Introduced in the 1990s when insurance was viewed as a luxury rather than a need, microinsurance currently has a pivotal role to play in India, particularly in enabling adequate protection of low-income households. Through liberalisation of the insurance industry, government schemes have been able to create ample opportunities so that micro-insurance can reach the masses, especially those who are employed in the informal sector.
Notably, there is immense scope and growth potential in the microinsurance segment, as it is easily affordable and highly flexible as it offers flexibility to the low-income segment. Intended specifically for households with low and modest incomes, microinsurance offers affordable insurance plans that can safeguard the financial future of the entire household, thereby boosting the financial literacy and resilience of the economically weaker sections of society.
Importance of Microinsurance in India
Microinsurance products mostly offer affordable insurance products, thereby bridging the huge gap in insurance penetration between the higher and lower-income groups. Lack of awareness, as well as high insurance premiums, tend to be a significant hurdle for the low-income group from opting for the right coverage. For many households in the low-income bracket, day care treatment, hospitalisation expenses and ambulance cover are viewed as a luxury as it is not affordable. Further, microfinance can leverage the connect with grassroot organisations such as SHGs and cooperatives that comprise a large section of the low-income segment.
Recent insights shared by the National Insurance Academy indicate the urgency with which the need for microinsurance should be pushed across the country. With almost 95 percent of the country’s total population not having insurance coverage for natural catastrophes and more than 70 percent of Indians having no health insurance, the alarm bells are ringing!Â
Microinsurance Distribution is Crucial
It is clear from this recent report that the under-privileged sections of the society lack adequate coverage and they have limited financial resources. In this context, distribution is most crucial when one examines the insurance value chain. Let’s not forget, low-insurance penetration poses significant problems for those who have no insurance coverage at all.Â
Although the microfinance segment has succeeded in enrolling large numbers of intermediaries, the volumes have been consistently modest – both in terms of premium collections as well as lives covered.Â
Challenges in Microinsurance DistributionÂ
Few challenges in microinsurance distribution include:
Small ticket size, which is also coupled with high transaction and service delivery costs
Absence of a reliable business model that can attract good intermediaries
Capacity building of intermediaries
Lack of basic awareness and knowledge on how insurance works for low-income groups
General Microinsurance and Life Microinsurance
Microinsurance comes with the promise of supporting a sustainable livelihood through two categories:
General Microinsurance
This broadly covers personal accidents, health insurance, and coverage for assets like livestock etc.Life Microinsurance
This can be broadly viewed as an endowment or a term plan and it can be purchased by an individual or at a group level.Â
Basic Features of Microinsurance Plans
Let us take a look at some basic features of microinsurance plans:
Microinsurance was introduced in 2005 and comes under the regulation of the IRDAI
The sum assured offered by such policies is up to ₹ 50,000
Such policies are distributed by NGOs, microfinance institutes and self-help groups
The premium is rather affordable to suit the target buyers
Benefits of Microinsurance for Insurance Companies
For insurers looking to expand their customer base, this offers a window of opportunity to cover new entrants.
Easy underwriting and simple product plans with easy-to-pay premiums
Quicker claims processing, powered by digitisation
Tailored plans can also be offered to cover the requirements of more customers owing to the flexibility of microinsurance plans.
Premiums are highly affordable in microinsurance plans, which enables insurers to garner higher volumes in terms of new policyholders, thereby increasing their revenue uptake.
With an influx of new entrants, insurers can garner more data that will help understand their customers better and offer tailored as well as personalised solutions.
Unbundling complex insurance products spanning life insurance and health insurance is made easy through customised microinsurance products
Overall, the role and functioning of microinsurance is also strengthening the growth of InsurTechs in the country as they are able to create seamless digital experiences that are personalised for their customers. Using new technologies and smart digital models spanning every aspect of the overall insurance value chain, the advent of InsurTechs such as Zopper has emerged as a game changer in the insurance sector. By being able to cater to any business’s digital insurance needs, microinsurance plans offer pocket-friendly, secure and easy-to-access insurance solutions, which is why it is the need of the hour.
