Perspectives

Insurance Penetration and

Economic Growth in India
by Srijanani Devarakonda

Abstract
Insurance sector is one of the key pillars of the financial services sector and is also central element of the trade and development
matrix. A well-functioning insurance sector plays a crucial role in economic development not only at macro-economic level
but also in terms of the activities of businesses and individuals. A well-functioning insurance sector is a vital piece of national
infrastructure. The potential and performance of the insurance sector is universally assessed with reference to two parameters,
viz., insurance penetration and insurance density. These two are often used to determine the level of development of the
insurance sector in a country. The present study examines the insurance penetration and density in Indian and also examines
the global picture of Insurance penetration and insurance density for the period 2001- 2013. The purpose of this paper is to
establish the correlation between insurance and economic growth in India, by taking into consideration the share of gross
premium written to GDP (insurance penetration), and the average value of the insurance premium paid by an inhabitant
across one year (insurance density), as insurance indicators. The study shows that insurance penetration and economic
growth shows a strong linear relationship. The results obtained will be compared with those obtained on other markets.

Keywords
Trade, Insurance Penetration, Insurance Density, Economic Growth, Correlation

Introduction
Insurance sector is one of the key pillars of the financial services sector and is also a central element of the trade
and development matrix. A well-functioning insurance sector plays a crucial role in economic development not only at a
macro-economic level but also in terms of the activities of businesses and individuals.

According to Patrick (1966) there are two, possibly coexisting, relationships between the financial sector and
economic growth. The first is the case where the financial sector has a supply-leading relationship with growth, and where
economic growth can be induced through the supply of financial services. The second is a demand-following relationship
where the demand for financial services can induce growth of financial institutions and their assets.

Over the years insurance sector has witnessed significant growth worldwide and India is no exception to this
phenomenon. According to the finance-growth nexus theory, financial development (through financial intermediaries)
promotes economic growth (Levine 1997). Among financial intermediaries, the insurance companies play an important
role as they are the main risk management tool for companies and individuals.

The insurance sector plays a critical role in a country’s economic development. It acts as a mobilizer of savings,
a financial intermediary, a promoter of investment activities, a stabilizer of financial markets and a risk manager. The life
insurance sector plays an important role in providing risk cover, investment and tax planning for individuals; the non-life
insurance industry provides a risk cover for assets. This sector is closely linked with macroeconomic factors (e.g. inflation,
currency controls and the national income of a country), regulation and supervision, and the achievement of national
development objectives, as well as the international trade regime. With its dual commercial and infrastructural role, the
sector has attracted good interest in the context of privatization and liberalization. The rising importance of insurance in
the globalized world is evident from increased number of players in both domestic and international market (IRDA). India,

