Hinterland hustle: How the private sector and government looking to increase penetration of insurance in rural India

Like an advertisement from yesteryear where a TV reporter popped up on the screen and asked, "Does your toothpaste have salt?" Today, most people ask each other, "Do you have insurance?" Despite this growing awareness, the numbers tell a different story, one that urgently calls for increased insurance coverage across India. 

India is the 10th largest life insurance market globally, the 4th largest general insurance market in Asia, and the 14th largest globally. Yet, there remains a stark difference in insurance penetration between India's rural areas and urban centers. According to a recent survey conducted by one of the top insurance companies in partnership with a leading marketing data and analytics firm, only 22% of India's rural population owns life insurance, compared to a significant 73% in urban areas. This discrepancy highlights the critical need for targeted efforts to increase insurance penetration in rural regions.

The survey also revealed that rural India scores only 12 points on the Protection Quotient scale (The India Protection Quotient (IPQ) indicates Financial Preparedness in urban India against an unforeseen future.), compared to 43 points for urban areas. Several reasons including not enough savings, difficult to understand processes, high premiums, poor claim experience have been at the back of low uptake of insurance. 

Expanding access to financial services is important for India to achieve inclusive growth. Millions of ordinary Indian households and small businesses continue to look for solutions that will enable them to secure their financial well-being. The challenge remains as to how both the government and private sector can work together to bridge this gap and provide robust insurance coverage for all.

Glancing at the Gallery: What the Indian Insurance Market Has for Exhibition

The window of opportunity is large within the Indian insurance industry. Over the past two decades, followed by supportive government regulatory policies, India’s insurance sector has witnessed impressive growth, driven by increased private sector participation and improved distribution capabilities. In FY24, non-life players saw a 14.86% year-over-year increase in premium income, reaching Rs. 1,43,802 crore (US$ 17.29 billion), primarily due to the strong demand for health and motor policies. Life insurance has also seen a substantial uptick. In April-February 2024, life insurers' new business premiums grew to Rs. 317,746 crore (US$ 38.2 billion). 

Despite these impressive numbers, the penetration of insurance in India remains relatively low, accounting for only 4% of the GDP in FY23, with life insurance making up 3% and non-life insurance comprising 1%. This highlights the significant potential for growth, particularly in rural areas where insurance penetration is markedly lower compared to urban regions.

India's insurance industry is not just growing in size but also in technological innovation. The country has become the second-largest insurance technology market in the Asia-Pacific region, accounting for 35% of the US$ 3.66 billion Insurtech-focused venture investments made in the region. This technological advancement is crucial for bridging the gap between urban and rural insurance penetration, ensuring that financial protection reaches all segments of the population.

Private Players Driving Insurance Penetration

The private sector has played a pivotal role in expanding insurance penetration across India, contributing to the dynamic growth of the industry. The market share of private companies in the non-life insurance market rose significantly from 15% in FY04 to 49.3% in FY21, illustrating their growing influence. Private players are also focusing on innovative products to meet the evolving needs of the market.

New-age, tech based end-to-end financial product companies, which are public-spirited to the core, are leading the charge. These companies, through their commitment to innovation and customer-centric approaches, are transforming the insurance landscape. For instance, some companies are creating advanced technological models and rolling out innovative products that cater specifically to underserved rural populations, ensuring that even the most remote areas have access to vital insurance services.

The regulatory environment has also supported the growth of private players. India increased the foreign direct investment (FDI) limit in the insurance sector from 26% in 2000 to 49% in 2014, and further to 74% in the Union Budget of February 2021. This policy change has facilitated greater investment and competition, driving innovation and improving service delivery in the industry. By leveraging these favorable conditions, new-generation financial product companies are setting new benchmarks in the sector, striving to achieve higher penetration and broader coverage across the country.

Government Initiatives: A Safety Net Woven Tighter

The Government of India is also weaving a tighter safety net for its citizens through a series of impactful initiatives aimed at enhancing insurance penetration. The Interim Budget for 2024-25 focuses on boosting farmers' incomes and resilience, providing financial aid to 11.8 crore farmers, and crop insurance for 4 crore farmers, along with increased investment in post-harvest activities.

The Union Budget 2023-24 proposes to limit income tax exemptions on high-value life insurance policies, ensuring better-targeted tax concessions. The Pradhan Mantri Fasal Bima Yojana (PMFBY) continues to significantly boost premium income for crop insurance, offering essential protection against natural calamities. Ayushman Bharat (Pradhan Mantri Jan Arogya Yojana) (AB PMJAY) provides health cover of Rs. 5 lakh (US$ 6,075) per family per year for secondary and tertiary care hospitalization, reducing medical expense burdens on households. Additionally, insurance coverage for 44.6 crore persons was provided under the PM Suraksha Bima Yojana and PM Jeevan Jyoti Yojana during FY23.

The Union Budget 2021 increased the foreign direct investment (FDI) limit in the insurance sector from 49% to 74%, attracting greater investment and fostering a competitive market. The Insurance Regulatory and Development Authority of India (IRDAI) has also facilitated the issuance of digital insurance policies through DigiLocker, streamlining policy management and enhancing accessibility. Through these initiatives, the government is not only driving the growth of the insurance sector but also ensuring that insurance benefits reach underserved and vulnerable populations across India.

Wrapping up the formalities: Insuring a Bright Future

For a parting word, the collective efforts of private players and government initiatives are creating a robust and inclusive insurance landscape in India. Innovative financial product delivery platforms are bridging the gap between urban and rural insurance access, leveraging technology and strategic partnerships to ensure protection reaches every corner of the country. As the industry evolves, the focus remains on making insurance accessible, affordable, and effective for all, driving towards a more secure and insured future for India.