Enabling Insurance for All

23 Feb 2023

India’s overall insurance penetration stood at 4.2 per cent in FY21, with life at 3.2 per cent and non-life at 1.0 per cent against a global average penetration of 7.4 per cent, with life at 3.3 per cent and non-life at 4.1 per cent. In terms of insurance density, India stood at USD 78 in FY21 against a global average of USD 809. Despite low levels of insurance penetration and density, India is one of the top 15 markets globally for insurance. Insurance market in India stands at INR 9.1 trillion with life insurance at about INR 6.9 trillion or 76 per cent of the overall industry, and non-life insurance at INR2.2 trillion.

The insurance industry in India has recorded high double-digit growth over the last two decades driven by large private bank-backed insurers and significant improvements in distribution and operational capabilities. The industry is poised to grow further supported by favourable demographics (~55 per cent population in the age group of 20-59), burgeoning middle class (India is expected to add 140 mn middle income households by 2030), wider adoption of technology (73 per cent/62 per cent of customers preferred online mode for general/health insurance products in 2020), an accommodative regulatory environment and government initiatives to make insurance more inclusive (such as PMJJBY).

The insurance sector, along with banking, contribute to about 7 per cent of India’s GDP and the growth of the sector is pivotal to India’s journey towards becoming a USD5 trillion economy. A well-developed insurance sector bodes well for the nation and its population as the social and economic costs of being under-/ un-insured could be massive. Cumulative economic progress of Indian families is at risk due to unfortunate turn of events say, a pandemic or a natural disaster and such events have the potential to wreck massive havoc impacting 150-200 million lives or, 30-40 million families in India every year. Insurance could play a major role in not just mitigating risks arising from such events, but also driving the social and financial prosperities of countless lives and families in India.

As India embarks on a mission of ‘insurance for all’, it is important to ensure that every Indian has adequate cover. Programmes like these need a wider participation and collaboration from all stakeholders’ insurers, regulators, and customers to be successful:

• Insurers offering products, solutions and services suited to fulfil the personalised needs of Indian customers, ‘anytime’ and ‘anywhere’ insurance is needed

• Regulators nurturing a reformative regulatory environment fostering growth and innovation. Recent regulatory initiatives such as allowing insurers to conduct video-based KYC, launching standardised insurance products are a positive step towards driving insurance penetration higher

• Customers accepting the importance or need of risk management using insurance.

An old adage goes as “what gets measured gets improved”. It’s essential that the metric that gets tracked addresses the nuance. For penetration of insurance, “Per cent of GDP” has been used as a metric for long. While the parameter itself isn’t incorrect, it doesn’t really address the key aspect of protection. Premium (especially life insurance) paid by an individual has two components – pure risk premium component and investment component. And significant portion of the premium is made up by the investment component. While total premium becomes larger and larger, much of it is more akin to asset management/mutual fund business, and therefore it’s important to look at the Sum Assured that’s underwritten by the industry, and not just premium.

A current report by CII and KPMG proposes that going forward “Coverage Ratio” and “Insurance Risk Scores” aretracked. The ratio that’s used are:

Per Capita Sum Assured/Per Capita Income

This essentially means that a cover availed by an individual is how many times an individual’s annual income. The Coverage Ratio for individual business in India was about 0.5 in FY10; which means for every rupee of earning of an individual, sum assured was just half a rupee. So, in the unfortunate scenario of death, sum assured is far from enough to cover the loss of income for the family. Over a period of time, this Coverage Ratio has moved to about 0.9 now, which means we as a country are moving in the right direction. Albeit there is still a long way to go.

Experts believe this to be a much superior and relevant metric to track a country’s progress towards ‘insurance for all’, along with continuing to look at penetration as a per cent of GDP.

“Insurance Risk Score” (IRS)

One other enabler towards the objective of “Insurance for all” that we should consider is having an Insurance Risk Score. Just like every individual has a ‘credit score’ which makes access to credit easier and convenient for lenders too, IRS will potentially serve a similar purpose.

It will be an algorithmic computation factoring in

• Identity underwriting inputs like KYC, PAN, Aadhaar, etc.

• Financial underwriting inputs like income, credit score itself, data from account aggregator, etc. 

• Health underwriting inputs like ABHA ID and other assets created under NDHM, data from IIB, verifiable inputs from health-tech providers, etc.

Allowing the algorithm itself to evolve over a period of time as richer, verifiable, consented data becomes available for IRS and an ecosystem of services can develop around it. We believe that development of IRS will have transformative benefits not just towards ‘insurance for all’ but also towards developing a ‘healthy India’.

As more monies flow into the insurance sector in the form of premiums across various categories of insurance such as life, health, motor, etc., it will trickle downstream into key drivers of economic growth, physical infrastructure, healthcare facilities and hospitals, amongst others. As the sector grows and matures further, it will also create opportunities of employment and technological innovation, which will aid in fulfilling such a grand vision as ‘insurance for all’ and will have a multiplier effect on the broader economy, pushing India’s GDP growth further by a factor of 100-200 basis points.

Six key factors have been identified that would drive ‘insurance for all’:

Customer: The ‘key’ stakeholder
Products: Designing integrated solutions
Distribution: Winning with ‘digital’ models
Data and analytics: Catalysing personalisation
Technology and digital: Preparing for the ‘new’ future
Cyber security: Ensuring trust and safety
M&A in insurance: Increased capital infusion and consolidation

Collectively, these factors touch upon all the aspects of insurance and are deeply inter-linked. For example, today a new customer segment (e.g., upcountry markets) and the ways to reach that customer (e.g., leveraging physical distribution supported by new technology) or, the product innovation that would personalise insurance propositions as per customers’ needs are key considerations that will drive higher insurance penetration in India, delivering the next phase of growth for the sector.

To know more, read the CII KPMG report on Personalisation and Transformation: Enabling ‘Insurance for All’

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