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Top 5 Challenges In the Insurance Industry And How To Address Them Legacy challenges or new ones, hurdles in insurance can be overcome via proper planning

By Akash Anand

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The Union Budget FY2021-22 has something to cheer for insurance players since it has raised the industry's FDI cap from 49 per cent to 74 per cent. In the long run, this can help address the lack of adequate capital investments and low penetration rates: two of the top five challenges that India's insurance industry confronts.

Thanks to the tailwinds from the pandemic, among others, health insurance has emerged as one of the country's fastest-growing service sectors. Yet, other barriers remain, such as lack of adequate knowledge about insurance, low awareness about its benefits and minimal reach in rural areas.

In India, the insurance industry is divided into life and non-life segments. It's important to elaborate on the common challenges these segments face and the measures to address them.

Low insurance penetration

Lack of penetration in many geographies, including rural settings, has been a decades-long problem. Life insurance companies, particularly private players, are concentrated in urban regions. Recognizing this, the Centre launched "Rashtriya Swastha Bima Yojana' in 2008, a low-cost product offering healthcare coverage to people below the poverty line.

Nonetheless, the low rates of penetration also spell immense opportunity to grow dynamically. As a result, total insurance premiums have been rising steadily in India, unlike other nations. At 3.69 per cent, the overall insurance penetration remains low compared to global levels. One of the reasons for this was the sector being under state monopoly till the 1990s.

But after the country was liberalized in July 1991, various sectors were opened to private participation. In 1999, the Insurance Regulatory and Development Authority of India (IRDAI, earlier IRDA) was set up and tasked with regulating the industry. The sector was then opened to private firms, permitting foreign entities to collaborate with Indian companies. Although fewer in number, public sector entities still hold the lion's share of India's insurance market.

Moreover, the market share of life insurance predominates with 74.7 per cent while non-life accounts for 25.3 per cent. Not surprisingly, non-life insurance penetration remains under 1 per cent. Therefore, proper pricing of products is required in offering bespoke policies in non-metros and rural zones.

Lack of adequate capital investments

Partly, low insurance penetration can be attributed to inadequate capital with insurers. Insufficient capital makes it difficult to expand footprints into unpenetrated areas while affecting their financial standing too. In this regard, barring one public sector company, the private sector ones are better placed. Accordingly, the decision to hike the FDI cap from 49 per cent to 74 per cent will boost the insurance industry. In the long term, this should help increase pan-India penetration rates.

Inadequate awareness

As per the IRDAI, lack of awareness about health insurance remains one of the hurdles in increasing its levels across the country. Not surprisingly, less than 15 per cent of the populace purchase a health insurance policy. While awareness about health insurance has traditionally grown at a snail's pace, the COVID-19 outbreak led to almost overnight awareness about its importance.

Capitalising on the outbreak, insurers launched a series of policies, especially after IRDAI told insurers to offer affordable plans covering COVID-19-related treatment expenses.

Additionally, when it comes to annual tax savings or savings in general, people prefer to invest funds in realty or liquid assets. Accordingly, the insurance industry must publicise the tax-saving benefits of policies while also stressing that these offer illness as well as life coverage.

"It won't happen to me" syndrome

When it comes to health, especially with young people, there is a mistaken impression that "it won't happen to me". But given the rising cases of lifestyle diseases, including life-threatening ailments among the youth, people across all age groups must understand that unforeseen events can strike anybody, at any time. In such scenarios, buying a health insurance policy after the ailment occurs would be of little use.

Against this backdrop, insurers must come up with proper communication campaigns emphasising the role of insurance in safeguarding the financial security of their near and dear ones in case of ailments. Considering the rising costs of hospitalisation and healthcare expenses, health insurance and term plans are best suited to safeguard the future of policyholders' families.

No footprint in Bharat

Whereas some insurance players have opened branches in tier II and tier III cities, even these firms have virtually no presence in the rural hinterland. In other words, a large section of the untapped market is not even being considered. Besides mass awareness campaigns to augment insurance reach, companies can deploy digital modes in offering policies. As mobile phones have pan-India penetration, these can be leveraged in promoting policies among the masses on the back of awareness campaigns.

For rural sections to be brought under insurance coverage, insurers must formulate long-term plans, including products designed for rural pockets. Ultimately, if backed by low-cost, easy-to-grasp policies that are available online as well as offline, insurance penetration is bound to rise in the days ahead.

Akash Anand

Founder and Managing Director, BimaKaro

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