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8/2/2019 GroupA06 Final
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Submitted by:
Group A06
Aditi Parikh 2011005Ashish Kapil 2011012
Dheeraj Jain 2011016
Dikshit Jain 2011018
Mondit Moyur Mahanta 2011032
Prakhar Saikia 2011041
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Objective To determine the relationship between development of the insurance market andeconomic growth within the context of various economic factors prevailing in the Indian
economy.
Aspect of economic environment/policy measure to be examined
Two important measures of development of insurance sector are:
Insurance Penetration: measured as the percentage of insurance premium to GDP
Insurance Density: calculated as the ratio of premium to population (per capita premium)
Economic environment: GDP growth, interest rates, inflation
Policy measures: Regulations imposed by IRDA and Insurance act Investmentrules, regulations on price tariffs and solvency margins.
0.0
2.0
4.0
6.0
8.0
10.0
Asia India World
Life
Non-life
Total
MotivationThe Indian insurance market happensto be a mega opportunity with annualgrowth rate of around 15-20 per cent.The key changes in regulations andmacroeconomic variables are affectingthe growth of the sector.
The figure represents the real growth inpremium during 2010-11
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What needs to be added: Major players market shares
Market concentration and foreign shares Mix of life/non-life business
Key catalysts driving non-life business rising household income and riskawareness
Demand for health, motor and private insurance
Contribution of each segment for non-life
Trend Products offered before and after deregulation
Insurancemarket
Lifeinsurance
(24)
Public (1)Private
(23)
Generalinsurance
(24)
Public (6)Private
(18)
Re-insurance
(GIC)
Market Structure
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Focus: The study only focuses on various variables (economic, demographic, policy) within thecontext of Indian Economy
The period of study is 1993-2010, in order to establish a comparison of pre and post liberalization
of insurance sector Selection of variables - Based upon secondary research and group discussions , we selected the
below variables for our study
Data Collection: The data is predominantly collected from World Bank - World DevelopmentIndicators
Dummy variable: There is one institutional/market structure variable which represents the affect ofopening up of Indian insurance sector for private players. This happened in year 1999, hence,Dummy variable is assigned value 0 and 1 accordingly.
Method - Multiple regression analysis method with the use of dummy variable to determine theextent and validity of the relationship.
Limitation This model does not take into consideration the supply side determinants ofinsurance market, e.g. distribution of insurance products, agents or Bancassurance channels.
Variable Type Reason for selection (Hypothetical relation)
Insurance Premium Dependent Indicator of spending on insurance products
GDP per capita Independent, Economic This variable represents the household income(+)
Gross Savings percapita
Independent, Economic This variable represents the householdsavings (+)
Inflation Independent, Economic Affects household savings decision (-)
Interest Rate Independent, Economic Affects household savings decision (+)
Life Expectancy atBirth Independent,Demographic Affects insurance consumption over the years(+)
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After performing the series of regression and transforming some of the variables mentioned in the above slideswe
observed that there are four most significant variables displayed below explained 98.9 percentage of penetratiin Insurance Premium. The regression model is significant as p value is 0. The final Regression Equation stand
as:
Dummy variable is introduced to verify the categorical effect due to liberalization in 2000 that may beexpected to shift the outcome. We observed that the estimated slope coefficient of dummy variable is
not significant as its p value is 26.5 %.
Total Insurance Premium = -11083 + 2.43 GDP per Capita + 153 Life Expectancy atBirth+ 74 Inflation (GDP Deflator) + 344 log (Real Interest Rate)
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Initiation of Reforms: Formation of Malhotra committee in 1993 to assess thefunctionality of the sector and take charge of recommendations for future path.
It ultimately led to formation of Insurance Regulatory and Development Authority
(IRDA) in 2000* Some of the key functions of IRDA
Registration of Insurers
Regulation on insurance agents
Solvency Margin
Re-insurance
Obligation of Insurers to Rural and Social sector Investment and Accounting Procedure
Protection of policy holders' interest
Entry of private players in insurance market with FDI up to 26%
With growth of banking in India, Bancassurance becoming the primary distributionchannel of insurance products.
Establishment of Insurance Ombudsman in 2005 to handle complaints of aggrievedinsured customers.
Detarrification of all insurance products in 2007 where in premiums will be risk basedinstead of tariff based.
Micro insurance regulation in 2005 to expand the reach of insurance at affordablecost to Bottom of pyramid.
* This was a major reform, hence, represented by dummy variable in our regression
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The study of development of Indian insurance market with the help of regressionanalysis and tracking policy measures led to following key observations:
GDP per capita is the major indicator of development of insurance sector in the
context of Indian Economy. This represents the household income, hence, a pattern ofincreased insurance consumption can be seen with rise in the income.
The growth of insurance market has been significant post-liberalization of insurancesector i.e. year 2000. However, this cannot be explained by the regression analysis.
The rapid growth of insurance sector can be attributed to key regulations changeswhich constantly aimed at sustaining the growth of the sector.
The other variables such as interest rates, inflation, life expectancy rates are not muchsignificant in context of Indian economy.
0
500
1000
1500
2000
2500
3000
35004000
Insurance Premium (Rs. Cr.)
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Political
Regulator/Government has
been proactive in its policiestowards insurance sector
Private insurers can tap the IPOmarket, Introduction of healthinsurance portability, scrappingof common pool (Indian motorthird party pool system),bancassurance draft reforms
DTC impact
Economical
With increase in economic
growth ,the level of disposableincome has increase ,resultingin higher rate of insurancegrowth
Infrastructure bottleneckscrippling investment
Social
High population growthrate(1.3%) and age distribution(demographics )contributing to
a large pool of prospectivecustomers
Increasing level of literacyleading to insurance awareness
The customers view insurancemore as an investment toolthan risk coverage
Rural insurance
Technology
Automation of insuranceleading to personalizedfacilities to the customers
Mobile application to compareinsurance products andpremium rates
Use of technology forpaperless insurance
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Defining the scope and method of study
should be the primary step for doing anenvironmental analysis as there can bemultiple ways to do it.
Review of literature for empirical
relationships can be a good starting point forselecting the environmental variables.
Identification of key policy measures and
mapping their impact on performance of thesector is one of the most difficult andsignificant task in doing the environmentanalysis.