How Demonetisation Has Helped The Insurance Industry

By BankBazaar | February 3, 2017

How Demonetisation Has Helped The Insurance Industry

While most people have been talking about depositing money in banks after the demonetisation drive, there are a fair few who have looked at other possible avenues to divert their money into. One of these avenues has been Insurance.

Thanks to the demonetisation drive, the insurance industry saw phenomenal growth in November and December, 2016. The numbers show that the demonetisation drive has led to an influx of money into insurance policies.

Additional Reading: What Demonetisation Taught Us About Money Management

Want to know more? Read on.

A Jackpot?

For this exercise, we took data from the Insurance Regulatory and Development Authority of India (IRDA). When we look at the premium numbers, the total premium collected for November 2016 stood at Rs. 16,061 crores. Up from just about Rs. 7,553 crores in November 2015. What’s the growth rate? 112.6% year-on-year (yoy)! 8th November, 2016 was when the demonetisation drive started.

Want more proof that this might be due to the demonetisation effect? Consider this.

Individual single premiums (where you need to pay a one-time premium for the policy) stood at Rs. 6,691 crores for November 2016. The figure was Rs. 1,103 crores for November 2015. The growth rate? A whopping 506.6%!

In contrast, the non-single premium (where you pay an annual or repeated premium), rose from Rs. 2,919 crores in November 2016 to Rs. 3,567 crores in November 2016 – a growth rate of just about 22%.  Out of the total premium of Rs. 16,061 crores for the month, Life Insurance Corporation’s (LIC) premium collection formed a chunk of Rs. 12,528 crores.

Still not convinced? Here’s more!

We looked at data for December 2016. The total industry premium collection for December 2016 stood at Rs. 13,012 crores, while it was Rs. 11,026 crores for December 2015. The growth rate? Just about 18%.

But wait! We aren’t done yet! Let’s look at the individual single premium numbers.

The total premium collected for single premium policies stood at Rs. 1,532 crores for December 2015. However, it rose to Rs. 1,626 crores in December 2016, representing a growth rate of a mere 6% year-on-year.

Let us remind you that this figure was 506.6% for November 2016. Thanks to the inflow in November, the total premium for the year 2016 was Rs. 1,16,417 crores. Up from Rs. 85,587 crores in 2015. A 36% growth year on year.

Additional Reading: 6 Actions To Take As Demonetisation Takes A Toll On Investments

That should be proof enough that the demonetisation drive has had a great impact on the insurance industry. For more insights, check out the tables below.

November 2016

Insurer Premium
For November, 2015 For November, 2016 Up to 30th November, 2015 Up to 30th November, 2016
LIC 5182.5 12528.07 52291.75 75263.09
Industry Grand Total 7553.05 16061.4 74550.84 103404.6
Individual Single Premium 1103.05 6691.85 7139.15 19353.79
Individual Non-Single Premium 2919.16 3567.32 22449.73 25918.81
Group Single Premium 2990.45 5021 40320.55 52238.41
Group Non-Single Premium 540.39 781.23 4641.42 5893.58

*Source: IRDA

December 2016

Insurer Premium
For December, 2015 For December, 2016 Up to 31st December, 2015 Up to 31st December, 2016
LIC 7323.67 8261.31 59615.41 83524.39
Grand Total 11026.8 13012.39 85587.73 116417
Individual Single Premium 1532.88 1626.96 8672.03 20980.75
Individual Non-Single Premium 4221.34 4968.01 26671.07 30886.82
Group Single Premium 4652.37 5884.44 45013.96 58122.85
Group Non-Single Premium 620.22 532.99 5230.67 6426.57

*Source: IRDA

Good Year?

The demonetisation drive certainly will not be a one-off event. The Government’s push for a cashless economy will only help the insurance industry. For instance, our finance minister Arun Jaitley announced that if you buy insurance policies online you will get discounts.

When you use your Credit Card to buy General Insurance online, you will get a 10% discount on the product. General Insurance includes Health Insurance, Car Insurance and Travel Insurance.

What about Life Insurance? If you buy Life Insurance online using your card, you will get a discount of 8%. If similar announcements are made in the near future, it will be a great year for the insurance industry.

It is also expected that the insurance industry will get a fillip in the upcoming Union Budget in February 2017.

Says M Ravichandran, President – Insurance, Tata AIG General Insurance Company, “With the implementation of the Goods and Service Tax (GST) Bill, the Indian economy will witness positive strides. It will help create uniformity in the tax structure pan-India by removing several taxes and seamless tax credits, though with the added cost of compliances.

For the insurance sector, we hope to be in the lower tax rate (5% or 12%) considering the low market penetration and the large middle class component of the Indian population with plenty of available potential.

Talking about Health Insurance, the government should be applauded for their efforts in providing Health Insurance coverage for Below Poverty Line (BPL) families. However, more can be done for the salaried class. Given the rising cost of medical expenditure, it would be even more beneficial if they could provide further tax benefits under 80 D of the Income Tax Act.

With the recent cyber-attacks on banks, the industry has witnessed an increased trend in buying cyber insurance to safeguard themselves against risk arising out of cyber-attacks. There is an equal need for introducing strong preventive mechanisms to deter cyber attackers.

The government can do its bit by taking necessary steps to curb cyber crimes through amendments to respective laws and acts, so as to introduce strong punishments for cyber crimes. As a preventive measure, it needs to speed up the process of setting up advanced cyber security and e-surveillance agencies.

IRDA has made e-insurance mandatory, and with digitalisation, it becomes easier for policyholders to maintain policy documents and avail an insurance policy online. This system will work even better if the government can announce incentives to boost online transactions.”

Additional Reading: How An E-Insurance Account Can Make Life Easier

Says K.G.Krishnamoorthy Rao, Managing Director and Chief Executive Officer, Future Generali India Insurance Company Limited, “In November, the Government of India announced demonetisation of 500 and 1,000 rupee notes.

This move will help the industry to move towards digitisation with a view of making Government of India’s ‘Made in India’ campaign a success. With this, customers are now expected to increasingly opt for electronic payment of their insurance premium.

Two major areas wherein we expect some focus from the Government is Home Insurance and Health Insurance. This year, various states like West Bengal, Madhya Pradesh, Assam and Andhra Pradesh were flood-stricken.

The data on the frequency of these floods hitting the country has revealed a high number of losses to property, assets and lives. Since a house is a biggest financial asset, introducing Income Tax exemption on premium paid will push more people to opt for Home Insurance.

Additional Reading: Life Insurance Claims And Helplines For The Flood Affected

We expect certain key resolutions from the Union Budget 2017-18 for making medical devices affordable, which will lighten the burden on the customers’ pocket. Further, higher tax exemption on Health Insurance/PA premium to individual tax payers, and also waiver of service tax on Health Insurance premium, will certainly be a welcome move as these will make the policies more affordable for the public at large.”

If the budget has some incentives for the Insurance industry, then the industry will definitely show good growth in the coming year. As Ravichandran says “Insurance, as of today, is treated as a compulsion and not as an essential component. The thought needs to be re-classified. The government can do much in changing this perception and help increase the insurance penetration in India.”

You can make Insurance a part of your financial portfolio for better balance and returns and of course, for a secure future.

Additional Reading: How To Avoid Getting A Fake Insurance Policy

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