The government could potentially save nearly $10bn annually by expanding insurance penetration to include underserved populations and uninsured assets and events, according to a report by global management consultancy McKinsey & Company. The government could then redirect these saved funds to stimulate economic growth.
Providing comprehensive life insurance cover could help reduce the burden of ex gratia benefits to families affected by the loss of life or livelihood due to accidents and other unforeseen events. Robust and affordable private health insurance coverage could lessen the strain on public healthcare, freeing government funds to improve India’s healthcare infrastructure, the report says.
Additionally, targeted interventions in crop insurance could help minimise crop losses, compensate for crop damages, reduce loan defaults, and enhance production yields, according to the report.
Further, creating natural disaster insurance pools with mandatory coverage for ecologically sensitive areas could minimise financial losses for small and medium-sized enterprises (SMEs) and other businesses affected by catastrophic events.
“Substantial investments in innovation and growth have transformed the insurance industry. Fuelled by domestic and foreign private capital, insurers have prioritised enhancing customer experiences through digital channels, optimising sales strategies, and improving business performance metrics like policy persistence,” the report noted.
Current regulations cap foreign direct investment (FDI) in insurance at 74%, and private equity firms can invest directly in insurers.
Challenges
Despite these efforts, challenges remain. The industry’s penetration rate slipped to 4% in the 2023 fiscal year from 4.2% in FY22.
“Operational inefficiencies, profitability issues, gaps in coverage, limited regulatory support that stifles innovation, and rapidly evolving risks are significant challenges hindering the industry’s performance. Additionally, limited financial literacy and suboptimal advisory services have exacerbated concerns about mis-selling,” the report said.