India is a unique market when it comes to the insurance business. With a huge population and different cultures, each state has different requirements and expectations. Navigating such a huge country is challenging and exciting at the same time. However, despite being a populous country, insurance penetration is low here. Most Indians do not have any form of insurance, and only around 2.4% of Indians have life insurance. This is one of the lowest across the globe.
Having said that, what also stands true is that insurance continues to be a multi-billion-dollar industry in India and it’s only growing. However, despite its upward trajectory and large capital market, running an insurance business comes with its own set of challenges.
While part of it may be by design, there are still challenges that aren’t as easy to address. If you want to be a successful player in the Indian insurance business, you have to understand the key reasons behind these complications. Only then will you begin to address the roadblocks and uncover a new phase of business growth.
If you’re interested in distributing insurance but aren’t sure where to start, do check out Assurekit. We enable businesses like yours to distribute insurance quickly and effectively. So, what are the challenges of doing the insurance business in India?
Key factors that make the insurance business in India challenging
1) Inadequate insurance spending
India has one of the lowest insurance penetration in the world. Life insurance penetration in India is the lowest across the globe at 2.74%.
While the penetration was the US is 11.43% in 2019.
So, why do Indians don’t buy insurance as much as foreign countries?
A major reason for this is the lack of information. Most people are not mandated to buy insurance schemes. They also lack sufficient information about how to get insured. The penetration rate is also low due to India’s largely rural population. While insurance companies have a strong presence in the metro cities, there is still low coverage in rural areas. These are areas with high costs, low access and a very low literacy rate which results in most private companies focusing on a much smaller section of the Indian population, living in the urban and semi-urban areas.
This is changing as IRDA is encouraging non-life insurers to underwrite business in the rural sector.
The latest technology available is also working to make insurance accessible to everyone. The government’s new initiatives like Digital India, UPI payments, and cheaper internet services are paving the way to help the insurers to reach the rural population of India. This shouldn’t be a challenge in the future.
2) Lack of understanding of possible damage
General insurance( Barring Health ) is the kind of insurance category that usually includes property, motor, and liability covers. If you were to look at the overall picture, you’ll find that only about 25% of the total insurance schemes sold in India are non-life (general) covers. The other 75% is life insurance.
Indians buy about Rs 750 of general insurance per person in contrast to Chinese, Brazilians and Russians according to a report by the International Monetary Fund (IMF). As mentioned above, the insurance industry is mostly centred in urban areas. For private players, about 96% of their business is based upon 7-8 major cities in India, like Delhi and Mumbai. While people here opt for general insurance, the numbers are far below the ideal statistics.
In both urban and rural India, general insurance often does not cover several important expenses. For eg, medical insurance in India does not generally cover out-patient visits or dental treatments, both of which are major expenses for a middle-class Indian household.
The solution here is to come up with new products that meet the needs of consumers while being profitable for the insurers. Many new players in the market are already addressing these issues and reaping profits. This can happen through co-building micro products and integrating them with your products. To know more, click here to check us out.
3) Domestic economy
The trade-off between inflation and economic growth is a challenge for India. While the RBI (The Reserve Bank of India) has tried increasing the repo rates almost every quarter, inflation has steadily increased in India over the past couple of years.
Rising inflation does not bode well for the Indian Insurance industry, where fixed-cost products are expected to yield higher returns. As inflation increases, insurance players are expected to offer higher claims and returns without charging more for premiums (remember that rising inflation also means a lack of disposable income on the consumer side).
The good news? India might have higher inflation rates over the next few years, but its long-term health continues to remain steady. Households in India report a healthy savings rate of about 35%, and there is a rising awareness about the benefits of insurance.
4) Regulatory and distribution channels
If you look at the history of insurance in India, you’ll find that insurance until the late 1990s was entirely government-regulated. In a country with diverse cultures, food, and languages, insurance was restricted to only one format and one product in every line of Business.
This model is no longer sustainable for the future of insurance. Going forward, insurance players will have to reach people where they are and offer multiple micro massy products.
Traditional channels of insurance distribution are simply not enough. Players would have to look at simpler ways to reach their customers and make the process even simpler.
However, developing your own distribution system takes time, effort, and a lot of resources. This is where Assurekit comes in. We build the right systems for different businesses to distribute insurance. We do it quickly, effectively and configure it to suit the business.
Regulatory changes in the Indian Insurance sector have been both positive and negative. On one hand, IRDA has amended the FDI (Foreign Direct Investment Policy) to allow 74% FDI for insurance companies and allow 100% FDI’s in case of Insurance Intermediaries. This will encourage foreign companies to buy a stake in the Indian insurance sector, thus introducing new products and bringing in global best practices.
On the other hand, the ULIP’s regulation has imposed a price control, which has reduced the middleman commission of insurance distributors. This is detrimental for the industry in the short run, as the commission is a major factor in attracting agents to sell insurance.
However, we are sure the insurance industry will find unique ways to cope and grow like it always has.
By 2025, the Indian insurance industry is predicted to be valued at about 280 billion dollars. These challenging times have brought the importance of insurance to the forefront for most Indians.
Despite this, there are major challenges that the insurance industry faces. These challenges are what make doing insurance business in India challenging. That’s not to say that these challenges cannot be overcome. With innovation, determination, and a deep understanding of consumer demands, the Indian Insurance sector is sure to bloom even further.
The question that arises is how did the insurance industry reach here? Click here to check out the history of the insurance business in India.