What is the story about?
The Insurance Amendment Bill has been passed by the Lok Sabha. The biggest sweeping change it promises is fully opening the sector to foreign investment – 100% FDI (from the previous cap of 74%).
But what really changes on the ground?
As I was doing my research before the interview shared below, the bare statistics of the Indian insurance sector hit me hard.
Life insurance penetration in India is less than 3% (closer to 2.8%); health insurance penetration is even worse at less than 1%.
Such abysmal performance — and we are talking about the oldest financial product to have been sold in this country after fixed deposits over the last four to five decades.
The stats really make me wonder: is lack of capital really the culprit, or does the malaise lie elsewhere?
A McKinsey study notes that there exists a “critical gap in product innovation, distribution efficiency, and renewal management” in the Indian insurance sector. The report also says that sub-optimal advisory services have contributed to concerns around mis-selling of insurance products.
I raised this very question with panelists during my recent discussion, asking them what, in their view, is fundamentally broken in India’s insurance ecosystem. The responses only reinforced the sense that money alone may not be the missing piece.
I am now about to make a comparison which a lot of insurance industry practitioners will dislike and disagree with. But here goes.
While insurance penetration languishes in India, the share of mutual fund investments as a percentage of India’s total household savings has boomed over the last decade.
The number has gone from 0.9% in FY12 to over 6% at the end of FY23.
I’m sure there are some lessons here the insurance industry can, if not publicly, then at least privately acknowledge.
The mutual fund experience shows that transparency, simplicity, and a tight leash on investor-level expenses (including commissions) go a long way in developing a lasting, vibrant financial product experience. The MF industry also has a lot to thank SEBI for. Many regulatory battles, discussion papers and reforms later, every single MF CEO I have spoken with over the years has agreed that, in the end, what is right for the investor has indeed proven to be right for the industry.
As a journalist who has been deeply passionate about personal finance for the better part of the last two decades, I hope the insurance industry can start seeing — and believing — a simple fact: if it’s good for the customer, it’s good for you.
The argument that low-income levels or lack of financial literacy are responsible for low insurance penetration in India no longer holds. Insurers can no longer hide behind that veil. We Indians are a savvy, digitally smart lot. We know when to spend on a good-quality, value-for-money product — especially one that will deliver real protection to our families when we need it the most.
So perhaps it’s time to look not offshore for foreign capital, but inward. A clean-up of products, lower expenses (the bill, by the way, gives more teeth to the insurance regulator IRDAI to streamline commissions and expenses), and an end to mis-selling.
Maybe it is this booster shot — and not just money alone — that can redefine the insurance landscape in the country.
Here’s wishing everyone a well-protected and well-invested New Year ahead.
But what really changes on the ground?
As I was doing my research before the interview shared below, the bare statistics of the Indian insurance sector hit me hard.
Life insurance penetration in India is less than 3% (closer to 2.8%); health insurance penetration is even worse at less than 1%.
Such abysmal performance — and we are talking about the oldest financial product to have been sold in this country after fixed deposits over the last four to five decades.
The stats really make me wonder: is lack of capital really the culprit, or does the malaise lie elsewhere?
A McKinsey study notes that there exists a “critical gap in product innovation, distribution efficiency, and renewal management” in the Indian insurance sector. The report also says that sub-optimal advisory services have contributed to concerns around mis-selling of insurance products.
I raised this very question with panelists during my recent discussion, asking them what, in their view, is fundamentally broken in India’s insurance ecosystem. The responses only reinforced the sense that money alone may not be the missing piece.
I am now about to make a comparison which a lot of insurance industry practitioners will dislike and disagree with. But here goes.
While insurance penetration languishes in India, the share of mutual fund investments as a percentage of India’s total household savings has boomed over the last decade.
The number has gone from 0.9% in FY12 to over 6% at the end of FY23.
I’m sure there are some lessons here the insurance industry can, if not publicly, then at least privately acknowledge.
The mutual fund experience shows that transparency, simplicity, and a tight leash on investor-level expenses (including commissions) go a long way in developing a lasting, vibrant financial product experience. The MF industry also has a lot to thank SEBI for. Many regulatory battles, discussion papers and reforms later, every single MF CEO I have spoken with over the years has agreed that, in the end, what is right for the investor has indeed proven to be right for the industry.
As a journalist who has been deeply passionate about personal finance for the better part of the last two decades, I hope the insurance industry can start seeing — and believing — a simple fact: if it’s good for the customer, it’s good for you.
The argument that low-income levels or lack of financial literacy are responsible for low insurance penetration in India no longer holds. Insurers can no longer hide behind that veil. We Indians are a savvy, digitally smart lot. We know when to spend on a good-quality, value-for-money product — especially one that will deliver real protection to our families when we need it the most.
So perhaps it’s time to look not offshore for foreign capital, but inward. A clean-up of products, lower expenses (the bill, by the way, gives more teeth to the insurance regulator IRDAI to streamline commissions and expenses), and an end to mis-selling.
Maybe it is this booster shot — and not just money alone — that can redefine the insurance landscape in the country.
Here’s wishing everyone a well-protected and well-invested New Year ahead.
