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OPT-INdia: Using Embedded Micro Insurance as a Catalyst to Fill India’s Insurance Protection Gap

Illustration of green button switch with OPT-IN and India flag

India, with its vast population and growing economy, is faced with a significant insurance protection gap – one of the largest in the world. This gap has major social and economic impacts and is prevalent across various segments of the population, posing substantial risks for individuals, families, and businesses.

Why has a protection gap opened? How large is India’s insurance protection gap? How can embedded micro insurance be used to begin filling the space left by traditional insurance companies? Here, we discuss India’s insurance crisis, what strategies can be implemented to combat the gap, and how MIC Global is busy developing relevant products for the Indian market.

Why is there an insurance protection gap in India?

Having insurance is important, there’s no two ways about it. A thriving insurance industry helps mitigate the risks associated with ill-health, loss of income, catastrophes, and theft, to name a few. So, if insurance is such a commodity, why isn’t the Indian market signing up?

From a customer perspective, there are common myths surrounding the purchase of insurance which may play a part, such as unaffordable premiums and a distrust in the insurance industry to honor submitted claims1; while financial illiteracy (a lack of awareness of insurance products and understanding of complex clauses – this is also a global issue), knowing where to buy, and relevancy seem more likely culprits2. Existing insurance products often fail to meet the specific needs of the population, compounding the already low uptake.

Moreover, the underdeveloped insurance infrastructure in the country is another critical factor contributing to the protection gap. Insurance distribution outside of major cities is poor, with general insurers and brokers largely operating inside urban centers. A presence in smaller towns and villages is perceived as unviable due to low profitability2. This leaves limited access for a substantial portion of the country that are without adequate coverage, despite being highly vulnerable to risks.

Many of the issues above can be remedied with suitable insurance products, timely education around available insurance, and improved distribution channels that do not require a physical insurer presence. We’ll get into that later.

Let’s talk numbers

A country’s insurance protection gap is defined by the disparity between the insurance coverage needed and the actual amount of coverage the population has in place. For example, if a country’s optimal insurance coverage is $2 billion, and the actual coverage in place is $1 billion, the protection gap would be 50%. This gap is flexible and can be affected by the country’s economic outlook and population, and risks such as climate change, cyber security, pandemics, and technological and behavioural changes3.

Speaking at 2021’s National Insurance Academy annual summit, Naveen Tahilyani (CEO, Tata AIA Life Insurance Co) said India’s non-life protection gap ranges from 83% to 92%, with life experiencing a lower percentage4. However, the natural catastrophe protection gap was estimated to be higher, peaking at 95% according to Swiss Re Institute5. With the increase in frequency and intensity of natural disasters and emergence of new risks – such as cyber – to people and industry, G Srinivasan (director, National Insurance Academy) reinforced the urgency to plug the rising uninsured economic losses and loss of lives6.

This represents a huge opportunity for insurers. Where traditional insurance is falling short, this leaves the market wide open for a new approach to insuring India’s under and uninsured population. To fill this chasmic protection gap, SN Rajeswari (member distribution, IRDAI) suggested insurance companies must increase reach and the potential for uptake by adopting new strategies through leveraging digital technology, data, and micro insurance4.

How can embedded micro insurance help reduce India’s insurance protection gap?

Embedded micro insurance directly counters the issues discussed earlier surrounding distribution, accessibility, education, and relevancy.

In short, traditional consumer insurance policies are generally designed for large coverages, such as life, home, and car. Customers sign up to products directly with an insurance company either online or in-person (historically in India, in-person has been the only way in rural areas), and claims are made by contacting the insurer. As we learned earlier, this strategy is clearly not working in India.

Conversely, embedded micro insurance is intended to offer protections for smaller everyday events. Embedded micro insurance products are digitally distributed via platforms that customers are already engaging with – no need to contact an insurance agency. These insurances are relevant to the product or service they are purchasing, at a time when they are primed to learn about the benefits and consider opting in – such as screen protection for a mobile phone, or as part of a service’s additional benefits, such as income protection for credit card users. Claims are raised through the platform they signed up with, so customers do not have to deal with an insurance company at all.

