High distribution and servicing costs continue to act as a major barrier to expanding insurance coverage among India’s “missing middle”, according to observations highlighted in the latest Economic Survey. The segment, which comprises households above the poverty line but outside formal social security nets, remains significantly underinsured despite rising awareness of financial protection needs.
The Survey notes that traditional insurance distribution models rely heavily on agent commissions, physical outreach and manual servicing processes. These costs are often passed on to policyholders through higher premiums, making insurance products less affordable for middle-income households with limited discretionary spending. As a result, insurers tend to prioritise higher-value urban customers or low-income segments covered through government-sponsored schemes.
The findings highlight a structural imbalance in insurance penetration. While subsidised public schemes have expanded coverage at the lower end of the income spectrum, and customised products serve affluent consumers, the missing middle faces limited access to suitably priced protection products. High acquisition costs discourage insurers from designing low-ticket policies tailored to this segment.
From a policy and risk perspective, the Survey underscores the need for alternative distribution approaches to bridge this gap. Greater use of digital channels, embedded insurance models and simplified products could help lower costs and improve reach. Technology-led underwriting, automated claims processing and data-driven customer onboarding are also seen as potential enablers for reducing operational expenses.
The issue has broader implications for financial resilience and economic stability. Inadequate insurance coverage leaves middle-income households vulnerable to health shocks, accidents and income disruptions, increasing dependence on out-of-pocket spending and informal borrowing.
The Survey suggests that addressing distribution inefficiencies will be critical to achieving inclusive insurance growth. Aligning regulatory support, innovation in product design and cost-efficient delivery mechanisms could play a key role in extending meaningful insurance protection to this underserved segment of the population.
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