NEED FOR INCREASING INSURANCE PENETRATION IN INDIA

Life is full of uncertainties – unpredictable and unforeseen. While these uncertainties open us to immense possibilities to explore the life, they also leave us exposed to certain risks and threats, which could lead to huge emotional and financial losses. These risks and threats emanating from both man-made and natural reasons put our life, health and material assets such as houses, businesses, vehicles and other physical goods at danger. 

While we can surely pray and hope for the best for our near and dear ones, it is necessary and inevitable that we also mitigate and manage these risks and their consequences thereof for peace of our mind. It is, therefore, prudent and responsible to insure and secure all the things we hold dear and value in life. 

Life Insurance “assures” our tomorrow. General Insurance “secures” our today

Insurance is a wonderful technique to manage such unforeseen risks in life. Insuring anything other than life (non-accidental death) is known as non-life or general insurance. In addition to providing financial security, insurance companies have expertise to suggest measures for risk improvement and loss prevention. 

Thus, insurance provides peace of mind and financial security to survive, thrive and adventure in life. General Insurance also covers legal liabilities of causing loss to other persons, acts of errors and omissions for professionals and credit risks in business. Thus, Insurance plays a very vital role in the life of an individual in providing economic security and strengthening spirit of entrepreneurship – necessary for growth of the nation. 

Unfortunately, insurance is still sold and not bought in India because the majority of our people do not fully and adequately understand the importance of insurance and the various products available in the market. 

India, in fact, is one of the most under-insured countries in the world. Despite 27 odd General Insurance (non-life insurance) Companies in the market, the penetration is woefully low in India as compared to Asian and BRIC countries. The general insurance industry, which includes risk covers for motor vehicles, health, accident and home, has a penetration of just 0.71 per cent as against the global average of over 2%. In fact, even comparing us against comparable Asian economies, our insurance penetration percentage and per-capita insurance premium is among the lowest in the region.

With the opening up of the Insurance sector by IRDA in August 2000, it was expected to increase penetration of insurance in Indian market. But cake only changed hands with the new players in the market without desired increase in the size of the cake. Non-life insurance sector has a penetration (i.e. ratio of premium underwritten to GDP) of only 0.7 percent in the country. The total premium underwritten by the non -life industry in the year 2012-13 remained at Rs. 69,100 Crores. The insurance density (i.e. ratio of total insurance premium to population) for general insurance in India is less than USD 9, while it is USD 63 in China. 

Life insurance penetration in India is about 3.4%. However, in terms of Life insurance density, as per World Economic Forum, India is placed better than many larger economies of the world. Thus, there is a need for greater insurance penetration, especially, in general insurance.

DevelopingLife InsuranceNon-life Asian PenetrationInsuranceEconomies(Premium % of GDP)Penetration (Premium % of GDP)

India3.4%0.7%

China1.8%1.2%

Malaysia3.3%1.8%

Thailand2.7%1.7%

How can insurers penetrate this largely untapped market?

Promoting consumer education/information and product awareness: The insurance penetration will certainly increase if everyone can be made aware of the various risks associated with their life and business in context of all other internal/external environments. Various ways such as customer awareness seminars, aggressive marketing campaigns, press releases and write-ups, direct mailing etc. can be adopted to make the consumers aware of the importance of insurance and availability of its various products in the market.

Increasing last mile access: Rural areas and Tier III cities in India are largely and significantly under-represented by the insurance companies. There is a vast potential in this segment. Because of their limited experience, insurance companies are still considering it as a business of loss. It can be made viable by diversifying the activities and enlarging the rural base. For this the insurance companies need to scout agents with strong rural background such as Gram Sewaks, secretaries of co-operative societies etc. who are in direct touch with the rural people.

Effective Agency structure: At present, about 70% of insurance business comes from the corporate sector and the remaining 30% from other sources. It means, there is a substantial latent potential of personal-line insurance business. 

Despite introduction of a number of new channels of distribution, agents still hold the key for growth of the general insurance business. As per conventional wisdom, more the number and geographical spread of agents more will be the penetration of general insurance. However, agents in India lack the necessary skills and training to popularize general insurance among the public. 

Insurers need to take the initiatives to revamp this channel. Agents must be given trainings on communication skills, sales techniques, personality development and product knowledge. They need to be provided with attractive incentives (club membership, conveyance facility, insurance cover, regular job opportunities etc.) in addition to commission as reward and recognition for their good work.

The other effective distribution channel can be Bancassurance. Given the widespread penetration and high penetration of banking products, Bancassurance could be very effective in acquiring new customers and covering wider geographies to sell insurance products.  But the insurers, especially, the public sector ones, have not, so far, been successful in mining their database to promote their business. 

Banks too needs to be more serious and dedicated in their approach. More coordination between both the partners is required to seize this opportunity.