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 Perspectives
being one of the fastest-growing economies in the world Theoretical Approach to Finance and
after China and an upcoming attractive foreign direct Economic Growth
investment (FDI) destination from major developed
Finance is developing very rapidly. This has
economies has the potential to significantly increase
been due to many factors, including, globalization,
the market of its insurance industry. India’s constantly
liberalization, deregulation, and the financial innovations.
increasing disposable income, coupled with the high
According to the finance-growth nexus theory financial
potential demand for insurance offerings, has opened
development promotes economic growth through
many doors for both domestic and foreign insurers.
channels of marginal productivity of capital, efficiency
There is a growing empirical literature seeking of channeling saving to investment, saving rate and
to assess the relationship between macroeconomic technological innovation (Levine, 1997).
performance of the insurance sector and economic growth
Many theories have shown that countries
which contributes to increase the international trade
with better-developed financial systems enjoy faster,
among countries. Insurance sector is a central element of
more stable and long-term growth (Bagehot, 1873),
the trade and development matrix and is considered as
Schumpeter 1912, Gurley & Shaw 1955; Goldsmith
one of the key pillars of the financial services.
(1969; and McKinnon, 1973). Well-developed financial
Literature shows three schools of thought on the intermediaries and financial markets have a significant
nature of relationship between insurance and economic positive impact on higher long-run growth. Financial
growth. The first school of thought postulates that development contributes to an increase in the efficiency
insurance leads to economic growth, the second school of of the use of savings through investments, which in turn
thought says that economic growth leads to development would favour economic growth.
of insurance sector (Patric, 1966). The third school of
Economic growth is the result of various factors.
thought suggests bidirectional relationship between
There are two main approaches: classical and neo-
insurance development and economic growth (Haiss &
classical theory (supply-side factors – long-term analysis),
Sumeigi, 2008). Boon (2005), Arena (2008), Webb et al.
and Keynesian theory (demand factors – an analysis of
(2002), Akinlo (2013), Nejad and Kermani (2012), Umar growth in the business cycle – short- and medium-term
and Ahmad 2015) found unidirectional causality running analysis). The assumption of the relative isolation of
from insurance development to economic growth, while the markets, according to which what happens to the
Oke (2012), Ching, Kogid and Furuoka (2010) reported money market does not influence the goods market,
the unidirectional causality from economic growth to derives from the classical idea of an economy. According
insurance development. Studies by Kugler and Ofoghi to classical theory, finance is neutral to the real economy.
(2005), Akinlo (2012), Su Chi Wei (2012), Verma (2013), According to Walras’ theory of general equilibrium,
Umar (2015), and Pradhan (2015) found evidence financial intermediaries can neither contribute to the
of bidirectional relationship between insurance and acceleration nor to the slowdown of the growth-rate of an
economic growth. economy. There is no need for functioned intermediation
Understanding the fact that insurance not in hypothetical ideal environments such as those in the
only facilitates the economic transactions through risk models of Arrow and Debreu (Hester, 1994).
transfers but also provide financial intermediation. Schumpeter as quoted by Zakaria (2008), said
Keeping this in mind the main objective of the study that a well-functioning financial system plays an essential
is to examine the relationship between insurance role in promoting economic development. He argued
development and economic growth in India and thus fill that the services provided by financial intermediaries –
the gap in the literature. mobilizing savings, evaluating projects, managing risks
are essential for economic development. Merton, said that
The paper is organized in four sections. Section
“... in the absence of financial systems ... technical progress
2 gives theoretical approach to finance and economic
will not have significant and substantial impact on
growth. Section 3 provides the review of literature of the
economic development and growth”. Several economists
empirical studies on relationship between insurance and
opined that finance is a relatively unimportant factor in
economic growth. Data and methodology is presented
economic development. Recent literature emphasizes
in section 4. The last section gives the summary and
the role of financial intermediaries in improving the
conclusion.

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 Perspectives
allocation of resources. Authors like Greenwood and few years and the work of King and Levine (2000) has
Jovanovic (1990), and also King and Levine (1993), have elaborated this. With the use of Granger causality test for
developed financial models in which financial sector a number of time series, Watchel and Rousseau (2009)
services contribute to economic growth. confirmed that relationship exists between financial
development and economic growth.
Financial development is measured by factors
such as size, depth, access, efficiency and the stability of A large number of empirical studies have shown
a financial system, including its markets, intermediaries, that financial development has an important impact on
range of assets, institutions and regulations. 32 One of growth. Many studies have given the relationship between
the components of this index is insurance development, development of the banking sector and economic growth.
measured by the following indicators: (1) Life and Non- Although insurance companies are growing in the
life insurance penetration – insurance premium per importance in financial intermediation but they have not
capita; (2) Real growth of direct insurance premiums, (3) received much attention as not more work is there in this
Life and Non-life insurance density – relative insurance area.
premiums to GDP (4) Relative value added by insurance
to GDP, which measures the contribution of the insurance Among financial intermediaries, insurance
sector in the development of GDP(The Financial companies play an important role in the functioning of
Development Report 2012). financial systems. They are the main risk management
tool for companies and individuals. Since insurance
Table 1. Selected Data from the Ranking of companies act as financial intermediaries it connects their
Countries in terms of Financial Development function with economic growth. Therefore, according to
between 2008–2013 the finance growth nexus theory, the insurance sector is
one of the factors contributing to the long-term economic
Country 2008 2009 2010 2011 2012 2013
growth. The importance of the insurance industry in the
rank rank rank rank rank rank
economics of a country was already studied as early as in
Brazil 40 34 31 31 30 32 1964, at the first UNCTAD conference: “a robustly national
Russia 36 40 40 40 39 39
insurance and reinsurance sector represents an essential
feature of a proper economic system, contributing to
India 31 38 37 37 36 40 economic growth and fostering high employment”.
China 24 26 22 22 19 23
Insurance development is a part of financial
South Africa 25 32 32 32 29 28 development. It is a long-term process of growth and
Source: World Economic Forum, improvement of the insurance market, institutions and
Financial Development Reports 2008-2013 instruments (qualitative changes), oriented to increase
the effectiveness of their operations and increase
World Economic Forums first Financial the volume of insurance transactions (quantitative
Development Report was published in 2008. The analysis changes). This study discusses possible contributions of
of the financial development summary in Table 1 gives insurance development to economic growth, based on
important insights, firstly of the BRICS nations China is the theories of financial intermediation and growth. The
the most financially developed. South Africa moved from aim of the study is to examine the relationship between
25th to 28th rank in 2012. India moved from 31st to 40th insurance and economic growth occurring because of
Rank in 2013 because of the lower levels of financial the interdependencies of development of finance and
sector liberalization. insurance, and economic growth (finance-insurance-
In 2008 the world was amidst of financial crisis growth nexus theory).
that posed one of the greatest threats to the world
The main research hypothesis is as follows:
economies. The growth and stability of emerging market
insurance development does not have a positive effect
economies has been the bright spot. But these economies
on long-term economic growth. The study also examines
in turn were dependent on their financial system.
the short term relationship by studying if insurance
The role of financial sector in economic growth development granger causes economic growth and vice-
has become a major topic of empirical research in the last versa.

