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Inclusive Bharat: Insuring every Indian to foster growth and prosperity

Sanjib Jha Sanjib Jha 13 July 2020

Despite the large size and impressive growth trajectory, the insurance gap in India persists. 75 percent of India’s population, or 988 million people, do not have any form of life insurance.

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India’s insurance industry is amongst the fastest growing sectors in India with a CAGR of 12% from FY14 to FY19. In terms of the total premium, India ranks 10th in the life Insurance segment and 15th in the non-life segment. According to industry estimates, gross premiums written in India in FY19 were evaluated at $82.8 billion and the Indian insurance industry is estimated to reach a valuation of $280 billion by FY20. While these figures will vary in the post-COVID-19 era, the general consensus within the industry is that total aggregate numbers would go up with an increase in portfolios across health and life segments.

The growing number of insurance providers, aggregators and distributors (third-party agents) will be contributing to this growth. Currently, there are 24 life insurance and 33 non-life insurance firms operating in the country, including offline legacy companies like the Life Insurance Corporation of India as well as new-age digitally-enabled start-ups. However, despite the large size and impressive growth trajectory of the industry, the insurance gap in India persists.

A Lloyd’s of London’s report suggests that India has the second-largest insurance gap in the world, amounting to $27 billion. As many as 988 million Indians do not have any form of life insurance. That accounts for 75% of India’s population. The overall Insurance density in India is estimated at just around ~4%, which is abysmally low. To put things into perspective, the insurance density in Taiwan, which has the highest insurance penetration in the world, is at 20.88%.

This low coverage causes India’s catastrophic expenditure to be very high – 17.33% or one-sixth of India’s population spends more than 10%, and 3.9% of the population spends more than 25% of their income on health costs, found a 2017 World Bank report. In fact, Indians are the sixth-highest private healthcare spenders among low and middle-income countries. Such costs keep people poor and push those just above the poverty line back into poverty. Over the past few years, the Government of India has taken admirable steps to address this, including launching the Pradhan Mantri Jan Arogya Yojana (PMJAY), to cover 100 million poor and vulnerable families.

However, the numbers clearly indicate that private insurance is still a luxury and beyond the reach of India’s poor. This is a major area of concern, more so during the current pandemic. The obvious question follows – Why Bharat doesn’t fall under the gamut of insurance? The answer lies in the sheer size of our country. Implementation of insurance across villages is an arduous task, making it a long-drawn execution and operational nightmare. Moreover, despite a slew of technological advancements, we as a nation have not yet learnt how to use and implement technology for last-mile distribution.

Why is the safety net of insurance restricted to a particular segment of society?

A multitude of factors creates and reinforces the insurance gap. To begin with, the majority of insurers, aggregators, distributors and agents in India only target the metropolitans and large cities, which is the low-hanging fruit. This leads to the absence of small-sized insurance products that can cater specifically to people from low-income groups residing in India’s hinterlands. Other factors like limited awareness, the belief that insurance is not a necessity, the lack of transparency in pricing (unlike credit, there are no guidelines for insurance companies), and the exorbitant cost associated with last-mile distribution further disrupt the efforts to bridge the insurance gap in the country.

These challenges ring particularly true for the fishing industry. A 2017 study by the government’s Central Marine Fisheries Research Institute found that insurance penetration amongst Indian fishermen is virtually non-existent due to a lack of trust between insurers and fishermen, excessive premiums, and a lack of applicable insurance products, all of which feed into a vicious cycle that can only be broken with an infusion of data and technology.

How can technology bring Bharat into the safety net of insurance?

Data and technology can address two large challenges of Insurance Inclusion – product design and distribution.

Continuing with the example above, let us assume that a fisherman is seeking to insure his boat. Alternative forms of primarily unstructured data such as satellite imagery and geospatial intelligence, pictures of the boat, location history, on-site climatic conditions etc. can be collected frequently or real-time using a smartphone. This data can then be interpreted and appropriately weighted by supervised learning algorithms to augment existing data sources at an unprecedented frequency. Improved data coverage and frequency not only reduce an insurer’s risk, but also enable them to create new, small-ticket insurance products at lower premiums, increasing insurance coverage in a win-win situation.

As these small-ticket products are sold, new data is created in previously data-poor areas, and over time, the aggregation of this data improves the performance of a self-learning underwriting model. As such, new data-based technologies can not only improve coverage from the insurer’s side, but can also bridge gaps in trust with applicable small-ticket products and affordable premiums, thereby starting to change Bharat’s perception of insurance. All the above challenges can be managed to a great extent by using technology more effectively. This, too, can be addressed by technology. With the widespread rollout of technologies such as UPI and ODG, insurance manufacturers and distributors can use fresh, new, scalable and disruptive approaches to serve the underbanked. The insurance industry can also leverage transaction histories and large government datasets to underwrite policies in previously data-poor segments of Bharat. Furthermore, UPI promises the streamlining and democratisation of payments, making the purchase of insurance cheaper and more accessible for Bharat.

Social selling, micro products, product manufacturing based on big data are all possible now and must be utilised to change the landscape for the better. This is where tech-enabled and digital-first insurance providers, aggregators and distributors (third-party agents) can contribute and propel the vision of insurance inclusion.

