The Prime Minister of India, Mr. Narendra Modi announced demonetization of INR 500 and INR 1000 notes on 8th November 2016. The move was expected to eliminate tax evasion by targeting black money. Numerous industries in the country were affected by demonetization, either positively or negatively.
Impact of demonetization on the life insurance industry
The life insurance industry, in particular, witnessed a huge impact due to demonetization. In the month of November 2016, life insurance providers saw a total first-year premium collection, which means premiums for new policies of INR 16,061 crore. This was a huge 113% approximate increase as compared to the same period a year ago. The Insurance Regulatory and Development Authority of India (IRDA), the statutory agency regulating the insurance industry in India also stated that this number was a 45% rise as compared to the preceding month in the same year.
The aforementioned figures indicate that demonetization has a positive impact on the insurance industry and has led to its growth. Following are three major implications of demonetization.
1.Switch in investment options
Traditionally, Indians chose to make investments in gold and real estate. Demonetization made these sectors less attractive. Individuals, therefore, began choosing life insurance products to park their savings. This, in turn, led to an exponential growth of the life insurance industry.
2.High infusion of corpus
Demonetization saw a huge infusion of cash in the life insurance industry. Out of a total of INR 12.44 trillion that entered in the formal system, a huge chunk was invested in the life insurance industry.
3.Increase in cashless transactions
Life insurance providers accept premium payment either through cash, cheques or over the Internet. Post the announcement of demonetization, insurance providers recorded a rise in the number of cash payments. However, this soon phased out. Many individuals began switching from cash payments to electronic means. This included making premium payment through National Electronic Funds Transfer (NEFT) and Electronic Clearance System (ECS). Given that demonetization was also aimed at increasing the use of digital methods in the country, the life insurance industry contributed largely towards this goal. Individuals are now using the Internet to browse insurance-related information. They are also using the insurer’s website to purchase their insurance plans. This is due to the numerous benefits offered by the online platform, namely availability of detailed information, convenience, flexibility, and customized solutions.
The life insurance industry is witnessing a positive trend as compared to last financial year (FY). FY 2016 recorded a total premium collection of around INR 1, 38,657 crore, while FY 2017 saw a total premium collection of INR 1, 75,023 crore approximately. This is around 26% increase as compared to FY 2016. Owing to the numerous benefits that life insurance plans have to offer, it is only expected that these numbers will continue to increase in near future.
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