Identification of alternative network channels: Insurers need to adopt technology of global standards. As is evident in other lines of businesses, the internet will play an important role for growth of general insurance, especially, in personal line products. Technology enables us to reach out even those areas where it is difficult to make the physical presence. Online insurance facilities makes buying and selling easier, quicker and lot cheaper – both for customers and for insurance companies. 

Opportunities in Health Insurance: In India, health insurance market is still in its infancy. Health insurance penetration is just 2%. It is much less (about 1/5th) as compared to countries like United States, Germany and South Africa.  This is mainly due to lack of awareness among general public and the cost of health insurance involved. 

Our government has limited resources to provide for health care through state-funded public health care system. The rising medical costs are taking quality health care beyond the reach of common man. Therefore, it is both a duty and opportunity for insurance companies to insure maximum population under the Health insurance schemes. By addressing the existing critical grey areas, the health insurance market can grow leaps and bounds. 

These grey areas include poor standardisation of treatment costs,  lack of data for designing products and lack of proper control of insurers on the service providers. The introduction of Rashtriya Swasthya Bima Yojana, which is providing health insurance for below poverty line (BPL) families is very good step in this direction. In view of growing population of senior citizens, there is a need for well designed Health Insurance cover for Senior Citizens.

A successful model of Micro insurance: Micro insurance is still a new model in our country as its penetration is dismally low. It is meant for low-income people working in the unorganized sector to provide them cover to protect their life, health, and other properties (house, tools, livestock etc.). Unorganized sector means self-employed people like housemaids, security guards, cobblers, potters, rickshaw pullers, drivers, construction workers etc. 

It will serve two purposes. The first one is to build a commercial market by bringing people from this sector. This sector contributes a significant share of the GDP of our country. The other one is a social responsibility as any mishap results in financial ruin for the family. 

They are also highly vulnerable in terms of job security and social protection as are not governed by the labour laws. Hence, they are the people who need insurance the most. 

In our country, the regulator also requires insurance companies to compulsorily underwrite a minimum fixed percentage of this business. The real challenge before the insurance companies is to evolve a cost effective micro insurance model. To price a product, substantial data is needed. Because the micro insurance market is still very new, there is not a lot of data available. 

It can be sustainable and successful only if the insurance products are simple and are lowly priced (by keeping minimum procurement costs and profit margin) and sold in large volumes (package policies, group insurance) to them. There must be at least one micro agent in every village. Their recruitment and training procedure be simplified and job is made more rewarding. Micro offices need to be opened in all smaller towns to spread this message of insurance in every nook and corner of the country.

Agriculture Insurance: Agriculture in our country is highly susceptible to vagaries of nature like droughts and floods. It is necessary to protect the farmers from these natural calamities. Ours is agriculture dominant country as two third populations depends on it for their livelihood. Agriculture contributes about 18% of GDP. 

Therefore, agricultural growth is of great importance for the economic growth of the country and agriculture insurance assumes high importance to cope up with its problems to stabilise the production and income of farmers in the event of crop failure due to natural calamities, pests and diseases. But unfortunately, agriculture insurance is not much prevalent and successful in our country. Its sustainability is the main concern. Like in micro insurance, research and surveys are required to make a wide spread and successful agriculture Insurance model. 

Introduction of new products: The rapid changes in every aspect of life demand new types of insurance covers. So far, the new products have not been designed on the basis of market survey and research but are just variants of already existing vanilla products, without much innovation thereof. Products must be designed in line with the changing needs and wants of the customers.

More capital requirement: Insurance companies need more capital to grow and expand their businesses. Over next five years IRDA estimates another Rs 50,000 Crores would be needed. This amount cannot come from Indian capital markets alone. Hence, the industry is looking forward to the foreign direct investment (FDI) going up to 49 percent. The Insurance Laws (Amendment) Bill 2008, lying pending in Parliament, seeks to raise foreign investment cap from 26 per cent to 49 per cent. It will help in bringing more funds, more technological capabilities in the insurance sector of the country.

Incentives of Tax benefits: People can take more interest in general insurance if given some incentives in form of tax benefits by the Government as is done in case of life insurance. More people will buy general insurance to qualify these tax advantages. Government should exempt or reduce service tax on insurance products, especially, in case of health insurance. Similarly, some tax reliefs to insurance companies so that they get more funds to manage their risk portfolios. 

Spreading awareness on insurance and increasing penetration of insurance in India is a matter of national interest. It is a duty of the government, the regulator and the insurance companies to make people aware of the importance of insurance. 

We need to bring more transparency, ensure better market conduct and establish quicker grievance redressal systems to win faith and confidence of the people. Insurance products should be made more appropriate, attractive, accessible, available and affordable so that every citizen of India can make best use of it.

Author-K. Kumar