Is life insurance penetration low in India?

Nice piece by Harsh Roongta.

We actually need a better metric for insurance penetration. Current measure is too crude and shows insurance penetration has declined which is against conventional wisdom:

“Tea demand continues to be robust, with per capita consumption growing from 690g per person in 2006 to 750g per person in 2013,” says a Tea Board official. Why am I starting this personal finance article with an imaginary quote from the Tea Board? Bear with me for a minute and it will be clear to you.

“The life insurance penetration has declined from 4.6 in 2006 to 3.10 in 2013.” This or similar statements appear frequently in the media. I have found it strange, as it measures the life insurance premium paid as a percentage of gross domestic product (GDP). It is akin to the Tea Board official saying that the amount of money spent on tea as a percentage of the GDP has come down. Whilst market forces decide on the price paid per kilogramme of tea, the Tea Board official is right in feeling satisfied that the per capita consumption has gone up, as his job is primarily in promoting the use of tea.

Contrast this with the statistics that the insurance sector orInsurance Regulatory and Development Authority of India(Irdai) concentrates on – even the per capita consumption is measured in terms of premium paid per person. For the record, that has gone up from $33.2 in 2006 to $41 in 2013 (figures are from the Irda Journal). That’s a growth of around three per cent, probably just around the inflation rate for the dollar for that period. What amazes me is that nobody is focusing on the actual life insurance figure (called sum assured) and these figures are not directly available. For example, from data I could gather, the sum assured as a percentage of the GDP has remained rock-steady at 41 per cent from 2006 to 2013, despite the decrease in “penetration”. My attempts to get reliable data on sum assured per capita were not successful but crude calculations indicate it would have marginally crept up.

The total sum assured data was not easily available for 2014 but I have no doubt that it would also show some improvement, mainly due to the increasing emphasis on online term insurance. In any other sector, that would have led to some satisfaction and encouragement of the factors that led to this small improvement in “penetration”. But in this sector, the regulator has come out with rules that seriously impair the prospects of the online web aggregators which have led the online term insurance revolution. The misguided focus on the total premium paid, with no focus on the sum assured, is resulting in the slower “penetration” of life insurance in India.

Statistics fool us most of the time..