Missing pieces in the jigsaw puzzle of Insurance penetration in India

The oft-repeated question is how do we increase the insurance penetration in India? General insurance penetration stands at around 1% while life insurance penetration is 4% ( total of 5%) This compares rather unfavorably with countries like South Korea ( 11%), Taiwan (17%), USA ( 12%), UK ( 11%) & Japan (8%). Obviously, there are reasons for the low insurance penetration in India, even after over two decades of opening up of the insurance sector. Introspection is the need of the hour but what we see are so-called experts/Tech wizards coming out with prescriptive solutions for what they perceive to be the problem hindering insurance penetration.

Is it the high cost of insurance which comes in the way of greater penetration? Or is it the absence of a variety of products suited to customer needs? Or is it the difficulty in buying insurance? Finally, are there some missing pieces in the jigsaw, that we are hiding with an ostrich-like approach which would help solve the puzzle of insurance penetration? I strongly believe that the industry is ignoring these missing pieces.

Before we attempt to examine each of the possible hindrances to penetration, one needs to be clear about how insurance penetration is computed. GROSS WRITTEN PREMIUM/ GROSS DOMESTIC PRODUCT X 100. So, popular myths that insurance penetration means a higher number of policies, more people/ businesses covered or covering larger geographical areas are busted, though I would hasten to add that doing all of these leads to higher gross premium thereby increasing insurance penetration.

The country’s GDP will continue to grow and looking at the stated formula, insurance penetration can increase only if the numerator i.e. Gross written premium increases at a higher rate than the denominator does. The gross written premium can increase in three ways:

1. Increase in the number of insureds or a larger number of policies ( New-New)
2. Selling additional insurance products to exiting insureds ( New-Old)
3. Charging higher premium from existing insureds for existing policies ( Old-Old)

It will be obvious even to a layman that charging higher premium from existing insureds can never be a long-term strategy and if pushed for long periods, can be counter-productive. Generating higher premium by cross-sell, i.e. selling additional insurance products to existing clients, calls for hard work/ larger number of resources and there are limitations on the extent to which this can be pursued. Acquiring a new insured and acquiring more and more of them is the real essence of insurance as a larger pool is created. Alas, this is the most difficult of all and perhaps the most expensive in terms of cost of resources. The spirit of insurance penetration is however only (1), which the IRDAI of late has been stressing upon — more and more people should have access to insurance, especially the ones in remote areas and those who are under-privileged. Premiums may be low but the overall volumes would make it viable, provided we get the distribution and servicing not only efficient but economical too. Is the Indian market ready for it?

In the recent meeting with the CEOs of all insurance companies, the regulator threw estimated targets for each of them and pegged the non-life industry’s estimated premium in 2027 at INR 11.7 trillion, up from INR 2.2 trillion in 2022, leaving all of them stunned. Many pointed out that though the numbers were achievable, it would need huge infusion of capital, which may be an issue. A very pertinent concern — will the promoters put in additional capital? Should a foreign insurer be given a stake? Should PE investors be welcomed ? Should the companies go public or raise debt? That is a separate discussion. What will be the strategy to reach these mammoth targets at a CAGR of close to 40%? Am afraid none of the insurers had anything concrete to say, even about the broad contours of their Blue Ocean strategy. Yes, this will need to be Blue Ocean, for sure. So how has the non-life industry progressed so far? Remember, the current growth rates of the industry are nothing to be scoffed at. The regulator is only raising the bar to bring in the breeze of insurance penetration.

The industry growth, to a very large extent has been based on the following:

1. Vying for the existing pie of business with the lure of lower premiums, where possible, especially in the corporate business segment and relying on organic growth of their clients, to enhance their own book.
2. After a while, when loss ratios started catching up, insurers/reinsurer brought in an informal Tariff regime leading to huge increase in premiums in some segments. So the initial low pricing was neither based on sound underwriting/actuarial basis nor intended to benefit the customer. Simply put, it was to snatch each others’ business
3. On the retail or individual business segment, mainly Automobile & Health, insurers realized that the ‘insurance buying’ decision was based on the distributor’s recommendation/choice and NOT that of the insured. So, it was easy to pamper large distributors who consolidated automobile premium with obscene pay-outs ( both fair and foul). Was the insured getting the best deal? Maybe yes, in some cases, maybe no, in others. Consolidators would gravitate to those insurers who paid them more.
4. In case of retail insurance products sold through banks, the insured could well be termed a hostage. Very high-priced insurance products would be foisted on him, he would be coerced into buying or in some cases, even his bank account debited with the insurance amount with the insurance premium. Clearly, where there was/is an opportunity to charge high premiums, it was done and the benefit passed on to the intermediary in the form of huge pay-outs.

The simple point — The customer or the insured was never the focal point for insurers though considerable lip-service was provided. Being part of this industry for over three decades, I make this statement with a sense of shame.