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 Perspectives
Background of the Study while the growing role of insurance companies as
institutional investors has received less attention.
There is a growing empirical literature seeking
to assess the relationship between macroeconomic Recently, Olayungbo (2015) investigated the
performance of the insurance sector and economic growth asymmetric non-linear relationship between insurance
which contributes to increase the international trade and economic growth in Nigeria from 1976 to 2010.
among countries. Insurance sector is a central element of The conclusion is that asymmetric effect is present in
the trade and development matrix and is considered as Nigeria’s insurance market. Also, unidirectional causality
one of the key pillars of the financial services. runs from positive GDP growth to negative insurance
The importance of the insurance-growth nexus premium growth. In addition, the robustness results,
is growing due to the increasing share of the insurance using variance decomposition and impulse response with
sector in the aggregate financial sector in almost every control variables, show that low insurance promotes high
emerging and mature market economy. Literature growth in Nigeria. The impulse responses also show the
dealing with the interaction between the financial sector presence of an asymmetric relationship between low
and economic growth is merely concerned with bank and insurance and high growth in Nigeria.
stock markets. The role of the financial sector for economic However, studies on insurance-growth nexus
growth has become a major topic of empirical research in with reference to South Asian countries especially India
the last decade or so, greatly elaborating on the seminal
are scarce. No known study has examined the analysis of
work of King and Levine (1993a, b) and Rousseau and
the relationship between insurance demand and growth.
Wachtel (1998). A good number of empirical studies
The paper, therefore, fills this gap in the insurance-
provide evidence that both the bank sector and the stock
growth literature.
market show an independent, significant and positive
effect on growth (Papaioannou, 2007;Zervos, 1998; Beck GATS Commitments on Insurance Services
& Levine, 2001; 2002a; Fink et al. 2003; 2005a; 2005b;
The globalization of trade in services is an
De Fiore & Uhlig, 2005;Khan & Senhadji, 2000. Compared
important objective of India as a signatory to the
to the vast literature focusing on bank and stock markets
and their respective environments, the insurance sector agreement establishing the World Trade Organization.
has hardly been investigated in its role vis-a`-vis economic The WTO W/120 sectoral classification list breaks down
growth Su¨megi & Haiss, 2008). financial services into (a) all insurance and insurance
related services and (b) banking and other financial
The few research efforts on the insurance- services. The former is further broken down into life,
growth nexus, while emphasizing on the importance accident and health insurance services; non-life insurance
of the topic, concentrate on single countries only (e.g. services; reinsurance and retrocession; insurance
Adams et al. 2005; Kugler & Ofoghi 2005; Ranade & Ahuja intermediation; and services auxiliary to insurance.
2001) or on distant time horizons (e.g. Ward & Zurbruegg
2000), deal with specific sub sectors only (Beenstock In the Uruguay round, WTO undertook GATS to
et al., 1988; Browne et al., 2000), are rather concerned regulate the functioning of services sector in 1995. Under
with contagion via the insurance sector (e.g. Das et al., GATS, there are four modes of supply i.e.
2003) or treat the insurance-growth link rather as a side
issue (e.g. Holsboer 1999). The valuable contributions yy Cross border supply,
by Arena (2006) and Webb et al. (2002) both use large yy Consumption abroad,
and regionally dispersed country samples and have a
strong focus on the interaction of the insurance sector yy Commercial presence and
with banking and the stock market. Combining countries
at very different levels of economic development and yy Presence of natural persons which facilitate trade in
with very different insurance regulations, they both find services.
positive joint effects of bank and life insurance, and bank,
stock, life insurance and non-life insurance respectively. The economic environment and financial markets
With the notable exception of Catalan et al. (2000), the in 2012 were challenging for insurers. Economic growth
effect of the insurance sector has only been tested as a slowed in most advanced markets and Western Europe
provider of risk transfer (measured through premiums) even fell back into recession. Emerging markets held up
better, but growth slowed due to their reliance on exports