From a customer perspective, opt-in insurance is convenient, timely, and less imposing than signing up for traditional insurance.

Additionally, access to affordable and relevant insurance products is highly desirable. With small premiums, customers have the option to carry many different insurances that are suited to their needs at the time, rather than traditional blanket coverages. Low premiums also fit the limited budgets of low-income individuals, which in turn encourages greater adoption of insurance products among this segment of the population.

In time, as more companies offer embedded micro insurance solutions, India’s insurance protection gap will gradually reduce as customers opt-in to products.

Financial inclusion through digitisation and collaboration

The Indian government is transforming the country into a digitally empowered society with its Digital India initiative. Part of this is building digital infrastructure – known as the India Stack – with one goal being to aid financial inclusion in the country. At the 2023 India Stack Developer Conference, Smt. Debjani Ghosh (President, NASSCOM) stated that financial inclusion through digital means had already reached 80%7. With more of the population managing their finances online, the opportunity for digital insurance penetration becomes more viable.

With greater digital financial inclusion, the government is proactively working with insurtech to develop simplified and easy to understand insurance products to protect the Indian population and counter India’s protection gap.

What is MIC Global doing to help in India?

We are working with local insurance stakeholders to bring innovative embedded micro insurance products to the Indian market. With our digital reinsurance solutions, we have created a repeatable blueprint from which further products can be rapidly rolled out.

This speed to market is enabled by our full-stack capability. By controlling the four key areas of product design, underwriting, our own insurance technology platform, and managing our distribution network, we can rapidly write and deploy products to new partners in weeks. This empowers our partners to quickly identify gaps in the market and deliver crucial coverages to their under and uninsured customers.

Our embedded micro insurance products (MiIdentity, MiIncome, and MiIncident) act as pre-built solutions. These products already have the bulk of development completed, so when partnering with a new client, we simply customise the desired product to their needs, enabling us to meet the specific needs of different communities. Each product contains a suite of triggers, with more being developed as we partner with more clients. This flexibility ensures highly relevant coverages that align with the unique risks of our partners’ customers.

Examples of this include:

  • Our MiIdentity platform, developed to monitor consumer data against the growing threat of data breaches that results in compromised personal information being used for credit fraud, providing reimbursement when a customer is impacted financially. This is offered through a national insurance institution specialising in general insurance.
  • A MiIncome product, designed to offer income protection as a result of involuntary unemployment. This is offered through a private insurer who are rolling out to relevant digital platforms through a company that creates service-oriented technology solutions.
  • A MiIncident product, embedded as a warranty product in the event of mobile phone screen and internal component damage, enabling repair or replacement of the device. This product is being expanded to protect consumer purchases across other segments such as portable gadgets, fashion, and accessories.

Challenge accepted

India’s insurance protection gap is a challenging issue that requires concerted efforts from various stakeholders, including the government, insurers, and insurtechs. Alongside government’s initiatives to improving access to digital finance and insurance, embedded micro insurance is positioned to be a promising solution to the protection gap left by traditional insurance companies. By offering affordable, tailored, and accessible insurance products, platforms and services armed with embedded micro insurance solutions – such as those developed here, at MIC Global – can play a vital role in providing a safety net for the underserved sections of Indian society. Slowly but surely, the insurance protection gap will begin to close.


Contact us or send us a few details below to see how we can collaborate with your business to benefit its customers and employees with an embedded micro insurance solution.



Sources

  1. Nova Benefits, Why Indians DON’T Buy Health Insurance
  2. Mint, Four reasons why Indians buy such little general insurance, 16 April, 2016
  3. Insurtech Insights, The Insurance Protection Gap: What is it and how does it affect the insurance industry and our quality of life?
  4. The Economic Times, Insurance penetration in India requires combined efforts of all stakeholders, 15 October 2021
  5. Swiss Re Institute, India’s insurance market: poised for rapid growth, January 2023
  6. Financial Express, Need to close insurance protection gap in country: Irdai member, 15 October 2021
  7. PIB Delhi, The First India Stack Developer Conference held on 25 January 2023, 25 January 2023