Page 7 - Life Insurance Today January-June 2020

Before we dwell upon each one of the above areas, let me
attempt to prove, with few examples, the premise of gap
or deficiency in the present practices, felt by an average
person in understanding the sector.

Over the years, societies have developed two primary
indicators to facilitate understanding and judgment on the
role of insurance in the economy and the stage of its
development. First, indicator is called “insurance
penetration” and the second one is known as “insurance
density”. While insurance as a percentage of country's GDP
is an indicator of penetration, the insurance premium per
citizen represents insurance density.

In India penetration is little less than 1.0 % for general
insurance and is about 3.7% for insurance (Life and Nonlife
together) and Indian Insurance (nonlife) density works out
approximately to Rs 1241/- (2019-20). These two indicators were expressed as a percentage of net interest income
on their own, I do not think, make any sense to an average (Interest earned on loans and advances less interest paid
on deposits).
person. However, if these indicators are presented along
with, say the corresponding penetration indicator of South
Africa (or any other country/ies), which is 13.77%(2017), or This measure may be good and meaningful for an intra-
insurance density in South Africa to be approximately 15 sector comparison. But when it comes to intersector
times that of India, or along with the corresponding figures comparison, it has no value. Correct revenue on which
of the previous year (or any other earlier point of time/s or expense ratio is to be calculated for inter-sector sector
comparison has to be an addition of both inward and
periods), it starts making some sense to the reader. Similarly
outward interests and not the net of them. Because banks
if the insurance penetration of non life insurance of 0.99%
is presented along with corresponding indicator 7.7% of render service to both segments of customers (Borrowers
banking industry it will make some sense. as well as depositors). Net interest income as a revenue is
unique to banking. Similarly there is no corresponding item
Yet, in both cases it is not an adequate and complete in banking comparable to claims cost in insurance.
understanding. It does not convey the clear picture even
to the well read ones. Will such information enable the Thus making inter-sector comparison a nonsense. May be,
reader to decisively conclude that the high South African the outward interest can represent the same. Similarly
indicators stand for better insurance awareness and there are no readily available items in manufacturing
capacity of Africans and they do not stand for the poor and industry comparable to the claims cost of insurers. In two
riskier environment prevailing in that country ? leading manufacturing organisations the cost of material
with related expenses of power, freight, wages and
Similarly can it be rightly concluded that role of insurance manufacturing over heads amounted to 65-70 percentage
is secondary to that of banking because of the low figure of of the total cost. This may well correspond to the claims
insurance penetration compared to that of banking ? This cost of insurers. Re-organising such factors would definitely
dilemma is true of / for many insurance parameters. Let us facilitate some meaningful inter-sector comparison. At times
examine another parameter. Expense ratio. If an average even intra-sector comparison will be confusing.
reader is presented with the expense ratios of organisations
in different sectors (Insurer, Banker, Mutual fund, Take an example relating to insurance commission as a
Manufacturer.......) will he be able to make any sense of percentage of premium. This ratio of a leading insurer used
true efficiency from such figures ? Definitely not. In an to be unreliably very low compared to other comparable
annual report of a leading banker, the operating expenses insurers, thereby confusing the reader in their judgment.

Behind every great man is a woman rolling her eyes.

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