Demand Analysis for Life Insurance in India: Some Empirical Observations

Life Insurance business has grown significantly in last ten years, particularly in the emerging markets. It has become an increasingly important part of the financial sector over the years, providing a range of financial services for consumers and becoming a major source of investment as well as financial solutions in the capital market. After reforms, India’s life insurance industry grew at more than tenfold in terms of business, number of new policies etc. The life insurance penetration has increased to 4.4 per cent in 2010 as against 2.71 per cent in 2001 and also life insurance density has increased substantially to $55.7 in 2010 from $9.1 in 2001. But the life insurance density in India is very low in the comparison of developed nations. It has also been observed that the Indian insurance market is not matured till now, and it is in the developmental phase of product life cycle. This trend of increasing the demand of life insurance reveals a lot of scope for insurance business in India. In this paper, an attempt is made to determine the macro-economic factors leading to the demand for life insurance, using the annual aggregate data series from 1970-71 to 2009-10. The demand model estimated using the OLS regression techniques yield result that highlights Personal disposable Income (PDI), Financial Development (FD) and Gross Domestic Savings (GDS) as the most significant and positive factors in driving the life insurance demand but inflation (WPI) bears a negative relation. This study will be beneficial for the formulation of insurance policy in India.