INSURANCE PENETRATION & DENSITY

INSURANCE PENETRATION & DENSITY

Subject: Economics

Context: In yet another remarkable move, both the houses of Parliament have passed the Insurance Amendment Bill in the budget session. The Bill amends the Insurance Act 1938, increasing the FDI limit from 49% to 74%.

Concept:

Insurance Penetration

• Insurance penetration measures the contribution of insurance premium to the Gross Domestic Product (GDP) of a country in percentage terms.
• For instance, if a country generates a total insurance premium of say, USD10 billion and that country’s GDP for the same period is USD100 billion, insurance penetration translates to 10% (i.e USD10b/USD100b * 100).

Insurance Density

• Insurance density, on the other hand, is the ratio of insurance premium to the total population.
• It gives an indication of how much each of the people in a country spends on insurance in terms of premium.
• In other words, it is the per capital premium for the country, calculated by dividing the total insurance premium by the population. For example, if the population of the country in the above example is 10 million people, the insurance density (per capital premium) would be USD1,000.