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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IRDAI (Reinsurance) Regulations, 2018


The Insurance Regulatory and Development Authority of India (IRDAI) came up with the reinsurance regulations recently in December 2018. This is a first kind of regulation of its type, specific to reinsurance repealing IRDAI (General Insurance – Reinsurance) Regulations and IRDAI (Life Insurance – Reinsurance) Regulations which were released in 2016. This regulation will be called as IRDAI (Reinsurance) Regulations, 2018 which will be effective from 1st January 2019. This article will provide some of the insights of this newly released regulation covering some of the basic terminologies, areas like Cross Border Reinsurer (CBR), cession limit, amendment to previous regulations etc.

There are total 12 regulations contained in IRDAI (Reinsurance) Regulations, 2018. Some of the important points which need to be known from these regulations are as follows:

  • Reinsurance Program: Every insurer need to have a reinsurance program with the objective of having maximum retention within the country. The Board approved reinsurance program need to be submitted to the IRDAI before 45 days of the commencement of the financial year. For any changes made to the reinsurance program, insurer need to submit the final board approved reinsurance program within 30 days of the commencement of the financial year. The reinsurance program along with the retention policy (discussed below) need to be submitted to the Authority i.e IRDAI. (Regulation 3)
  • Retention Policy: The first objective of reinsurance as stated in these regulations, is to maximize retention within the country. Keeping this objective in mind insurers need to formulate a retention policy. Every Indian insurer shall maintain the maximum possible retention in commensuration with its financial strength, quality of risks and volume of business ensuring that the reinsurance arrangement is not fronting. (Regulation 3). Life Insurer should maintain a minimum retention of
  1. 25% of sum at risk under pure protection life insurance business portfolio
  2. 50% of sum at risk under other than pure protection life insurance business portfolio

The retention policy also states that “Every Indian Reinsurer shall maintain a minimum retention of 50% of its Indian business”, as mentioned in Regulation 3(2)(C) .

  • Fronting: This is one of the confusing jargons used in reinsurance. Let us try to understand this with an example. An insurer is having motor portfolio and what it does is instead of keeping some portion of risks within itself, the insurer transfers most or all part of the risks to a reinsurer, thus relieving itself from the financial burden. This is an example of fronting. Insurer transferring most or all portion of risks to reinsurers. Generally, new insurers use fronting as a risk transfer tool in order to reduce their financial burden at the time of claims. Fronting is defined as a process of transferring risk in which an Indian Insurer cedes or retro-cedes most of or all of the assumed risk to a Re-insurer or retrocessionaire. (Regulation 2(13))
  • IIOs: IIOs is an acronym of International Financial Service Center (IFSC) Insurance Office. This means a branch office of an insurer or reinsurer domiciled in India or outside, which has been granted a certificate of registration by the Authority to set up its office in IFSC-SEZ, to transact insurance business or reinsurance business or both. IIO has been defined in Regulation 2(17) of these Regulations. This is a new concept which specifies setting up of offices in IFSC Special Economic Zone (SEZ).
  • Foreign Reinsurer Branch (FRB): This means a branch of a Foreign Reinsurer who has been granted certificate of registration by the Authority under the Insurance Regulatory and Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 or Insurance Regulatory and Development Authority of India (Lloyd’s India) Regulations, 2016, as amended from time to time.

Cross Border Reinsurer (CBR)

CBR, as the name suggests, means a foreign reinsurers including Lloyd’s Syndicates, whose place of business is established outside India and which is supervised by its home country regulator. CBR includes:

  • Parent or Group companies of FRBs (Foreign Reinsurer Branch)
  • Parent or Group companies of IIOs.

CBR can be understood by an example. Consider an Indian insurer wants to transfer its risk to a reinsurer which is not in India but in United Kingdom (UK). Indian insurer can transfer its risk to UK based reinsurer whose place of business is in UK and not in India. Then the UK based reinsurer is a CBR. In order to transact business through CBRs, there are eligibility criteria which a CBR (like the UK based reinsurer) should have. Indian insurer can place their business through CBRs if CBRs meet the following eligibility criteria as defined in Regulation 4:

  • The CBR is an insurance or Re-insurance entity in its home country, duly authorized by its home country regulator to transact re-insurance business during the immediate past three continuous years;
  • The CBR has a credit rating of at least BBB from Standard & Poor or equivalent rating from an international rating agency during the immediate past three continuous years;
  • The home country of the CBR has signed Double Taxation Avoidance Agreement with India;
  • The CBR has minimum solvency margin or capital adequacy, as specified by the home country regulator, during the immediate past three continuous years;
  • The past claims settlement experience of the CBR is found to be satisfactory;
  • Any other requirements as stipulated by the Authority from time to time.