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 Perspectives
to advanced markets. Expansionary monetary policies 5.10 % in 2010 to 4.10% in 2011. Global re-insurer Swiss
kept interest rates low, but boosted equity markets. Re’s sigma study on world insurance in 2013 said India
Weak economic growth weighed on exposure growth stood at 15th position in the world in terms of premium
of non-life insurance, elevated unemployment figures in volume. In 2012, it was at 14th position. The study
many advanced markets and reduced the demand for life showed insurance penetration in India fell to 3.9 per cent
insurance, while low interest rates continued to be a drag in 2013 compared to four per cent in 2012.
on profitability.
Table 2. Estimates of the Total Food Subsidy
Trends in Insurance Penetration and Costs for the years 2013-14 to 2015-16 (All
Insurance Density in India figures (in crores)
The potential and performance of the insurance
Year Life Non-Life Industry
sector is universally assessed with reference to two
Density Penetration Density Penetration Density Penetration
parameters, viz., insurance penetration and insurance (USD) (%) (USD) (%) (USD) (%)
density. These two are often used to determine the level
2001 9.1 2.15 2.4 0.56 11.5 2.71
of development of the insurance sector in a country.
2002 11.7 2.59 3.0 0.67 14.7 3.26
• Level of insurance penetration which is measured 2003 12.9 2.26 3.5 0.62 16.4 2.88
as the percentage of insurance premium in gross
2004 15.7 2.53 4.0 0.64 19.7 3.17
domestic product (GDP);and
2005 18.3 2.53 4.4 0.61 22.7 3.14
• Insurance density ratio (wherein insurance density 2006 33.2 4.10 5.2 0.60 38.4 4.80
is defined as the per capita expenditure on insurance 2007 40.4 4.00 6.2 0.60 46.6 4.70
premium and is directly correlated with per capita
2008 41.2 4.00 6.2 0.60 47.4 4.60
GDP).
2009 47.7 4.60 6.7 0.60 54.3 5.20
Insurance Penetration 2010 55.7 4.40 8.7 0.71 64.4 5.10

Insurance penetration explains the growth of 2011 49.0 3.40 10.0 0.70 59.0 4.10

premium with the growth of the gross domestic product 2012 42.7 3.17 10.5 0.89 53.2 3.96
in the economy. It is measured as ratio of premium to 2013 41.0 3.10 11.0 0.80 52.0 3.90
GDP. Insurance penetration (both life and non-life) in * Insurance density is measured as ratio of premium (in USD)
the post liberalization period are shown in Table 2. Total to total population.
**Insurance penetration is measured as ratio of premium (in
insurance penetration has increased from 2.71% in 2001 USD) to GDP (in USD)
to 3.90% in 2013. Life insurance dominates the insurance ***The data of Insurance penetration is available with
penetration in India; however, the share is declining after rounding off to one digit after decimal from 2006.

