Opinion: Will more standard plans help increase insurance penetration?

Rakesh Goyal, Director, Probus Insurance

In the last few months, Indian insurance regulator—Insurance Regulatory and Development Authority of India (IRDAI) has been quite active. First, we saw the announcement of Arogya Sanjeevani, a standard health insurance plan to be sold by all the insurance companies. Later to tackle the current pandemic, regulators asked insurers to come out with Covid-19 specific plans known as Corona Rakshak and Corona Kavach. With the success of such products, IRDAI is planning to further increase the ambit of standard insurance plans for dwelling, micro small and medium enterprises (MSMEs) and even term plans.

I think the launch of these products in the days to come is the start in the right direction. Even after 20 years of opening the sector for private and foreign players, the penetration of insurance in India remains extremely low. But when the Chairman of IRDAI recently said that they will bring in guidelines for standard products in three categories, I assume things are looking better for the insurance industry.

Life insurance penetration in India, which is measured as a ratio of premium to gross domestic product (GDP) rose marginally from 2.74% in 2018 to 2.82% in 2019 while density which is measured as ratio of premium to total population also increased marginally from USD 54 in 2018 to USD 58 in 2019. The life insurance industry in India has been on an upward trajectory, but given the country’s low insurance penetration, there exists a vast untapped opportunity for the insurance industry. Currently insurance penetration is 3.76% of the gross domestic products (GDP) compared to the world average of around 7%.

In the short period of time, insurance companies have sold around 28 lakh Corona Kavach policies and around 32 lakh Corona Rakshak policies. The success of these policies are clearly defined benefits and easy to under products. If insurance companies can replicate similar success for dwelling, MSME and term insurance it can go a long way to increase the penetration and help the people in terms of crises.

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In India we have seen floods causing havoc not only on the houses of the people but also for the small business. We have seen the kind of impact the floods of Chennai, Uttarakhand, Jammu and Kashmir and Kerala have had in the last few years. Cyclone Fani and monsoon-related flooding, which affected several states across the country. While Cyclone Fani was more profound in the state of Odisha, it also affected several parts of West Bengal. Due to the climate changes, we might expect more catastrophic events which could have an adverse impact on the finances of the individuals.

With the availability of standard products, it will become easy for policyholders to pick such products as they don’t have to go through voluminous policy documents to find out terms of conditions. In India while there has been some awareness about health insurance post the pandemic, but even now most of the Indian stay away from buying home insurance (which is also called dwelling insurance). These policies will help policyholders to get claims if their houses are destroyed in catastrophic events like floods and it would put less burden on government finances.

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Similarly, it is also true to MSMEs insurance and term plans insurance. While there has been pick-up in the term plans in the last few months, a large part of the people are underinsured in India. With this standard product we expect sales of insurance to go and help to further penetrate both life as well as general insurance in India.

Views expressed in this article are the personal opinion of Rakesh Goyal, Director, Probus Insurance.

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