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India InsurTech Thought Leadership

Insuring India's Underserved Population

India's economic rise presents a fascinating paradox. While the nation boasts a burgeoning middle class, insurance remains unfamiliar or perceived as a luxury commodity, particularly among those in rural areas or the informal sector in India. This "underserved" segment, encompassing individuals in rural areas, the informal sector, and low-income households, faces a stark reality – a single medical emergency or unforeseen event can plunge them into financial hardship.

Peace of mind and financial protection provide the stable foundation upon which society can advance and innovate towards a brighter future. In contrast to European nations, which began implementing social insurance programs in the late 19th century, India's adoption of such programs occurred relatively later in its history.

According to the Economic Survey 2022–23, Insurance penetration in India has increased from 3.69% in 2018 to 4.57% in 2022, with life insurance penetration being twice that of the emerging markets and marginally higher than the global average. However, despite demonstrating a healthy compound annual growth rate (CAGR) across lines of insurance business, the protection gap remains around 90%. This vulnerability leads individuals to rely on out-of-pocket payments for healthcare, exacerbating poverty. The reasons for this exclusion are multifaceted:

  • Financial Literacy Gap: Lack of awareness about insurance benefits and the fear of claim rejections further deter participation.

  • Product Mismatch: Traditional insurance products are often complex and unaffordable for low-income groups.

  • Outreach Barriers: Reaching remote areas and simplifying the application process remains a challenge.

  • Mis-selling of Trust: Neglecting customer needs and experiencing inadequate claim settlements, underscore the critical importance of trust and undermine the industry's reliability, particularly for daily wage earners who heavily rely on word of mouth.

In India's insurance landscape, significant challenges also persist due to low product demand, and in price-sensitive market distribution, underwriting costs remain on the higher side. Exacerbated by inefficient assisted channels, thereby inflating customer acquisition expenses for insurance providers striving to succeed in this dynamic market. Moreover, combating fraud, including false claims and misinformation, adds another layer of complexity to operations.

However, improving the last mile connectivity in the country and developing customized offerings as per the evolving needs of the customer is still a challenge for the industry where India needs more InsurTech Revolution. InsurTech, the marriage of insurance and technology, offers a transformative approach. Here is how it could empower India's underserved:

  • Micro-insurance Solutions: InsurTech presents a beacon of hope. By leveraging innovative technologies, InsurTech companies are pioneering micro-insurance solutions specifically designed for the underserved segment. These bite-sized policies cater to specific needs - hospitalization for a limited period, critical illness cover for a specific ailment, or loss of income due to an accident. Premiums are collected in smaller, more manageable installments, often through mobile wallets or micro-payment platforms. This makes insurance a viable option for the underserved because of: - Affordability: Smaller premiums make insurance accessible to even the most financially constrained individuals. - Accessibility: Mobile-based platforms and vernacular interfaces enable easy enrolment and claim processing, bypassing geographical limitations. - Customization: Micro-insurance products can be tailored to address specific needs.

  • Beyond Traditional Data: Traditional underwriting heavily relies on credit history and formal income documentation. This excludes a vast segment of the informal sector who lack these documents. Here's where Account Aggregators (AAs) play a transformative role in the InsurTech ecosystem with financial Inclusion and enhanced data accuracy. Millions in India lack formal banking access, hindering their ability to provide traditional documentation for insurance purposes. AAs empower these individuals by allowing them to share alternative data points like mobile money transactions or utility bill payments, enabling them to participate in the micro-insurance market. InsurTech is unlocking the potential of alternative data sources, such as: - Mobile Network Data: By 2024, with an anticipated 80% penetration rate of mobile phones, call history and phone usage patterns can provide insights into financial discipline and risk profiles. - Social media Data: With an expected 60 crore active social media users, public posts on social media platforms could provide insights into an individual's lifestyle and health habits. - Satellite Imagery: Data on agricultural landholdings can be used to design customized crop insurance products for farmers.

By leveraging such alternative data sources, InsurTech companies can create a more inclusive risk assessment framework, bringing previously excluded individuals into the insurance fold.

  • Dynamic Pricing: In today's world, risks have become like characters in people's lives. AI algorithms can help by studying lots of data to spot patterns and foresee future risks. This allows for dynamic pricing models that adjust premiums based on individual risk profiles and needs instead of a broad-brush approach. This translates to fairer pricing for the underserved, further enhancing product accessibility.

  • Customer-Centric Transformation: Major shifts in customer behavior have necessitated insurers to move away from conventional practices to better cater to evolving customer needs. Embracing a digital-first approach to selling insurance through omnichannel, multilingual platforms should be leveraged to achieve sustainable growth. This not only simplifies product purchases but also empowers users with readily available product information and claim assistance. While hyper-personalised offerings might be suitable for Gen Z and tech-savvy customers, implementing embedded insurance with a comprehensive scope can be a wise approach to tap into the underserved segments of the country.

Despite the challenges outlined above, initiatives such as Pradhan Mantri Jan Dhan Yojana, Jeevan Suraksha Bandhan Yojana, Pradhan Mantri Suraksha Bima Yojana, and Atal Pension Yojana have been instrumental in extending insurance coverage to previously underserved segments of society. This has helped establish a financial safety net for the most vulnerable populations.

Anticipating the future, recent initiatives and amendments by the IRDAI, such as the State Level Bankers’ Committee (SLBC)-like state insurance plan, expanding the scope of sandbox mechanism, revamping the Customer Information Sheet (CIS) format, embracing digital solutions like eKYC, e-signature, and e-Insurance account, implementing a single expense management limit, and adopting a ‘use and file’ regime for product launches, encourage the insurance industry to innovate and collaborate with InsurTech players.

Looking ahead, industry experts must focus on prioritizing simplicity in product offerings and fostering transparent communication across all interactions. Moreover, establishing a robust fraud management system and guaranteeing a superior claim settlement experience are crucial components of insuring "underserved" segments.

Author: Debopam Majilya, Director - Technology, Indus Net Technologies


~ - Economic Survey, 2022-23, Ministry of Finance, Govt. of India

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same.

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