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New IPOs (Initial Public Offerings) draw a lot of fanfare nowadays and many of you must be curious about the upcoming LIC IPO. Before you decide on whether to invest in the IPO of LIC, you might want to read more about India’s life insurance sector and evaluate its prospects.

It’s been over two decades now since India liberalized the insurance sector by allowing private-sector participation. Still, Life Insurance Corporation continues to dominate India’s life insurance market even today and holds a market share of over 66% in new business, going by FY21 data.

What does India’s life insurance sector look like?

Life insurance is a sunrise sector in India.

Despite being the second most-populous country of the world, India’s 24-player life insurance industry has a global market share of just 2.9%, which makes it 10th largest in the world.

India’s insurance sector has maintained a compounded annualized growth rate of about 14% over the last 18-20 years.

The development and maturity of the life insurance sector can be measured by assessing two indicators—insurance penetration and insurance density. Total premiums as a percentage of GDP measures the insurance penetration while the per capita premium indicates insurance density.

The global average of life insurance penetration was 3.3% in 2020 and the life insurance density was USD 360. As against that, India had a 3.2% insurance penetration and USD 59 was the density.
Moreover, India has a protection gap of about 83% at present which is one of the highest amongst major nations.

Protection gap is an indicator of underinsurance; it indicates money that dependents of an insured person need to pay off debts and maintain the same lifestyle, adjusted for total savings and insurance cover.

You see, the protection gap translates into an untapped life premium opportunity of ~Rs 5.9 lakh crore of annual premium between 2020 and 2030 period. In FY21, India’s life insurance industry collected Rs 6.3 lakh crore of premium.

Is India’s insurance sector entering a high growth phase?

Increasing awareness, rising incomes, growing financial savings, and internet explosion is likely to bode well for India’s insurance sector.

Below are some macroeconomic indicators that may drive the life insurance sector’s growth in India:

Favourable demographics: At present, 27% of India’s population belongs to the age group of 15-29 years while 37% is from the 30-59 age group. It means India’s working population pool is going to remain fairly large, at least for a decade.

Rapid urbanization: Factors such as rapid urbanization combined with lifestyle upgradation are likely to play a major role in the development of the life insurance sector, going forward.

Digitization: India’s internet economy was USD 125 billion in 2017. It grew to USD 250 by 2020. Digitization is not only expected to help garner new business but support insurance companies in servicing their customers better.

Anticipation of high economic growth: Since India aspires to become a USD 5 trillion economy over the next few years, its per capita income is expected to grow considerably. Any potential rise in per capita income can affect the density of insurance positively.

In a nutshell

With the sunrise insurance sector expected to offer decadal growth opportunities, LIC is well-positioned to lead from the front.

Hurry up! Open a Demat account now and be ready to invest in LIC IPO.

You may also like to read: Applying for an IPO? One lot is a lot!

Disclaimer:

The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

 

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