Understanding Insurance Penetration


Two of the most important and mostly used terminologies in insurance industry throughout the globe are insurance penetration and insurance density. In fact, these two are also used to compare the insurance industry of various countries and plays an important parameter for judging the insurance growth in any economy. In this post, I will discuss about Insurance penetration and will try to a make readers understand about the same and will be discussing Insurance density in a separate post.

Insurance Penetration: Technically, Insurance Penetration is the ration of premium underwritten in a particular year to the Gross Domestic Product (GDP) of the country and is expressed as a percentage. In other words, insurance penetration is the percentage contribution of the insurance sector to the GDP of the country. Let us understand with an example. Suppose the total premium underwritten in a Financial Year in a country is INR 1,00,00,000 and the GDP of the country of that Financial Year is INR 50,00,00,000. To calculate the insurance penetration, divide the premium underwritten to the GDP which means, (1,00,00,000/50,00,00,000 = 0.02) and expressing this as a percentage will come up to 2% (0.02*100 = 2). This means, the insurance penetration is 2%. Insurance Penetration is widely used and you will encounter this jargon in almost every insurance journals, reports, research papers etc.

As per the latest Insurance Regulatory and Development Authority of India (IRDAI) Annual Report 2017-18, the insurance penetration of India in 2017 was 3.69% which is a slight increase from 3.49% in 2016. Further, the insurance penetration can be segregated in to life insurance and non-life insurance. As per IRDAI Annual Report, the life insurance penetration and non-life insurance penetration of India in 2017-18 were 2.76% and 0.93% respectively.  For 2016-17, life insurance penetration and non-life insurance penetration were 2.72% and 0.72% respectively. This indicates a marginal increase in life insurance and non-life insurance penetration from 2016-17 to 2017-18. Let’s look at the insurance penetration of some of the countries which is given in the following table:

Insurance Penetration of selected countries (in %)
Country Year 2016 Year 2017
Life Non-Life Total Life Non-Life Total
Taiwan 16.65 3.34 19.99 17.89 3.42 21.32
Hong Kong 16.2 1.41 17.6 14.58 3.36 17.94
South Africa 11.52 2.74 14.27 11.02 2.74 13.75
South Korea 7.37 4.72 12.08 6.56 5 11.57
United Kingdom (UK) 7.58 2.58 10.16 7.22 2.36 9.58
France 6.06 3.17 9.23 5.77 3.18 8.95
Japan 7.15 2.37 9.51 6.26 2.34 8.59
Switzerland 4.72 4.12 8.85 4.41 4.12 8.53
Singapore 5.48 1.67 7.15 6.64 1.58 8.23
India 2.72 0.77 3.49 2.76 0.93 3.69
World 3.47 2.81 6.28 3.33 2.8 6.13
Source: Swiss Re, Sigma volumes, 3/2017and 3/2018

A closure look at the insurance penetration reveals that India is way behind the world average insurance penetration.  Taiwan is the country with highest insurance penetration of 21.32 % followed by Hong Kong and South Africa having insurance penetration of 17.94% and 13.75% respectively. Also, the above table reveals that Switzerland is the country where the gap between life and non-life insurance penetration is minimum. In fact, Switzerland has a proper distribution of life and non-life insurance business and both life and non-life insurance has almost equal contribution to the country’s GDP.

Insurance penetration is an indicator of growth of insurance sector for any economy in a particular year. It is widely used as a comparative tool to measure and compare insurance industry among various countries and hence knowing and understanding of insurance penetration is beneficial for all of us. Hope I was able to make you understand this jargon in simple terms. 🙂

Ashish Kumar

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LET’S BEGIN THE JOURNEY…


There was a time when we used to neglect.
A random change made each of us to select.
You were before and I was present.
But the affection among us was absent.
Neither me nor you cared for each other.
It was just  hate that binds  together.
Time passed you went away.
Leaving behind me on painful way.
I never expressed how much I cared for.
How deliberately I waited for.
What you thought I never came to know.
What I thought you never came to know.
But one thing was clear.
We were knowing each other very well.
Despite of me never being well.
The hatred feeling among was our love.
We were each of our beloved.
Time passed and we got separated.
Leaving each other neglected.

It was a sudden surprise when we met again.
The buried hate came to born again.
We were never made for each other.
That’s what we thought.
The mouth and heart spoke different.
Leaving each of us in silent.
Silent for quite a time.
In order to begin a new time.
You gave indication for end of cold war.
Being together we will fight every war.
Hugging you in distress.
Will you become my Mrs?
I know you know.
What else do we need to know.
We are each of ours soul.
Coming together we will achieve our goal.
You have suffered and I have suffered.
Now its time for each of us to prefer.
Holding each other we will cry.
Solving each others pain we will try.
Gone are the time when we were in vain.
Together we will burn all the pain.
Each of us are made for each other.
The journey of eternal love starts here.
You are my dear and I am your dear.
There is no need for any sorts of fear.
Let’s begin the journey of millions miles.
Let it take the desired time.
Slowly and slowly we will move forward.
Igniting a new flame we will never look backward.
So let’s begin the journey of millions miles.
Let it take the desired time.

love

– Ashish Kumar