However, it seems that the importance of this risk-protection instrument is not yet understood in India. The country is still low on insurance penetration at 4.2% in FY21[2]. That's a paltry number for a nation of more than a billion people.
The reason for this could be a lack of understanding of insurance and what it offers.
A report by the India Insuretech Association (IIA) in collaboration with the Boston Consulting Group (BCG)[3] stated that 80% of customers have difficulty understanding an insurance product's coverages, benefits and pricing leading to trust issues.
But the reasons could be more. And the reluctance of the uninsured could have a detrimental effect on different facets of their lives.
The role and importance of insurance
There are two types of insurance, life and non-life. Under non-life insurance, come various other categories like health insurance, motor insurance, travel insurance and more.
Insurance, by definition, is a tool that offers financial protection against losses from risky situations.
Both life insurance and non-life insurance or general insurance, are tools that offer you a financial cushion in dire situations. The dire situations could be related to your health, driving, travel, etc.
The problem of the uninsured
The issue of being uninsured is when the unthinkable happens. You could face an illness that needs prolonged hospitalisation, or you could have issues with your flights when on your international trip. In such situations, how are you going to recover financially?
One study on health insurance published in the National Library of Medicine[4], stated that there is a positive relationship between health insurance and those who buy one. It said that people with chronic diseases are more likely to get appropriate healthcare compared to those without health insurance. The study also revealed that a high mortality rate and decline in general health was seen among the uninsured compared to those with a health insurance plan.
All this goes to show how important it is to have an insurance policy to cover you. And the same cannot be overstated in a country like India with such a high number of uninsured people.
The importance of general insurance
In an interview with Knowledge of Wharton[5], Howard C. Kunreuther, co-author of the book “Insurance and Behavioural Economics: Improving Decisions in the Most Misunderstood Industry", said that people tend to look at insurance as an investment and not as a shield against financial losses. So, when you get no financial returns on your insurance premium, you're dissatisfied. This is an unfortunate view of insurance that pervades the general population's mindset.
However, as Mark Pauly, co-author of the same book with Howard C. Kunreuther, said the best return to insurance is no return at all. Meaning the best thing that can happen to you is to not suffer any kind of loss thus making rise to the need for a claim.
Things change once you begin to see insurance as your talisman against financial ruin.
How general insurance helps
General insurance, as opposed to life insurance, covers a wide gamut of life scenarios. Think health, travel, cars and two-wheelers, homes, taxis, buses, shops, etc. As customer needs evolve, so do insurance products. There's insurance for cyber fraud, pets, mobile phones and more.
Insurance is being made available wherever there's a scope for risk.
Types of general insurance
Let's take a look at the different types of general insurance products and how they help.
1. Health insurance
Health insurance is one of the fastest-growing lines of business in India, with a 22.5% increase in premiums written in 2021[6]. This growth can be attributed to the COVID-19 pandemic where a large chunk of the population was getting hospitalised. Health insurance helps you pay your medical bills if you ever fall sick and need to be admitted to the hospital. Given the staggering rise in healthcare costs each year, having health insurance has to be a top priority for you.
2. Car insurance
You face many risks when you're plying the roads with your car. Things like accidents can never be ruled out. Your car could be damaged even when it's not in use. Things like earthquakes, floods, riots, acts of vandalism, etc. could all lead to damages that would require you to pay for repairs. A
car insurance plan will help you bear that burden of repair-related expenses and leave you lighter in the pocket. Additionally, car insurance also protects you from expenses you owe a third party in case you damage their vehicle or property.
3. Two-wheeler insurance
Similar to car insurance,
two-wheeler insurance protects you from losses if your bike or scooter gets damaged in an accident, natural catastrophe or man-made calamity. There's also a third-party cover that offers coverage for expenses owed to third-party vehicle or property damage.
4. Travel insurance
Facing unexpected circumstances even on an international trip is never out of the question.
Travel insurance exists to financially cover you for the unexpected. It could be that one of the travelling members needs medical attention, or you could be facing flight delays (the fault lying with the airline), or you could lose your baggage, passport, money and so on. If you have travel insurance, then you can recover the money you lost or get reimbursed for what you lost on the trip.
5. Other kinds of insurance
Here's a short list of the other kinds of general insurance products available in the market:
- Shopkeeper Package Insurance
- Marine Cargo insurance
- Doctors - Professional Indemnity insurance
- Crop insurance
- Home insurance
- Fire insurance
Conclusion: The need for insurance in India
There's a telling statistic seen in research[6] published by Swiss Re that highlights India's need for insurance. The Health Protection Gap (HGP) in India is one of the highest in the world, meaning that the number of people who have health insurance is dangerously low. The global HGP is 7.5%. India's is at 35%.
Moreover, close to 30% of Indians don't have health insurance, according to the study. Again, a huge number considering India's population.
This is just health insurance. The need of insurance is there in other areas too like motor, travel and more. Too many people are going about their lives without some kind of backup plan in case things go awry. It's up to insurance companies to double their efforts in improving distribution and meeting customer needs through various products.
And it's up to you, dear customer, to educate yourself on why you need an insurance policy and buy one soon.
