pension Amount: A significant portion of APY accounts (93.7%) corresponds to a pension amount of ₹1,000 per month, while 3.7% are for a pension of ₹5,000.
UNIFIED PENSION SCHEME
- UPS Introduction: On August 24, 2024, the government approved the Unified Pension Scheme (UPS) for government employees, which will be implemented alongside the existing NPS, starting from FY26.
- Features:
- The scheme offers a family pension, a guaranteed pension amount, and a minimum pension for all government employees.
- It guarantees 50% of the average basic pay of the last 12 months before retirement as the guaranteed pension, provided the employee has served the government for at least 25 years.
- The minimum pension under the scheme is ₹10,000 per month for employees with at least 10 years of service upon retirement.
PENSION COVERAGE & ASSETS
- Pension Assets: Pension assets, including major schemes like the Employees’ Provident Fund Organisation (EPFO), contribute 17% of India’s GDP. The NPS contributes an additional 4.5% of the GDP.
- Pension Coverage:
- Overall pension coverage for NPS and APY increased from 0.95% of the total population in FY16 to 5.3% in FY24.
- The Assets under Management (AuM) for these schemes as a proportion of GDP has risen from 86% in FY16 to 4% in FY24.
FUTURE CHALLENGES
- Emerging Risks: Emerging risks, such as climate change, geopolitical uncertainty, and increasing life expectancy, present significant challenges for pension providers. The growing elderly population highlights the widening pension gap and raises concerns over underwriting risks related to longevity.
- Risk Management: Effective risk management requires a clear, quantitative understanding of risk appetite. Insurers and pension providers must innovate rapidly to address these emerging risks while ensuring efficiency and productivity through simplification, standardization, and digitization.
FINANCIAL SECTOR REGULATORS
- Role of Regulators: Independent regulators are crucial institutions responsible for implementing specific policies across several sectors, including financial services. These regulators provide non-discriminatory access to essential services and ensure fair and transparent regulations.
- Financial Sector IRBs: The financial sector is primarily governed through Independent Regulatory Bodies (IRBs) such as:
- RBI (Reserve Bank of India)
- SEBI (Securities and Exchange Board of India)
- IRDAI (Insurance Regulatory and Development Authority of India)
- PFRDA (Pension Fund Regulatory and Development Authority)
- IBBI (Insolvency and Bankruptcy Board of India)
- FSDC (Financial Stability and Development Council) has a broader financial stability
Each IRB has different structures, functions, and degrees of autonomy.
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