Q.35 Briefly discuss the factors due to which insurance penetration remains low in India, even after insurance reforms commencing over two and half decades ago.

Ans. India commenced insurance reforms in early 1990s itself. Though, the growth of the industry has been good, its expansion and insurance inclusion in the country has not been appreciable. At present, insurance penetration in India is 3.3 per cent of the GDP (it was 2.71 per cent in 2001) while the insurance density is at US$55 (it was US$11.5 in 2001). Globally, insurance penetration and density were 6.1 per cent and US$662, respectively.

As per the area experts and the insurance regulator, there are several factors responsible for the low insurance penetration in the country—major ones of them are as given below:

(i) Complex and delayed claim settlement procedures;

(ii) Vague and incomprehensible rules and regulations of the insurance companies;

(iii) Lack of education and awareness among the masses;

(iv) Lower income levels of the population;

(v) Socio-cultural factors;

(vi) Lack of level playing field in the industry; and

(vii) Less vibrancy in the regulatory framework.

It is believed that there is high potential for the growth of insurance sector in the country, especially, in the rural areas. Recently implemented Insurance Amendment Act, 2015 is supposed to improve the sector.