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Digital India: How InsurTechs enhance inclusion in the insurance market

Zopper Team Basics of Insurance December 27th, 2023
Insurance In Digital India

Financial inclusion, one of the key enablers of socioeconomic growth, has largely been a fintech success story up to this point but is poised to be bolstered, in the coming years, by the rise of InsurTech. With India taking rapid strides in digital adoption, financial inclusion has been accelerated over the past decade by the success of fintech companies. The platforms they developed have enabled BFSI and e-commerce companies, government schemes, food delivery services, and others, to take their offerings to a much larger, pan-India audience than before. 

Today, digital technologies continue to further improve the reach and convenience of various financial and insurance services. UPI is a world-leading innovation that has been adopted by consumers at a mass scale. e-KYC, meanwhile, has reduced the time and cost for banks to onboard new customers. This rapid digitalisation that we are witnessing augurs well for the future growth of InsurTech, which will help in providing a financial safety net to the ‘new to insurance’ segment of consumers.

Brief Snapshot: Insurance Penetration in India

Insurance penetration in India witnessed a steady increase between the years 2000 and 2021, from 2.7 per cent to 4.2 per cent. In 2021, the penetration of life insurance in India was twice that of emerging markets and slightly higher than the global average.  More than 20 InsurTech unicorns emerged in the three years from 2020 and 2022, three of them from India alone.       

The insurance market in India is on a growth curve, and the Insurance Regulatory and Development Authority of India (IRDAI) expects that India will become the sixth-largest insurance market in the next ten years. Financial inclusion holds the key to getting there. 

To see where we currently stand, we can look at the Reserve Bank of India’s composite financial inclusion index, which captures the extent of financial inclusion across the country. The index rose from 56.4 in March 2022 to 60.1 in March 2023. While this is appreciable growth, it also shows that there’s still quite some distance to go. Delivering great customer experiences and using data and analytics will be two very important actions that will shape the evolution and growth of the InsurTech industry in the foreseeable future.

Leveraging technology to deliver great customer experiences 

The important thing, which most InsurTech firms are already doing, is to put customer-centricity at the very heart of their operations and employ technology in various ways. Today, it is possible to use Artificial Intelligence, Machine Learning, and Big Data to gain a deep, data-based understanding of customer behaviour and customise products and services for different customer profiles. This is important because customers expect personalised insurance products that suit their lifestyles and financial goals. Analysing data at a customer or group level makes it possible to create an accurate risk profile for each customer and determine a fair premium and coverage for every individual or group, including the ‘new to insurance’ segment. The more affordable and relevant the offerings are, the more will be the level of inclusion into the insurance fold.

Inclusion is further enhanced by the fact that InsurTech simplifies or eliminates many of the conventional steps involved in availing of insurance cover. Today, there are online tools that allow consumers to browse and compare the insurance offerings of multiple providers and select the one that best suits their requirements. AI-powered systems can assess damage, verify policy coverage, and process claims speedily – a great advantage for consumers.  From the point of view of insurers, AI-and-ML-powered systems make it possible to predict future events, measure their risk, and determine claims with higher predictive accuracy. 

Overcoming barriers to inclusion

Yet another important hallmark of financial (and insurance) inclusion is that these services should reach even traditionally underserved populations, whether rural or urban. This calls for collaborative efforts by the government, regulators, insurance companies, and InsurTech firms to enhance financial literacy and develop insurance products and services that are accessible, affordable, and relevant to all.

The vast size of the country and a traditionally lackadaisical attitude towards financial planning present significant roadblocks to selling insurance in India. Moreover, life insurance companies have limited physical presence across the country, in comparison to other retail establishments, such as banks or the providers of other consumer-facing products and services. Long-standing social inequalities in some parts of the country add to the problem. However, digital insurance, leveraging the now-ubiquitous medium of mobile devices, helps in overcoming such barriers to inclusion. 

Bright future prospects 

The IMF has described India as a “bright spot” amid tepid global growth, and the World Bank has acknowledged the country’s resilience amid ‌prevailing global headwinds. The IMF's GDP growth forecast for India in 2023 is better than that for many other countries. This is significant because it indirectly recognises the strides that India is making in financial inclusion and digital innovation in fintech. A report by PGA Labs projects the insurance market in India to grow at a CAGR of 14.9 per cent to reach Rs 33 lakh crore by FY31.

InsurTech will help in welcoming a new era of financial inclusion, where everyone will have access to at least the basic, essential financial products and services. The signs are positive. There is growing awareness about financial security; rising demand for insurance products; government schemes for the masses; and regulations that encourage the entry of new players into the sector. The building blocks are all in place for an inclusive and prosperous Digital India. 

As the ‘new to insurance’ segment gains access to insurance, we will see an increase in the positive impact on the economy. Families will be better protected, businesses will proceed with confidence, and communities will become more resilient amidst uncertain times. 

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