ROLE OF LIFE INSURANCE SECTOR ON ECONOMIC GROWTH OF INDIA

Natasha Pandey (2K18/BAE/55) and Shivali Jain (2K18/BAE/92)

Bachelors in Economics Honours, 3rd year; Delhi Technological University

INTRODUCTION

Reforms in the Indian life insurance sector began in 1999 and since then the growth of the life
business has been significant despite some restrictions. The insurance sector plans to increase
penetration levels to five per cent by 2020.
Though research on this topic has been done many times in the past but a comparative study between
the pre-covid years (2000-2019) and during covid-19 period to study the role of the life insurance
sector on economic growth hasn’t been undertaken.
This research paper is divided into two sections: Pre Covid-19 period (2000-2019) and during Covid-
19 period to study the impact of the Life Insurance sector on the Economic Growth of India.
 OBJECTIVES OF THE RESEARCH

1) To examine the relationship between the life insurance sector and economic growth (through
GDP) in India from the year 2000 to 2019.
2) Comparative study of performance of the life insurance sector in pre covid-19 period (2000-2019)
and during the covid-19 outbreak in the year 2020.

METHODOLOGY
Data: This study is empirical in nature and is based on secondary data compiled from the Handbook on
Indian Insurance Statistics, Annual reports and Economic Survey of IRDA (2000-2019) and RBI Statistics,
LIC of India ( https://www.licindia.in/ ).
Variables : Indicators of life insurance taken for study are Total Gross Premiums, Total Population and
Gross Domestic Savings. The variable GDP( proxy for economic growth) is taken as a dependent variable.
Insurance Penetration ( in terms of %), Insurance Density, Interest Rate with life insurance premium (%) and
Inflation (%) are taken as explanatory variables to study the impact of the life insurance sector on economic
growth of India.
 ANALYSIS

The quantitative study will be done through statistical central tendency measures like mean and
median; statistical measures like variance, standard deviation and coefficient of determination (R 2).
Statistical techniques like regression analysis, correlation and hypothesis testing will be applied for
different sets of two variables to analyze the relationship between the life insurance sector and GDP of
India in the pre and during the covid-19 outbreak period.

LITERATURE REVIEW

Anju Verma and Renu Bala in their article on ‘The Relationship between Life Insurance and Economic
Growth: Evidence from India’ published in 2013 examined the relationship between life insurance and
economic growth in India. The total life insurance premium (TLIP) and total life insurance investment (TLII)
were used as a proxy for life insurance and Gross Domestic Product (GDP) was used as a proxy for economic
growth for the time period 1990-91 to 2010-11. The data has been compiled from the Handbook on Indian
Insurance Statistics, IRDA annual reports and economic survey.
Kartheeswari S & Rajeswari K in their research article ‘Macro Economy Blooms the Life Insurance
Companies in India: An Overview’ published in 2012 conducted an empirical study about the influence of
state of the economy of a country on the life insurance business. Macroeconomic variables considered were
GDP, insurance penetration, insurance density, household financial savings, population, interest rate and
inflation.t was observed that there is a significant relationship between the various macroeconomic variables
and the demand for life insurance. Higher growth of GDP induces an economic effect through higher per-
capita and disposable income and savings, which in turn generate a favourable market demand for life
insurance.

Amlan Ghosh in his research paper ‘Life Insurance in India: the Relationship between Reforms and
Growth in Business’ examined the relationship between life insurance sector reforms in India and the growth
of life business in the post-reform period from 1990/1991 to 2008/2009.The macroeconomic indicators, as
control variables used in the Ordinary Least Square (OLS) equation to study the impact of life insurance
reforms are Gross Disposable Personal Income (GDPI), Inflation (wholesale price index) and Gross Domestic
Savings ( GDS ).At the empirical level, an index was constructed to measure the reforms and then used the
VAR-VECM model to find out the long-run relationship. From the Granger causality test, the paper
concluded that life insurance sector reforms improved the overall development of life insurance development
in recent years.
Thorsten Beck and Ian Webb in their research paper on ‘Economic, Demographic, and Institutional
Determinants of Life Insurance Consumption across Countries’ published in 2002 using a panel with data
aggregated at different frequencies for 68 economies in 1961–2000 found that income per capita, inflation,
and banking sector development are the most robust indicators of life insurance consumption across countries
and over time. Life expectancy, education, the young dependency ratio, and the size of the social security
system appear to have no strong relation with life insurance consumption.

CONCLUSION

Through this research paper we will be able to analyze the contribution of the life insurance
sector on India’s GDP from 2000 to 2019 and carry out a comparative study of the performance
of the life insurance sector in the  pre covid-19 and during covid-19 period by using different
explanatory variables.