Role of Government vs private sector in Insurance Inclusion

There are no doubts that the Government of India has taken several initiatives to improve financial inclusion, especially in the underserved parts of the country. The Pradhan Mantri Jan Dhan Yojana (PMJDY), for instance, was launched in 2014 in an attempt to bring more Indians under the ambit of the formal network. As part of the PMJDY scheme, the government offered its citizens a zero-balance bank account along with insurance coverage and a debit card. Another example is the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), a health insurance scheme designed for 500 million socially and economically vulnerable Indians. Targeted at 10 crore families belonging to poor, and vulnerable population (based on SECC database), the PMJAY scheme offers a benefit cover of Rs. 5 lakh per family per year. By December 1, 2019, PMJAY had paid for the treatment of as many as 6.4 million patients, and had provided e-cards to 67 million people to cover their treatment for free. Despite such admirable efforts, the government alone cannot bridge the insurance gap in India, a country where a significant population lives below the poverty line. The private sector has to work alongside the government to improve product design and delivery through technology. For example, people with no health insurance coverage are at high risk during the current COVID crisis. The PMJAY scheme can be integrated with and made available with Aarogya Setu. Even simple measures such as the integration of insurance and technology can have a huge impact in the long run.

In 2016, the Government of India also launched the Pradhan Mantri Fasal Bimal Yojana to further insurance coverage amongst farmers of rabi and kharif crops. While 347,76,055 kharif farmers are insured under this plan (as of 2017), much ground remains to be covered to ensure full coverage of vulnerable farmers. The scheme remains limited in a sense that premiums are calculated at a district level for different crops per year, even though no two farms are the same. Companies such as Atlas AI and Descartes Labs already provide satellite-derived data on agricultural yield at a 10m resolution globally. Using a farmer’s location and address as well as satellite imagery, existing algorithms can geo-fence a farm on a map, and yield data can be applied exactly to a farm. This approach, combined with climate models, local knowledge, and data on a farmer’s other assets gleaned from smartphone pictures and videos can bridge data gaps. Thus, technologies promoting personalised premiums and products can be integrated into existing government schemes to improve coverage.

If we take a look at India’s microfinance sector, it becomes clearer that private-sector innovation and engagement are necessary. Although several government-led initiatives were in place, it wasn’t until banks, MFIs, equity investors and regulator entered the scene and together helped scale up microfinance in the country. As microfinance has empowered rural women to earn their own livelihood, insurance can similarly provide a safety net for female entrepreneurs.

A woman running a kirana store likely has little to no buffer for her income in case of theft or any other emergencies. Even a small-ticket policy can allow this kirana-owner to take a greater entrepreneurial risk to expand the inventory, potentially increasing sales and income as the risk of theft is already covered. In fact, insurers can capitalise on distribution channels set up during the proliferation of microfinance to optimise last-mile delivery to such rural constituents, but this is unlikely to be enough. Unfortunately, the insurance industry lacks such a concerted effort to realize insurance inclusion. In the absence of guidelines, the manufacturers of insurance have very little control over insurance aggregators/distributors and hence they cannot guarantee last-mile delivery to rural areas.

A collaborative, purpose-driven approach from the government, insurance providers, online insurance aggregators, InsureTechs and agents are imperative to facilitate seamless last-mile delivery of insurance products across India. Everyone has a part to play in the mission to ensure that every Indian is covered by the safety net of insurance. To achieve this, the first step would be to create awareness among people. It should be instilled in their minds that insurance is a necessity and not a luxury.

Other than that, there is an immediate need for bite-size insurance products that provide premium coverage at optimum cost. The products that are sold by the insurers today are misaligned as they are only focusing on low hanging fruits, and need to develop products with the use of technology and data science; and not just copy what is done in the developed world. The government can play a part in addressing this by bringing in strict guidelines to regulate the insurance industry. To start with, industry players should be mandated to ensure that a certain percentage of their products are targeted at rural India. This will enable manufactures of insurance to ensure their products are reaching the rural parts of the country.

It is crucial that insurance distributors leverage advanced technology to reduce the market’s dependency on manual processes, thereby bringing down the distribution cost. This is not to say that non-digital insurance companies are redundant. What India needs is a phygital distribution model, which combines the physical and digital channels to reach out to a larger audience. Digital channels enable insurers to significantly cut down their distribution costs, whereas physical channels have proven to add value at certain points along the customer journey.

Phygital distribution model, if implemented strategically, gives greater flexibility to the end-users while allowing physical players to drive a greater value at a lower cost. While achieving the right mix of physical and digital may seem challenging, strategic partnerships between traditional insurance providers and InsurTech firms can pave the way for large-scale implementation of phygital distribution models.

Way forward to a financially inclusive society

As defined by the Reserve Bank of India (RBI), financial inclusion refers to the “process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.”

An inclusive society must ensure the availability of financial products for all strata of our society. India has certainly come a long way by providing universal access to savings accounts in the country, and now the focus should move towards facilitating universal insurance coverage a well. As mentioned above, it would be possible only if all the stakeholders come together to expand their service base beyond the metropolitans. The vision of an inclusive India has to include insurance coverage for Bharat. The sooner we achieve this as a society, the faster would be our growth trajectory.

Authored By:

Sanjib Jha – Co-founder, Avaana Capital

Anjali Bansal - Founder, Avaana Capital

The authors would also like to provide credit to the researcher - Mr. Abhay Singhal – Research Support – Stanford 2023, Research Assistant with Stanford Institute for Economic Policy Research.

(Edited by Kanishk Singh)

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

Sanjib Jha
Written by Sanjib Jha
Sanjib Jha CEO Coverfox is a qualified Company Secretary and Co-founder of Avaana. He is a globally recognized expert in the Impact, Financial Services, and Start-up ecosystems. He has held leadership and board positions in microfinance, MSME finance, early and growth-stage investing and lending, and ITES for financial products distribution businesses. In the past, he has worn many hats like the Lead Advisor to World Bank Group to implement the $500 million lending project to SIDBI. He was involved in conceptualizing the 59 minutes loan, with help from the World Bank global digital head.