Now, coming back to insurance penetration, there are a number of pieces which would help complete the jigsaw puzzle. We have a mushrooming number of ‘insuretechs’ who claim to have found the missing pieces of the puzzle. Some propagate ease of buying from the comfort of our homes, with product comparatives, price comparatives, reduced pricing, etc. They have made some inroads but AGAIN, they are eating into the exiting pie of premium only. Enhanced penetration? No. Again the business models of quite a few of them are doubtful and sustainability is a question. Pricing is certainly a concern for insurance buyers but as explained earlier, insurers tend to be flexible, charging lower premiums where warranted and when the insureds are not the direct decision-makers, charge high prices too, feeding the distributors. So pricing is not a big hindrance to insurance penetration. Whenever a distributor is questioned on why penetration is low, the stock reply would be ‘ absence of appropriate products’ as desired by the buyers. Suffice to say, that there are over 2000 insurance products in the non-life industry and leave alone the buyers, distributors too would not be aware of all of them. So, the statement that absence of appropriate products hinders penetration, would again be incorrect.

What then are the missing pieces in the jigsaw? First and the most important piece is INSURANCE AWARENESS. Fifty years have elapsed since the cycle of nationalization of non-life insurance and then the opening up of the sector have happened, yet if one speaks to the man on the street, his only thought on insurance will be LIC. What has the industry done to dispel this misconception and spread insurance awareness in the form of insurance education in schools or massive awareness campaigns in the print and electronic media? It is only now that the regulator is looking in this direction and pushing the insurers. While we compare the mutual fund industry with the non-life insurance industry, look at what AMFI has done. Their campaign ‘Mutual fund sahi hai’ with celebrities as brand ambassadors has ceratinly helped create awareness and the massive inflows into the sector are proof s of the concept. Of course, they still have a huge untapped market. This role here should have been taken by the General Insurance Council. However, it was surprising to hear the Secretary-General of the GI Council speak recently at the Bima Manthan and extol as one of the Council’s main activities, interaction with Courts and other Consumer Redressal Forums who he claimed often went overboard and beyond the policy conditions and passed awards in favour of the complainant insureds. So, is the GI Council’s role centered around defending its member insurers? Should they not be concerned about why there are so many complaints against their members too? A corollary is that it is apparent insurance awareness is missing in the learned judiciary or adjudication authorities, so where does this leave the common man? Insurance companies have advertisement campaigns but if one sees their spends on Advertisement, the corresponding outputs or visibility is just not there. So where does the amount shown to be spent on advertisements actually go? Food for thought.

The second missing piece in the jigsaw relates to people who are aware or reasonably aware of insurance yet do not want to insure unless it is semi-mandatory or they are coerced into buying, like in the case of retail products sold by banks discussed earlier. This section of the population, apart from being aware of insurance , also have the ability to pay, yet do not buy. Why? It is TRUST DEFICIT. The vital missing piece in the jigsaw which insurers choose to hide! The utility or value of insurance is apparent only when there is a claim. Ask anyone, be he an individual or a corporate house and whatever be the class of business ( Motor insurance, on an overall basis is an exception), the general perception is — ‘getting a claim is a cumbersome process. There may be degrees of difficulty between different insurers but the Trust deficit exists and very little has been done about this by the industry as a whole. Insurers reel out Claim Settlement Ratios in the high 80s and 90s, but yet the customer is not satisfied. Why? The whole process of claim settlement is not seamless. It is never a pleasant experience and there are high levels of subjectivities, starting with varying interpretations of policy terms and conditions, calling for documents on piece-meal basis, seeking gratifications through third parties connected with the claim, etc. How does one explain the proliferation of claim-consultants ( some with PE investors as well), insurance advocates and the piling up of cases before the Consumer Redressal forums, Ombudsman and Courts? Gross deficiency in the claim-settlement process. The grievance mechanism too is weak and time-consuming. Not for a moment am I advocating that all claims be settled blindly. Yes, frauds are a concern, no doubt and has to be curbed. However, do not look at every claimant as a fraudster. Looking at the moral hazard of the proposer should be done at the underwriting stage itself. Sadly, this is often given the go-by, what with steep targets, incentives, promoters’ demands and so on. Trust Deficit is all pervasive — 1) Insured does not trust the intermediaries 2) Intermediaries do not trust the insurers 3) Insurers do not trust the insureds 4) Insureds do not trust the insurers 5) Insurers do not trust the intermediaries. In such an ecosystem brimming with mistrust, who has the time to focus on Insurance penetration? So easier options like consolidation, forced selling and higher pay-outs are resorted to, by insurers to grow their businesses.

Another favorite talking point of one and all is cracking the SME/MSME code through increased use of technology for buying and introduction of products suited to their needs. Do the SMEs/MSMEs see value in this? What is the point in selling an online policy to a MSME and once there is a loss, ask for the same set of documents as you would from a large corporate? How this segment operates is usually Greek & Latin to the underwriters and claim-handlers. Asking for Fixed Assets Registers, proper accounting records, statutory compliances, etc. only make the insureds move away from insurance…….. widening of the Trust Deficit. The urgent need is to look at simple parametric losses, where once the event occurs, the agreed limit of indemnity gets paid. The Trust Deficit could be bridged.

INSURANCE AWARENESS and bridging of the TRUST DEFICIT by the insurance industry are the two missing pieces which will help complete the jigsaw of Insurance penetration. Insureds should see and feel value in buying an insurance product. Missing the wood for the trees and creating fancy products and ease of buying using technology alone will not give the desired results. Heavy lifting is required from insurers, intermediaries, the IRDAI and the GI Council……. and the immediate steps should be to start putting in these missing pieces.