2010; increase from 2.15% in 2001 to 4.60% in 2009

A number of studies (Enza, 2000;Teresa, 2013;
and stood at 3.10% in 2013. While the share of non-life
Cristea, 2014) show that a relationship between the per
insurance penetration in the total insurance penetration
capita GDP and total insurance penetration. The data also
increased from 0.56% in 2001 to 0.80% in 2013.
supports that there is positive relationship; penetration
The opening up of the insurance sector marked increases from 1.90% in 1990 to 5.10% in 2010, similarly
an improvement since 2000 with consistent increase in per capita GDP rises from Rs.6987.03 billion in 1990 to
the total penetration levels. India’s growing consumer Rs. 65727.77 billion in 2010. In 2011, the growth in the
class, rising insurance awareness, increasing domestic insurance penetration is on the lowed side while the total
savings and investments are among the most critical GDP follows the same upward trend. However, there are
factors that have positively driven the market penetration various demand (socio-demographic characteristics of
of the insurance products among its consumer segments. policy holders, risk appetite, etc.) and supply (quality
However, there are many impediments such as lack of of distribution channel, product innovation, etc.) driven
awareness and financial illiteracy which is hampering factors to boost the insurance penetration level in India
the growth of the insurance industry. As the industry (IRDA).
penetration level is on the downward path since 2010;

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 Perspectives
6 US$ 55.7 in 2010. Similarly, life insurance penetration
5 surged from 2.15 per cent in 2001 to 4.60 per cent
4
3
in 2009, before slipping to 4.40 per cent in 2010 and
2 further slipping to 3.40 per cent in 2011. Over the last
1 10 years, the penetration of non-life insurance sector in
0
1990 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
the country remained steady within the narrow range of
Total Life Non Life 0.56-0.71 per cent. However, its density has gone up from
Source: Swiss Re, Various Issues
US$ 2.4 in 2001 to US$ 10.0 in 2011.

As at end-September 2012, there were fifty-

Figure 1. Insurance Penetration in India (in three insurance companies operating in India; of which
per cent) twenty four were in the life insurance business and
twenty-eight are in non-life insurance business. In
Insurance Density addition, General Insurance Corporation (GIC) is the
Insurance density is known as per capita sole national reinsurer. The life insurance industry
premium and measured as ratio of premium (in US$) recorded a premium income of 2,87,072 crore during
to total Population. After liberalization, total insurance 2011-12 as against 2,91,639 crore in the previous
density has experienced an upward trend. However, the financial year, registering a negative growth of 1.57 per
life insurance sector serves the population more than cent. While private sector insurers posted 4.52 per cent
the non-life insurance as it capture the greater share in decline (11.08 per cent growth in previous year) in their
the total insurance density (Figure 2). Non-life insurance premium income, Life Insurance Corporation (LIC), the
density shows an upward trend after the privatization fully state owned insurance company, recorded 0.29 per
of the insurance sector. The entry of private players may cent decline (9.35 per cent growth in previous year), in
support the non-life insurance density in India as it rises its total premium underwritten.
from 2.40 US$ in 2001 to 10 US$ in 2011.
Table 3. Gross Direct Premium from Business
Outside India: Non-Life Insurers
70
60
50
40
30 Insurer National New India Oriental United* Total
20
10 73.95 52.15 12.65
2001-02 685.73 (52.00) 824.48
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(-33.00) (10.00) (53.00)
Total Life Non Life 6.29 64.74 1.57 964.04
2002-03 891.55 (30.00)
(-91.00) (24.00) (-99.00) (16.93)
Source: Swiss Re, Various Issues
8.86 875.79 67.63 952.28
2003-04 --
Figure 2. Insurance Density in India (in US$) (41.00) (-2.00) (4.00) (-1.21)
10.74 72.77 975.86
Table 1 explains the international comparison of 2004-05
(21.09)
892.35 (1.89)
(7.60)
--
(2.47)
insurance density in 2011. The international comparison 12.670 82.66 1032.71
of insurance density suggests that the density in India 2005-06 937.38 (5.05) --
(17.99) (13.59) (-5.80)
which stands at $59 is well below the world average of 12.70 92.26 1024.54
2006-07 919.58 (4.02) --
$661 in 2011. It is interesting to note that the insurance (0.24) (11.61) (0.79)
density in China is three times as high as in India. 2007-08
14.74
874.55 (-4.90)
92.07
--
981.36
(16.05) (-0.20) (-4.22)
Pakistan, Sri Lanka and Bangladesh are laggards in terms
15.95 113.64 1076.54
of their insurance density. India has reported consistent 2008-09 946.95 (8.28) --
(8.21) (23.43) (9.70)
increase in insurance density every year since the sector
20.81 117.97 1195.41
was opened up for private competition in the year 2000. 2009-10
(30.49)
1056.63(11.58)
(3.81)
--
(11.04)
However, for the first time in 2011, there was a fall in 24.47 1128.37 112.54 1265.38
2010-11 --
insurance density. The life insurance density in India has (17.56) (6.79) (-4.60) (5.85)
gone up from US$ 9.1 in 2001 to US$ 52.0 in 2013 though 1531.01 146.71 102.72
2011-12 25(-2.18) --
it reached the peak of US $ 55.7 in 2010. The insurance (35.68) (30.45) (34.56)
density of non-life sector reached the peak of US$ 11.0 28.89 1835.53 185.26 2049.68
2012-13 --
(15.56) (19.89) (26.28) (20.38)
in 2013 from its level of US $ 2.4 in 2001. The insurance
Source: IRDA
density of life insurance sector had gone up from US$ 9.1 Figures in bracket indicate the growth
in 2001 to US$ 49.0 in 2011 while reaching the peak at (in percent) over previous year.

