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Will standard insurance products be the magic pill to boost coverage in India?

Standard insurance products are a good start for new entrants to the insurance fold. But these alone may not be adequate to boost India's insurance penetration.

January 09, 2021 / 10:14 AM IST

Term insurance, accident insurance, fire insurance and home insurance. These are some of the standard insurance products (apart from the April 1, 2020-launched standard health plan) that will be available for Indian insurance customers from 2021 onwards.

Insurance Regulatory and Development Authority of India (IRDAI) launched these products to ensure that there are easy to understand policies for mass-market customer.

But will this be the magic pill needed to bridge the insurance gap in the country and boost penetration of products?

India has consistently faced the challenge of low insurance penetration and density even 21 years after privatisation.

When it comes to the insurance penetration and density, the figures for India were flat as per the Swiss Re’s sigma report.

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This data showed that insurance density, which is premium per capita stood at $78 (approximately Rs 5,850) in FY20 compared to $74 (approximately Rs 5,550) in FY19. The world average in FY20 was $818 (Rs 61,350 approximately).

Similarly, insurance penetration (premiums as a percentage of gross domestic product) stood at 3.76 percent in India for FY20. Here, life insurance penetration was at 2.82 percent while that for non-life stood at 0.94 percent. The world average was 7.23 percent with 3.55 percent for life and 3.88 percent for non-life insurance.

The most common reason cited for these poor numbers in India are lack of awareness and inadequate distribution reach apart from low disposable income to buy insurance products.

The government-sponsored term insurance and accident insurance under the Jan Suraksha Yojana with Rs 2 lakh cover each was a good starting point for a lot of uninsured Indians. However, this scheme hasn’t motivated Indians to buy higher covers on their own nor has it been used as platform by insurers to cross-sell proper covers.

IRDAI’s vision is to nudge customers to buy simple products if they find the barrage of products on offer by companies to be confusing. An added concern could be possible misselling of inappropriate policies to unaware customers.

But will insurers be open to sell these standard plans at the cost of their other specific policies? For example, insurers have been reluctant to sell the standard health plan Arogya Sanjeevani. Instead, they have primarily been selling their own health plans that have a similar cost structure.

Insurers' justification is 'we have similar plans with better features' while clarifying that customers are free to buy what they want.

It is to be seen whether the standard term, home insurance and personal accident products suffer the same fate. When the competition is between a me-too product and one’s own insurance policy, companies opt to sell the latter.

For customers, these standard policies could be a good first step into the world of insurance. Once they have experienced these plans (read claims settlement), an insured could be motivated to buy a higher and comprehensive cover based on his/her needs.

However, this would require additional efforts from the distributor (agent or bank officials) to stay in contact with the customer and understand their needs better. This will help these intermediaries suggest a need-based product over and above the standard policy.

The initial optics look good for these standard plans. But the key lies in distribution and customised insurance product offerings for customer groups for the coverages to really improve across India.
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: Jan 9, 2021 10:14 am

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