The Indian life insurance sector, two decades after its liberalisation, is at an inflexion point. It is set to enter into a multi-decade growth rebound era, powered by economic growth and favourable demographic changes amid a very high and rising mortality protection gap and longevity (retirement) savings gap.
Mortality protection gap
India has one of the highest and fastest-growing mortality protection and retirement funding gaps in the world. India’s mortality protection gap stands at $16.5 trillion. The retirement funding gap is expected to reach $85 trillion by 2050, at a CAGR of 10%. These dual challenges provide life insurers with a significant multi-decadal growth opportunity. These structural growth drivers should ensure that the life insurance sector will continue to deliver over 15% total premium CAGR in the next two decades. The combination of brand and distribution reach, coupled with innovations in offerings, should help large private players continue to gain market share with better profitability as the benefits of product mix changes kick in.
Private sector leaders are best-positioned to deliver innovative solutions to the demand for protection from mortality and longevity risks. The top-seven private players increased their retail annual premium equivalent (APE) market share to 49% in FY21 from 30% in FY06. We believe that this trend will continue.
Value of new business (VNB)
Helped by the favourable base from FY21, private life insurers should post strong new business growth in FY22. Beyond FY22, the underlying structural demand factors should help them deliver 15% growth. This, along with a gradual margin expansion arising from product mix changes and operating leverage, should propel VNB growth to over20%.
The government and the regulator have realised the challenges emerging from the rising mortality and longevity protection gap. They have been very proactive in facilitating the growth of mortality insurance and retirement products. The broader policy environment should continue to be in the same direction, and regulatory reforms such as the much-awaited risk-based solvency framework and IFRS should be implemented in a measured manner without any knee-jerk actions.