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 Perspectives
The public sector non-life insurers who have life insurance premium in India declined by 0.5 per cent
operations outside India underwrote premium of (inflation adjusted) when global life insurance premium
Rs.2049.68 crore in 2012-13 as against Rs.824.48 crore increased by 0.7 per cent.
in 2001-02 (Table 3). New India has its operations in
countries outside India through a network of branches, The Indian non-life insurance sector witnessed a
agencies, associate companies and subsidiaries. 16.33 growth of 4.1 per cent (inflation adjusted) during 2013.
per cent in 2001-02 as against 15.46 per cent in 2012- During the same period, the growth in global non-life
13 of its premium is being underwritten abroad. National premium was 2.3 per cent. However, the share of Indian
non-life insurance premium in global non-life insurance
Insurance Company underwrote a premium of Rs.6.89
premium was small at 0.66 per cent and India ranks 21st
crore in 2001-02 (Rs.28.89 crore in 2012-13,). New
in global non-life insurance markets.
India too increased the premium underwritten abroad
with Rs.685.83 crore (as against Rs.1835.53 crore in the At global level, life premiums grew by just 0.7
financial year 2012-13). Oriental Insurance underwrote per cent in 2013 to $2,608 billion -- down from 2.3 per
a premium of Rs.52.15 crore (as against Rs.185.26 crore cent growth in 2012. Premiums in the US contracted
in 2012-13. United India has ceased foreign operations sharply by 7.7 per cent due to the non-recurrence of
since 2003-04. large corporate deals which had boosted group annuity
business in 2012.
Global Picture of Insurance Penetration and
Density The study said life premium growth was
expected to resume in the advanced and improve in the
Globally, the share of life insurance business in emerging markets. The firming economy and labour
total premium was 56.2 per cent. However, the share of markets in the advanced markets will support the life
life insurance business for India was very high at 79.6 per and non-life sector, and growth in the emerging markets
cent while the share of non-life insurance business was should hold up also. The Sigma Re study said “In the life
small at 20.4 per cent. sector, China and India in particular should see a return
to higher growth rates. Overall profitability has improved
In life insurance business, India is ranked 11th
in the life and non-life sectors”. However, the study said
among the 88 countries, for which data is published by
investment returns, an important component of insurers'
Swiss Re. India’s share in global life insurance market was earnings, remain low given the very low level of interest
2.00 per cent during 2013. However, during 2013, the rates since the 2008 financial crisis.