One of the most important aspects related to CBR is what is known as Cession Limits. Cession means transfer of risks and the insurance company which transfers the risks to a reinsurer is known as Cedant. Cession Limits restricts Indian insurer to transfer risks to CBRs based on the rating of CBRs. The rule is simple; better the rating of CBR, more risk can be transferred and vice-versa. The below table provides the maximum cession limit that can be allowed per CBR as defined in Regulation 6.

Rating of the CBR as per Standard & Poor or equivalent Maximum overall cession limits

allowed per CBR

Greater than A+ 20%
Greater than BBB+ and up to and including A+ 15%
BBB and BBB+ 10%
Note: The above percentages are to be calculated on the total reinsurance premium ceded out-side India.

Reinsurance Placements

Regulation 5 describes the way of placing reinsurance placements. According to Regulation 5(1), every insurer (Cedant) shall be free to obtain best terms for its reinsurance protection of domestic risks, subject to the following:

  • Cedants shall seek terms at least from all Indian Re-insurers, who have been transacting Re-insurance business (other than emanating from obligatory cession) during the immediate past three continuous years and at least from four FRBs. (Regulation 5(1)(A) )
  • No Cedant shall seek terms from IIOs and FRBs having credit rating below A- from Standard & Poor’s or equivalent rating from any other International Rating Agency. (Regulation 5(1)(B)(a) and Regulation 5(1)(B)(b) )

Order of Preference

One of the most important aspects of reinsurance placement in Indian context is Order of Preference which has been revised in IRDAI (Reinsurance) Regulations, 2018. Order of preference means in which order, the insurance company in India should place their reinsurance business. In simple terms, which reinsurers should be given preference while placing reinsurance business? As per Regulation 5(2)(A), every cedant shall offer best terms, for participation in the following order of preference:

  1. to Indian Re-insurers, transacting re-insurance business (other than emanating from obligatory cession) during the immediate past three continuous financial years;
  2. to other Indian Re-insurers and FRBs;
  3. to the IIO as under regulation 5(1)(B)(a) which provided the best and lead terms with capacity of not less than 10%;
  4. to the CBR as under regulation 5(1)(B)(b) which provided the best and lead terms with capacity of not less than 10%;
  5. to other IIOs;
  6. To other Indian Insurers (only Facultative) and CBRs.

A thorough look on the above order of preference interprets that the Indian insurers should give first preference to General Insurance Corporation of India, popularly known as GIC Re as it is the only Indian reinsurer transacting reinsurance business for the past consecutive three financial years.  Other Indian reinsurers and FRBs come at second preference followed by IIOs and CBRs.

Reinsurance placements and order of preference as defined in Regulation 5(1) and Regulation 5(2) are not applicable to the following as defined in Regulation 5(3)

  1. Retrocession or reinsurance placements of Indian Re-insurers, FRBs, IIOs and Insurance Pools;
  2. Existing inter-company arrangements of the Indian Insurers transacting direct insurance business;
  3. Obligatory cessions as notified from time to time under Section 101A of the Act;
  4. Re-insurance placements of Indian insurers transacting life insurance business. However, Indian insurers,transacting life insurance business, shall endeavor to utilize the Indian domestic capacity before offering to the CBRs.

Alternative Risk Transfer (ART) and Domestic Insurance Pool

Insurer can initiate the proposal for an insurance pool which needs to be approved by the IRDAI as defined in Regulation 7. IRDAI approval is required for the formation of domestic insurance pool.

As far as Alternative Risk Transfer (ART) is concerned, there is a provision for ART solutions for Indian insurers as per Regulation 8. Insurers intending to adopt ART solutions need to submit their proposal to the IRDAI and after examining various aspects, IRDAI may grant permission to adopt ART solutions. IRDAI approval is required for adopting ART solutions.

