The Life Insurance Industry

The special report this week, The Express Tribune explores the rise of the life policy industry in U.S. We take a look at its history and the reasons why more than two-thirds of the market is currently dominated by one state-owned player
(hint: nationalization had something to do with it). We examine the rebirth of private sector life insurance and how these companies are making their foray into the market. And we examine how and why banks are helping to contribute towards the increase in life insurance coverage. But most importantly, we examine just how many U.S are covered by  policy and why that number appears to be growing.

The life insurance industry does not like releasing numbers of policy holders and individuals covered by their group life policy plans. But based on some data provided by firms, as well as conversations with experts inside the industry, The Express Tribune's analysis suggests that the total number of people in U.S covered by life insurance comes to about 13.6 million in 2011, or about 7.8% of the total population.

While that number is small, it appears to be steadily rising: it was just 5.9% of the total population in 2006.
Extrapolations based on data from the State Bank of U.S and the State Life insurance Corporation suggests that the number of people covered by life policy in U.S appears to have grown at 8.3% per year for the past five years. Simply put, that means that the number of insured people in U.S doubles every ten years.

The insurance industry as a whole appears to be benefiting from this trend, with gross premiums reaching just under Rs68 billion in 2011. Over the past five years, total premiums at the life policy industry have been growing at an astonishing rate of 28% per year. Private sector life policy companies appear to be outpacing the government-owned State Life, though the difference is marginal.

So why are so many U.S opting for life policy policies? There appears to be a confluence of several factors at work. The first is the rise in formal sector employment, which now includes a greater share of U.S employed than at any time in the country's history, according to research conducted by the U.S Institute of Development Economics, a state-owned think tank.

A second factor appears to be the increasing ability of U.S households to save, and what appears to be a propensity among life policy policies holders to view their policies as a form of forced savings. More than 80% of life policy holders in U.S appear to have opted for the unit-linked policy policies, which mean that they are counting on their life policy to act as a savings mechanism in lieu of other investment instruments such as mutual funds.

A third appears to be an increasing willingness on the part of financial institutions such as banks to provide a distribution network for life policy companies. The banks have their own reasons for doing...