Table 4. International Comparison of Insurance Penetration

Countries 2007 2008 2009 2010 2011 2012
Non- Non- Non- Non- Non- Non-
Life Total Life Total Life Total Life Total Life Total Life Total
Life Life Life Life Life Life
Australia 9.15 5.70 3.44 8.48 5.02 3.46 5.90 3.10 2.80 6.00 3.00 3.00 6.0 3.0 3.0 5.6 2.8 2.8
Brazil 3.00 1.40 1.60 3.00 1.40 1.60 3.10 1.60 1.50 3.20 1.70 1.50 3.2 1.7 1.5 3.7 2.0 1.7
Russia 2.40 0.10 2.40 2.40 0.10 2.40 2.30 0.00 2.30 2.40 0.10 2.30 2.4 0.1 2.3 1.3 0.1 1.2
South Africa 17.97 15.19 2.78 18.78 15.92 2.86 14.80 12.00 2.80 12.90 10.20 2.70 12.9 10.2 2.7 9.6 5.3 4.3
UK 15.70 12.60 3.00 15.70 12.80 2.90 12.40 9.50 2.90 11.80 8.70 3.10 11.8 8.7 3.1 11.3 8.4 2.8
USA 8.90 4.20 4.70 8.70 4.10 4.60 8.00 3.50 4.50 8.10 3.60 4.50 8.1 3.6 4.5 8.2 3.7 4.5
Asian Countries
Bangladesh 0.70 0.50 0.20 0.90 0.70 0.20 0.90 0.70 0.20 0.90 0.70 0.20 0.9 0.7 0.2 -- -- --
Hong Kong 11.80 10.60 1.20 11.20 9.90 1.30 11.40 10.10 1.40 11.40 10.10 1.40 11.4 10.1 1.4 12.4 11.0 14.0
India 4.70 4.00 0.60 4.60 4.00 0.60 5.10 4.40 0.70 4.10 3.40 0.70 4.1 3.4 0.7 4.0 3.2 0.8
Japan 9.60 7.50 2.10 9.80 7.60 2.20 10.10 8.00 2.10 11.00 8.80 2.20 11.0 8.8 2.2 11.4 9.2 2.3
Malaysia 4.30 2.80 1.50 4.60 3.10 1.50 4.80 3.20 1.60 5.10 3.30 1.80 5.1 3.3 1.8 4.8 3.1 1.7
Pakistan 0.70 0.30 0.4 0.80 0.30 0.40 0.70 0.30 0.30 0.70 0.40 0.30 0.7 0.4 0.3 0.7 0.4 0.3
PR China 2.90 1.80 1.10 3.30 2.20 1.00 3.80 2.50 1.30 3.00 1.80 1.20 3.0 1.8 1.2 3.0 1.7 1.3
Singapore 7.60 6.20 1.50 7.80 6.30 1.60 6.10 4.60 1.60 5.90 4.30 1.50 5.9 4.3 1.5 6.0 4.4 1.6
Srilanka 1.50 0.60 0.90 1.40 0.60 0.90 1.40 0.60 0.90 1.20 0.60 0.60 1.2 0.6 0.6 1.2 0.5 0.7
Taiwan 15.70 12.90 2.80 16.20 13.30 2.90 18.40 15.40 3.00 17.00 13.9 3.10 17.0 13.9 3.1 18.2 15.0 3.2
Thailand 3.40 1.80 1.50 3.30 1.80 1.50 4.30 2.60 1.70 4.40 2.70 1.70 4.4 2.7 1.7 5.0 3.0 2.1
World 7.50 4.40 3.10 7.10 4.10 2.90 6.90 4.00 2.90 6.60 3.80 2.80 6.6 3.8 2.8 6.2 3.7 2.8
Source: Swiss Re, SIGMA reports