What’s new in IRDAI (Reinsurance) Regulations, 2018

After having a walk through on IRDAI (Reinsurance) Regulations, 2018, let us see what is new in these regulations which are mentioned below:

  • Order of preference revised.
  • Order of preference not applicable for life insurers.
  • Every Indian Reinsurer shall maintain a minimum retention of 50% of its Indian business.
  • Amendment to Regulation 4 of IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurance Other than Llyod’s) Regulations, 2015 which has been changed to, An applicant shall make a requisition for registration application under for Re-insurance business wherein the branch office of foreign Re-insurer shall maintain a minimum retention of 50% of the Indian Re-insurance business.”
  • For FRBs, there is no category as such now. The minimum retention is 50%. An applicant shall make a requisition for registration application for Re-insurance business wherein the branch office of foreign Re-insurer shall maintain a minimum retention of 50% of the Indian Re-insurance business. This removes Category B (minimum retention of 30%) of IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurance Other than Llyod’s) Regulations, 2015.
  • Amendment to Regulation 8 of IRDAI (Llyod’s India) Regulations, 2016 which has been changed as, “An applicant shall make a requisition for registration application for Re-insurance business wherein the Lloyd’s India Syndicate shall maintain a minimum retention of 50% of the Indian Re-insurance business.”
  • Provision for Alternate Risk Transfer (ART).

I have attached the IRDAI (Reinsurance) Regulations, 2018 below. One can download the regulation for their reference.

IRDAI (Reinsurance) Regulations 2018

Ashish Kumar

Suicide – Right or wrong?


Suicide, the word seems to be little awkward and is generally considered to be a crime. There can be many reasons to commit suicide. This article highlights one of the major problems i.e suicide which is rarely discussed.

India reported 1,33,623 suicidal deaths in the year 2015 as per the National Crime Records Bureau (NCRB), Ministry of Home Affairs, Government of India. This figure is strange as more than a lakh people committed suicide. Out of the total suicide, female suicide accounted to 42088 and male suicide were 91528 and rest 7 were transgender. Let us look at some statistics of suicides in India as illustrated in the following table which highlights the top 10 suicidal states.

Table 1: Suicidal deaths in top 10 states in the year 2015
State Suicidal Deaths
Maharashtra 16970
Tamil Nadu 15777
West Bengal 14602
Karnataka 10786
Madhya Pradesh 10293
Telangana 10140
Kerela 7692
Gujarat 7246
Chattisgarh 7118
Andhra Pradesh 6226
Source: National Crime Records Bureau (NCRB), Ministry of Home Affairs, Government of India.

As it can be interpreted from the above table, Maharashtra, Tamil Nadu and West Bengal are leading in suicidal deaths. The above table also states that the problem of suicide is present throughout India from north to south, west to east which is an alarming situation. Let us look at the top 10 major cities in India having a wide number of suicidal deaths which is illustrated in the following table.

Table 2: 10 major cities with suicidal deaths in the year 2015
City Suicidal deaths
Chennai 2274
Bengaluru 1855
Delhi 1553
Mumbai 1122
Pune 873
Ahmedabad 869
Hyderabad 728
Surat 663
Indore 528
Nagpur 483
Source: National Crime Records Bureau (NCRB), Ministry of Home Affairs, Government of India.

From the above table, Chennai is the leading city with highest number of suicidal deaths and can be said as the suicidal capital of India. The five major cities of India namely Delhi, Mumbai, Chennai, Bengaluru and Hyderabad are in the list of top 10 cities having suicidal deaths.

There can be many reasons for suicide. Some of the reasons can be work pressure, extra marital affairs, love failure, household atrocities, depression, stress, no hope for survival, examination pressure of failure, hunger, lack of basic amenities to live, poverty etc. However, the exact reason behind people committing suicide is difficult to find. Some people say that it is the state of mind which allows people to take such step. Yes, it is the mind who decides what to do and what not to do and it is ultimately the decision of people who go to end their life. This is startling but is the harsh reality.

Life is precious and should be lived and enjoyed while facing the bad moments. Nothing lasts forever, whether it is good or bad. Approach should be to fight and not to quit and end up one’s life. One needs to be strong enough to tackle the situation. It’s amazing to know that there are cases where people come to end up their life if failed in some activities which they have desired most. But is committing suicide is right? Life doesn’t end if you fail.

Please share your views on suicide. Those who commit suicide, is it right or wrong? What according to you is the reason behind committing suicide and what steps can be taken in order to curb suicidal deaths? Please share your thoughts.

