Reshaping historical challenges to enhance insurance penetration in India

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A recent IRDAI report highlighted that Life insurance grew 21 percent higher in February 2021 as compared to February 2020.

Reshaping historical challenges to enhance insurance penetration in India
The insurance sector in India has witnessed significant changes in the past two years. A recent IRDAI report highlighted that Life insurance grew 21 percent higher in February 2021 as compared to February 2020. While many factors contributed to the growth, one cannot overlook the role of the current pandemic in being the primary driver.
The insurance sector, right from its inception in 1938 (with The Insurance Act) and the nationalization of the insurance industry in 1956 with the formation of the Life Insurance Corporation of India (LIC), has always been a public-dominated industry. However, the industry took a turn in 1993 with the privatization and liberalization after the recommendations of the Malhotra Committee, that carved way for private players and foreign insurers to work towards building a reformed insurance ecosystem in India.
Another significant development in the industry was the establishment of IRDAI, (Insurance Regulatory and Development Authority), an independent statutory body to watch the completely unregulated market. It was a bold and strategic move to break the monopoly in the industry, increase the competition and to reduce the insurance premium. But unfortunately, such breakthrough moves were not enough to increase the insurance penetration and density to significant levels.
The Challenges
According to the IRDAI Annual report of FY 2019-2020, Life insurance increased by 12.75 percent compared to 10.75 percent in the previous year. The increase can be attributed to various factors like the inclusion of private players, deregulation and allowing banks to deal with insurance distribution (Bancassurance). But looking at the population of India, it had a long way to go, Insurance penetration in India still stands at only 3.76 percent.
As a result, many challenges originated to the forefront, which was significant enough to act as a hurdle in popularizing life and health insurance in India.
The changing economy of the country during those times, individuals keeping a tight hold on their household budget and planning to invest in other commodities rather than life/health insurance policies, affordability issues citing the varied economic conditions and high premium, a long and uncertain underwriting process, most notably the mindset of the people to consider insurance post-retirement and lack of awareness can be cited as the major challenges.
When the insurance penetration in other countries had been setting new records, India was not even close to insuring even 5 percent of its population. But the past 15 years has seen new dawn in the life and health insurance industry.
Impact of Technology and COVID-19
With the advent of technology like AI/ML, Blockchain and Big Data, the Insurance sector has revamped into the most lucrative and growing sector among all others. Technology has played a major role in bringing disruption to this industry. Right from having an omnichannel platform for insurance proposal submission, automatic health claims decision making, a faster underwriting process based on AI/ML and wellness programs/disease management platform for customer engagement, the insurance companies are going one step ahead in providing a value-based offering to the customers.
All thanks to the massive DIGITAL INDIA drive, which has enabled even the community staying in the most rural part of India to get access to the internet and smartphones. The age-old tradition of filling long paper forms and waiting for days for the underwriter’s decision has been replaced with insurance policy acceptance with just a click. The insurance companies are focusing more on one step risk assessment process with the limited effort put up by the customers.
Offering a complete care and disease management system including product awareness, easy access to the policy page, efficient insurance distribution, virtual care services, wellness engagement programs, information about COVID19, digital transaction and self-risk assessment for COVID19 has been the prime motto for many insurance companies.
The COVID19 pandemic has also acted as a catalyst in the growth of life insurance products in India, with a new business premium contributing 45.25 percent to the overall growth FY 2019-20. Offerings bundled with technology and easy access are also attracting younger generations to explore the protection products.
With the changing technology, continuous innovation by analytical companies through AI/ML and data mining backed by government and awareness, the future of insurance sector in India is nothing but bright.
The Road Ahead
But this is not enough. Since India is a land of people from varied cultures and economic backgrounds, comparing the insurance penetration in India with the developed countries is completely vain. With the availability of data through different sources, it’s time to include SDOH (Social Determinants of Health which includes economic, social and environmental effect on a person’s health) in the insurance sector. This will ensure the distribution and penetration of insurance with equity rather than equally because an individual’s health is affected by all these factors. Understanding these determinants will only prove better access to healthcare. It is confident to predict that this inclusion will provide a holistic picture of insured India with much better outcomes.
The author, Arun Mallavarapu, is Co-Founder and CTO at Fedo. The views expressed are personal

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