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 Perspectives
The international comparison of insurance 15 years) which underestimates the efficiency of private
penetration (Table 4) shows that across the countries in and foreign players.
the world insurance penetration has been on a decline
from 2007 to 2012 and India is no exception to this trend. India continues to be an under-insured state
The world insurance penetration in life insurance which as compared to middle income countries such as China,
was 7.5 per cent in 2007 came down to 6.2 per cent in Brazil and developed countries such as United States of
2012. The world insurance premium in Non-Life sector America and the United Kingdom. Hence, both private
which was 4.40 per cent in 2007 came down to 3.7 per and public sector insurance companies are making
cent and the total insurance penetration of the world enormous efforts to create insurance awareness. Since the
came down from 3.10 per cent to 2.8 per cent from 2007 insurance sector is still in a nascent stage of development,
to 2012. This shows that the overall trend is declining. the insurance industry in India has witnessed negligible
While Brazil showed an increase in all the three sector growth during the past few years [Figure1, 2].
life, non-life and total from 2007 to 2012, many of the
developed nations including USA, UK, France, Germany, Insurance has had a very positive impact on
Australia and others showed a decline in all the three India’s economic development. The sector is gradually
sector Life, Non-Life and the total insurance penetrations. increasing its contribution to the country’s GDP. In
addition, insurance is driving the infrastructure sector by
Relationship between Insurance Penetration increasing investments each year. Further, insurance has
and Economic Growth in India boosted the employment scenario in India by providing
direct as well as indirect employment opportunities. Due
Correlation coefficient formulas were used to
to the healthy performance of the Indian economy, the
find how strong a relationship is between data. The
share of life insurance premiums in the gross domestic
formulas return a value between -1 and 1. The present
study examines the correlation between insurance savings (GDS) of the households sector has increased.
penetration and economic growth for a period of 14 The study identifies low level of insurance
years from 2001 to 2014. The r is 0.985292 which shows penetration and density levels vis-à-vis advanced and
that insurance penetration and Economic Growth shows emerging economies. It also shows the correlation
a strong linear relationship. between the insurance penetration and economic
Through the combination of the results of Beck development. Increased penetration with the opening
and Levine (2000) and this paper, we can argue that up gives a clear indication that the private and foreign
overall financial development containing stock markets, players have an ability to enhance the size, structure and
banks and insurance is significantly correlated with participation in the insurance market worldwide.
economic growth.
The study shows that insurance penetration
Conclusion and economic growth show a strong linear relationship.
Through the combination of the results of Beck and
Insurance sector has immense potential in
terms of contribution to the growth momentum. The Levine and this paper, we can argue that overall financial
underinsured and unsaturated markets need to be taped in development containing stock markets, banks and
order to realize its full impact on the Indian economy. The insurance is significantly correlated with economic
study identifies the low level of insurance penetration and growth. The mission of the insurance sector in India
density levels vis-à-vis various advanced and emerging should be to extend the insurance coverage over a
economies. It has also shown the correlation between the larger section of the population and a wider segment of
insurance penetration and economic development. The activities.
increased penetration with the opening up of the sector
Despite strong improvement in penetration and
in 2000 gives a clear indication that the private and the
density in the last 10 years, India largely remains an
foreign players have ability to enhance the size, structure
under-penetrated market. The market today is primarily
and participation in the insurance market worldwide.
dependent on push, tax incentives and mandatory buying
Insurance sector demands huge investment, for sales. There is very little customer pull, which will
working capital and in-depth knowledge of the market. come from growing financial awareness and increasing
The gestation period in the insurance industry both life savings and disposable income.
and non-life sector is reasonably long (ranges from 10 to

FIIB Business Review, Volume 5, Issue 3, July - September 2016 10

 Perspectives
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Author Profile
Dr. Srijanani Devarakonda is an Associate Professor in Accounting and Finance at Vignana Jyothi Institute of Management, Hyderabad. She
did her B.Com from Osmania University, MBA from Dr. B.R. Ambedkar University, M.Phil from Osmania University and Ph.D. in Commerce
from Osmania University. She is the Assistant Editor of Gavesana- Journal of Management of VJIM. She is a member of Indian Accounting
Association. She has 2 years of industry experience and 18 years of teaching experience. Her research interests include international trade,
banking and insurance services, economic growth and development, asset liability management of banks and financial institutions, micro –
finance etc. She can be reached at [email protected].

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