Expanding Insurance Coverage In India’s Underserved Areas: Challenges And Solutions

SOURCE : NEW18 NEWS

Last Updated:January 15, 2025, 16:29 IST

India’s insurance sector has seen steady growth over the past decade thanks to the host of reforms undertaken by the government and the regulator.

Authored By Gurumurthy Ramachandran:

India’s insurance sector has seen steady growth over the past decade thanks to the host of reforms undertaken by the government and the regulator. Interestingly, the country, which is hailed as the 10th largest insurance market globally in terms of total premium volumes, is estimated to emerge as the 6th largest by 2032. However, the industry, both life and non-life, continues to face significant challenges when it comes to expanding coverage to vast underserved and untapped segments of the population.

According to recent studies and reports, nearly 90 per cent of India’s population remains uninsured, particularly in rural areas, lower-income segments, and certain niche communities. This represents a massive opportunity for the industry, only if the right solutions and strategies are implemented. Increasing awareness, creating tailored products and adopting innovative technology-driven distribution channels catering to the unique needs of people from across various segments will go a long way in bridging the gap.

Insurance penetration in India increased steadily from 2.7 per cent around the turn of the millennium to 4.2 per cent in 2022. However, the penetration rate slipped to 4 per cent in FY23. Insurance density increased from $11.1 in 2001 to $91 in 2021 in keeping with the relatively faster expansion of the insurance market in the country. This clearly indicates that government schemes and financial inclusion initiatives have driven insurance adoption and penetration across all segments.

But there still remain some key challenges in reaching out to the underserved markets:

Awareness Gap: Many individuals, particularly in rural and low-income segments, lack awareness about the importance and benefits of insurance. This knowledge gap is often compounded by cultural factors and financial illiteracy.

Affordability: Premium costs remain a significant deterrent for lower-income groups. Traditional insurance models, which are often expensive, are not designed with these communities in mind.

Trust Deficit: Historically, the insurance sector has struggled to build trust, particularly in rural India, where people view insurance as complex and difficult to navigate. The perceived lack of transparency and the complicated nature of traditional policies further hinder adoption.

Infrastructural Barriers: Limited access to channels including banks, agents and technology, in remote areas make it difficult for people to avail insurance products, despite their willingness.

We can address these challenges and expand the reach of insurance in India by adopting specific strategies focusing on making insurance products more accessible, affordable, and relevant to the needs of underserved segments. One of the ways of ensuring accessibility and affordability is rolling out Micro-Insurance Products for Low-Income Groups. Such products are low-cost, simple to understand and can provide an affordable entry point for India’s vast low-income population. These products can offer basic coverage tailored to specific needs, such as life, health, and crop insurance, at premiums as low as a few hundred rupees per month.

Further, digital transformation through technology, especially mobile and AI-powered platforms, can help reach out to the underserved markets, especially in rural India. Digital-first insurance models, including online sales, automated underwriting, AI-driven claims processing, and customer service, can reduce operational costs and make insurance more affordable for underserved segments.

It is to be understood that a one-size-fits-all approach doesn’t work for India’s diverse population. Customising insurance products to meet the unique needs of different communities — such as farmers, migrant workers, women, and elderly people — is critical to increasing coverage. For example, customised health insurance policies designed for women or rural populations can address the specific health risks they face, leading to higher adoption.

Expanding insurance coverage to underserved markets in India is not just an economic opportunity, it is a critical need that can help improve the financial security and well-being of millions of individuals. By leveraging technology, offering customised products, building trust, and awareness, India’s insurance industry can unlock this massive potential.

As outlined, micro-insurance, digital platforms, customised products, and awareness initiatives are key to bridging the gap in insurance penetration.

(The author is the managing director of Xangam)