The Dutch company ING’s exit from the life insurance business in India has set alarm bells ringing in the sector, which was opened up for private players in 2000. ING was the second company after New York Life to withdraw from India in the last one year. Of late, the economic slowdown has caused turbulence in the sector. The industry registered a negative growth of 1.57% (Rs 4,566cr) in 2011-12, compared to the previous fiscal as far as premium income is concerned, according to the Insurance Regulatory and Development Authority’s (IRDA) annual report.

Interestingly, private sector companies recorded a 4.52% decline, compared to the government-owned LIC, which recorded just a 0.29% decline. Nirupama Soundararajan, insurance expert with Ficci, said, “The maximum permissible stake of 26% needs to be increased. In the case of the two companies, they did not foresee any growth in the future and therefore exited.”

As per the report, even the number of life insurance agents came down by 10.63% from 26.39 lakh in 2010-11 to 23.58 lakh in 2011-12. During 2011-12, there was a net reduction of 463 offices during the fiscal.

On the other hand, the public sector LIC saw a net increase of 84 offices.

What is worrying the industry is that life insurance penetration, a crucial parameter to assess the sector’s performance, has slipped since 2010-11. The penetration was 2.15% in 2001, increased to 4.60% in 2009 and slipped to 3.40% in 2011.

Another parameter, insurance density has also declined. It had reported consistent increase ever since the sector was opened up for private players in 2000.

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