– Ashish Kumar

Selfie deaths…


Generally, most of us are fond of taking selfie whenever we get a chance. The word “selfie” was added in Oxford English dictionary in 2013. But are you aware there are many injuries and deaths which occurs at the time of taking selfie. According to a study by scholars from Carnegie Mellon University and Indraprastha Institute of Information Delhi, India has more selfie-related deaths than any country in the world. The findings of the study reveals that there were 127 deaths due to selfie over the past two years, of which 76 deaths occurred in India alone. So, we are the topper when it comes to selfie deaths.  Let us look at the number of casualties occurred in some countries due to selfie which is depicted in the following table. The data is as per  the above mentioned study.

Country No of casualties
India 76
Pakistan 9
USA 8
Russia 6
Philippines, China 4
Spain 3

 

As it can be inferred from the data above, selfie deaths have now become a serious issue. There is nothing wrong in taking selfies but it should be taken with precaution. I also take selfie sometimes but what I want to point it out with this article is that, do take selfie but with care. Don’t put your life on stake unnecessarily. Taking selfie is not bad but the only thing is it should be taken with precaution. Do look around before taking selfie to check whether you are safe enough or not. Don’t take risk as life is precious. This is an alarming situation and it can be checked provided people should pay precautions while taking selfies.

And last, if you understand this and wise enough to take the precaution, then do sing this song while taking selfie, “Chal beta selfie le le re.” 🙂

– Ashish Kumar

The Glory of Indian Republic


26th January is one of the important day in Indian history. It is on this day in 1950, the Indian constitution came into force. This day is celebrated as Republic Day across the country.  It is one of the two most important national festivals along with Independence Day which is being observed on 15th August. Independence Day as the name suggests is the day when India got freedom from British regime and Republic Day is the one which made India to adopt its own constitution.

indian-flag-photos-hd-wallpapers-download-free

Although the history of Indian Constitution goes back. On 26 November 1949, the constitution was adopted by the Constituent Assembly and came into effect on 26 January 1950. Dr B.R Ambedkar was pioneer in drafting the Indian Constitution and was also the Chairman of Constitution Drafting Committee.  Dr Ambedkar was also the first Law Minister of independent India. His contribution is incomparable.

The President of India hoist the national flag at Rajpath, New Delhi. Every year India is hosting head of state or government of another country as a chief guest in Republic Day celebrations. In 2015 , India hosted Barack Obama, the then US President.  Last year it was French President Francois Hollande. This year UAE Crown Prince Mohammed bin Zayed Al Nahyan will be the chief guest.

I wish all of you a very happy Republic Day. Do good to the nation as people only make or break the country. Contribute to the betterment of the nation so that India should reach new heights in every field. Enjoy, be cheerful and be happy. 🙂 Once again, a very happy Republic Day…

india-republic-day-quotes-2015-messages-and-wishes2

– Ashish Kumar

What is good and bad ?


There are times when we are not able to distinguish between the good and the bad. How do we come to a conclusion whether this is good or that is bad ? Is there a parameter for the same ? Well… this is an open debate and will remain as everyone has its own way to distinguish between the two. One thing can be good for someone and the same can be bad for others. This happens for sure. This article discusses about the goodness and badness.

In the fast moving world, we often come to circumstances where we are  not in a condition to come to a conclusion. A dilemma surrounds us. How do we call something is good ? If somebody helps you in trying condition, is that good ? When you are forced to do what you don’t want to do, is that good ? The normal answer is yes and no respectively.  There is also a time when we take some startling decisions hoping to have good impact in future but reverse happens. Life is full of twists and turns. Every individual has its own way to distinguish between the two.

Let me give some practical examples. Suppose a boy and a girl are in love with each other. The girl suddenly thinks that he is not a perfect match for her and decides to call an end to the relationship. When the boy comes to know the same he will be in shock for sometime for sure. Boy will definitely have  a kind of negativity and darkness at that time and in general he will say the girl did very bad to me. Ladki ne mere sath bahut ganda kiya… bla, bla etc… 😦  The reverse can also happen.  The thing is the boy thinks that the girl had done bad to him and at the same time the girl will think its good that I decided to dump him…. Now have a look at a different perspective. Suppose there are two friends who are having good friendship for a long time. First one has never been in bad doings and the second had done some bad in the past but not to his friend.  Both are having equal trust on each other. Suddenly there is a U turn taken by the second one due to greed or some other reason and he did something to his best friend which the later had never expected which ultimately lands his friend in no mans land. Now with this kind of betrayal the one who had never done bad in his life seems to have totally gone out of his goodness. He starts doing things which is totally out of his domain and range indulging in nuisance activities and ultimately harming others as well. Here betrayal made a good man finally coming in to a bad man now.  Is it right to become bad from good ?

