THE global insurance market expanded by just two per cent in 2003. The South Asian market, by contrast, was far more buoyant with growth of 17.6 per cent during the same period. However, this is only half the story. The other part is less encouraging. Whereas South Asia houses 22 per cent of the world’s people and contributes two per cent to global GDP, its share in the world insurance market was hardly 0.6 per cent in the year 2003.
Insurance density, which is defined as premium per capita, was therefore, a paltry $13.43 as against a world average of $470, while insurance penetration, which is premium as percen-tage of GDP, was similarly, 2.47 per cent as compared with
the global average of eight per cent.
In 2003, insurance density was $2.15 for Bangladesh,$16.38 for India, $2.93 for Pakistan and $12.58 for Sri Lanka. For the same period, the position in respect of insurance penetration was 0.57 per cent for Bangladesh, 2.89 per cent for India, 0.63 per cent for Pakistan and 1.26 per cent for Sri Lanka.
These indicators make dismal reading. This is more so for Bangladesh and Pakistan. However, there is a nicer way of looking at them. This can only mean that there is so much untapped potential here that a better future for the industry is always assured.
Advent: Life insurance, in its existing form, arrived in South Asia in the year 1818 with the establishment of the Oriental Life Insurance Company in Kolkata. Non-life business arrived later, when the Triton Insurance Company commenced business in the same city in 1850.
In almost two centuries, the South Asian insurance sector has come full circle from an open market to nationalization and back to a liberalized market once again. Public sector, local and foreign-owned units now compete openly and freely, albeit in a more stringent regulatory environment.
This has provided greater freedom of choice, improved products and better protection for the policyholder. The outcome has been a high growth in India.
Reforms: Since the mid-eighties, there have been a series of reforms. These reforms, it must be said, resulted, basically, from pressure, sweetened by technical assistance grants, from the ADB and the World Bank.
However, this is not to say that there was no need for reform. Insurance laws had, indeed, outlived their utility being largely of 1938 vintage. The public sector units had become rigid in their ways. Reforms, when they came, were, therefore, like a welcome gust of wind that blew away much of the existing staleness.
Collectively for South Asia, life premium written in 2003 was $14,071 million (equivalent). It was $194 million for Bangladesh, $13,590 million for India, $185 million for Pakistan and $102 million for Sri Lanka.
Paradoxically, despite reforms, the entry of private companies and the significant number of players, especially in Pakistan (with 50 insurers) and Bangladesh (with 61 insurers), bulk of life and non-life business continues to remain in the hands of public sector units.
This is more true for life insurance where LIC in India, State Life in Pakistan and Jiban Bima in Bangladesh continue as market leaders by varying wide margins. In Pakistan, for instance, State Life still controls 85 per cent of the life insurance market.
The state-owned Sri Lanka Insurance, since privatized, is the largest insurer in that country in respect of both life and non-life business, closely followed by Ceylinco. These insurers together control 65 per cent of the life business.
There are obvious reasons for this situation. These state-owned units are well- entrenched monoliths with huge infrastructures and elaborate marketing networks. They welcome rural and small business although it is both labour and cost-intensive, an area that the private sector is hesitant to enter at this juncture.
The private sector has, therefore, by choice and ground realities, opted for high-wealth clientele, special products and niche marketing focused on the larger urban centres, where growth must necessarily be slower.
On the non-life side, aggregate premium for South Asia was $4,241 million (equivalent) in the year 2003. It was $102 million for Bangladesh, $3,712 million for India, $289 million for Pakistan and US$ 137 million for Sri Lanka.
What is unusual is that, in India, on the non-life side, New India, United India, Oriental, National and GIC, all government-owned but with increased autonomy in recent years, together wrote 80 per cent of premium in the year 2003, a situation which is unlikely to change in the foreseeable future.
In Pakistan and Bangladesh, the position is somewhat different. In the case of Pakistan, the two leading non-life insurers (Adamjee and EFU) account for 60 per cent of the premium, and the top five for 80 per cent.
In Bangladesh, Sadharan Bima has about 15 per cent of the business followed by some 10 companies holding, on average, five per cent each. On the face of it, almost all non-life insurers here are captive insurers, a situation that has died out with time in India and Pakistan.
On the non-life side too, Sri Lanka Insurance and Ceylinco are the market leaders and collectively hold 70 per cent of this market in Sri Lanka.
Clearly the insurance sector in South Asia, in spite of 200 years of history and similar number of companies in the field, remains small by global standards. Poverty, lack of awareness, and, perhaps, strong belief in fatalism, can explain this.
It is also evident that private life insurers have failed, so far, to make any serious impact. This is because, apart for the reasons spelt out earlier, in the initial years business growth is slow. The insuring public is conservative and cautious. It looks for strength and stability, qualities that a new company is unable to offer.
Private life companies will need time to establish themselves. Where they stand ten years from now only time can tell.