Market Microstructure: An Analysis of Indian Life Insurance

Abstract

In this paper, the concept of life insurance as distinguishable from other financial assets and investments is clearly differentiated. The objective is to study Market Microstructure (MM) pertaining to the Indian Life Insurance market which has not been studied so far. The paper provides a framework of MM and delves deeper into the origin; market participants, market form and organizational structure, pricing, legal framework, role of information, impact of technology, recent market trends and future prospects. Using semi-log regression equation, growth rates of new life insurance business, total premium and channel-wise businesses are estimated to analyze the market trends. The current penetration and density are found to be low and thus the Indian life insurance market could at the best be described as an emerging market and hence the market still has huge potential for growth. We have therefore analyzed the MM of Indian life insurance market which is not found in the strands of literature on economic theory, finance theory and life insurance literature. It becomes evident that we need
a different approach while studying life insurance as opposed to stock markets.