The question what is good and what is bad has no answer in general. This is also a question which was running in my mind for many years. So I thought of raising this uncommon question in the form of this article. At the end, I would like to share one of the quotes of one of the greatest son of India, Maharshi Dayanand Saraswati  who in this quote had given a strong message which makes this quote one of my favorite.

When bad does not leave their badness why does the good leave there goodness.

            – Maharshi Dayand Saraswati 

 

So what according to you is good and bad ? Share your views… 🙂

– Ashish Kumar

Collegedunia – The world of colleges


In India, one of the most difficult situation that students face is about the choice regarding college like which college is better, where to take admission, does the fee structure will be affordable or not etc.  The decision to choose better college based on their aspiration is not an easy task. There are times when wrong decision had been made by students because of lack of proper information. In this article I would like to share one website which I came across recently and found it worth to be visited for all those aspiring students who are in the dilemma because of lack of proper information.  The website is  Collegedunia.

collegedunia

Every aspiring student wants to get all the necessary information before taking admission in college. So he starts searching and collecting information and proceeds accordingly. But what if you get all the necessary information about colleges at one place? Yes, Collegedunia does that for you. This website contains information of around 15,000 colleges of our country. First I would like to share brief history and objective behind this website.

History

Collegedunia was founded by Sahil Chalana in May 2014. There are plenty of websites which provides tutorial and video lectures for the courses. But when it comes to getting information regarding colleges, it is difficult and time consuming task. So the objective behind formation of this website is clear –  ” to develop a one stop destination for students on a college/university hunt.”

“We go at great lengths to get our users the most detailed information which differentiates us from our competitors. One of the biggest learning I had from all this was that ventures fail but people who persist don’t,” says Sahil.

What you can get?

Collegedunia has information of about 20,000 colleges and almost all the competitive exams like CAT, MAT, GMAT, GATE etc. One can navigate to different sections like architecture, commerce, science, management, hotel management, design, medical, law, engineering, dental etc… You can browse to almost all the entrance examination like CAT, MAT, GATE, NIFT, JEE, IBSAT, NATA, NIFT etc…

Apart from these you can also look at different courses like B.Com, B.tech. Msc. Phd, M.Phil and many more to get information regarding colleges.  Not only this they have made available the information brochure of almost all the colleges. One can download that and can get the desired information. This serves as a great help for many students who face this difficulty in order to get the information.

yourstory_Collegedunia_InsideArticle1-1

One can also get the list of colleges present in a particular state and city and courses offered by them. It is a place where you have so many options to know about your college and decide accordingly.

Current status

Currently this website contains information close to 15,000 colleges across the country.  Collegedunia recently launched an exam feature where they notify aspirants about entrance exams deadlines, provide free sample papers, tips, counselling and result advice. Collegedunia is India’s most extensive listing portal – catering help to thousands of students.

Future Plan

Collegedunia is going to launch an app soon in order to make things easily available to the students. This will serve as a great boon too for many aspiring students.

This is a good initiative taken by Collegedunia to create a platform which will help thousands of students across the country. This is a complete package where you can get all the important information at one place and this is the thing which differentiates them. I would like to share few of the links which will be helpful in for you to gather information. Do have a look at them.

This website is surely going to serve the necessary requirement of having a single platform rather than to have individual one which is beneficial for thousands of students of our country.

The overall team of Collegedunia is increasing. It has increased from 5 to 50. Their office is situated in Prashant Vihar, New Delhi. Their target is to make available information of around 30,000 colleges by the end of this year. The company had announced a fund raise of INR 1 Crore form gaadi.com CEO Umang Kumar. The journey is good and steady and hope the journey continues.

I would like to appeal to all my readers to share this information regarding Collegedunia to their friends, relatives etc, so that they can benefit from this website and get the desired information.  The information provided by this website and the most important thing is, that too in one place is the reason which compelled me to write this article and share among you. I started collecting the information and here I am with this article so that those who are not aware of this can get to know and could benefit from this site.

 – Ashish Kumar