Is Micro-Insurance the Next Big Innovation for India?
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Presently, India is a land full of business opportunities. Due to various technological innovations and government initiatives, a wave of startups is rising in every business sector. Every business is innovating to adjust to the behavioural shift of customers from an 'asset-heavy, ownership' model to an 'asset-light, pay-per-use' model. Every product and service is now being re-imagined to fit into these changing customer preferences. Unlike banking, logistics, e-commerce sectors that have already adjusted their offerings, the insurance sector has been a bit slow to evolve. But the advent of micro insurance could change all that.
Problem with existing products
There are over 57 life and non-life insurance companies in India that have seen a substantial growth in their product offerings. But there has always been a complaint that the products are very generic with a high premium. A generic product gives the broadest coverage but confuses customers with a lot of exceptions and disclaimers. By making it broad-based and expensive, insurance companies also lose out on price-sensitive customers with specific needs.
What is Micro Insurance?
While in India 'Micro Insurance' refers to providing insurance to low-income families, a broader, globally accepted definition is where insurance products provide a specific coverage for a specific need at a lower cost to customers. Unlike generic products, 'micro insurance' brings down the cost for consumers by putting in innovative constraints on 'coverage', 'time' or usage.
Some Examples of Micro Insurance
- Time-based constraints: Retail insurance products are time-based and not usage-based. A time-based insurance product assumes that a customer is exposed to an equal level of risk over the entire year. For e.g. if a car stays in a garage for 100 days in a year, why should a customer buy own-damage insurance for the entire 365 days of the year? A microinsurance product that tracks the 'usage' of an asset will be much more useful to customers.
- Event-based coverage: Customers are more open to buying insurance before they engage in a specific event. For eg, a customer might be interested in looking at a personal accident cover before she goes on a long weekend drive. Once the event is completed, her perception of risk drops significantly and so does the perceived need. Designing 'micro insurance' products that specifically cover an event risk reduces the price and increases acceptability among customers.
- Need-based coverage: Insuring your entire home might not make sense while insuring your new home theatre system might. Similarly buying a broad-based health insurance might not be valuable for youngsters but buying a broken-bones insurance might be. Identifying the specific need to the specific profile of customers reduces the cost of insurance.
Key insurance players have already started offering easy solutions to customer's problems who cannot buy high premium insurance. Microinsurance model could be the next thing in Indian insurance sector where insurers offer low priced products to increase the 'culture' of buying insurance among youngsters. As they say, insurance is a product where everyone knows the price but only a few understand the value. It is an innovation at product level which is steadily attaining the attention of customers by the efforts of various online fin-tech players. Interestingly, India with all its diversity in income patterns, education levels, occupations etc is a huge experimental playground for microinsurance products.
Microinsurance plans are based on extremely low premium rates. Because of its affordability and specificity, the majority of Indians can get the advantages of insurance.
Moving ahead, Micro-insurance is not only going to benefit the low-income strata. Companies involved in offering micro plans can equally capitalise on the new insurance model. Currently, India accounts for nearly 65% of Asia's Microinsurance market. This directly points microinsurance sector towards its key profitability which is based upon 'Low margin - High volume' revenue model. Large volumes of micro-policies mean more business for the company. Selling larger volumes of Microinsurance plans results in increased revenue and scalability.
To summarize, there is immense potential to bring innovative insurance products that leverage technology.