Don’t be a "Garry" – Insurance in India
- Vibhav Bhat and Yash Bhave
- May 31, 2021
- 4 min read
Written By - Vibhav Bhat and Yash Prashant Bhave
PGDM Student, TAPMI-Manipal
A lawyer in 1993 was giving a tour of the firm to law students. Like numerous times before he decided to brag about his engineering knowledge by showing the strength of windows of the building. He ran into the window with full strength. The window however had already faced this wrath many times before and decided to give up. The lawyer plunged 24 stories and fell to his untimely demise.
Similar to Garry Hoy, the lawyer in this story, we are usually over confident of our future. However, life has its own plans. One of the most commonly asked questions which is also least correctly answered one-
What is insurance and why to buy one?
Insurance is nothing but protection against loss. It is not a new concept in India. Writings in Arthashastra describe Insurance as “pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine”. On birds view Insurance today can be classified as- Life, Health and General.
Garry learnt it the hard way that life is uncertain. Like we protect assets such as TV and phones with extended warranties we must hold warranty on our life. Human life cannot be valued but life insurance helps cover your liabilities for your family post death. It eases the burden of finances for families who are already mourning the loss of a loved one.
The benefits of health insurance are generally under weighted. It covers hospitalization and medication charges of the insured. It helps you to cope up with the ever-increasing costs of healthcare. The pandemic has shown this with single hospitalization leading to a massive cost averaging INR 20,000-25,000 per day without ventilators.
Fig: Annual Per capita Healthcare Spending in India (in USD)
General insurance includes home, fire, automobile and other insurances. These are drawn on the requirement of the owners of materials for safeguarding the financial loss caused by damage or loss of this asset. For a factory owner a machine can be critical and stopping of which will lead to eventual loss of sales. General insurance can help the owner to cover part of these losses along with replacement cost of the machine.
Insurance Sector in India-
The insurance sector in India has very low penetration. As of 2019 it was recorded at 3.76% as against the global average of 7%. Out of this life records a mere 0.94%.
Leader by market share-
Life Insurance – Life Insurance Corporation Ltd. India (LIC India)
Health Insurance- Star Health and Allied Insurance Co. Ltd.
General Insurance – New India Assurance Co. Ltd.
Fig: Number of registered insurers across India as of March 2020 (Source – www.statista.com)
In March 2021, in a hope to increase this penetration Insurance amendment bill was passed which permitted 74% FDI in insurance companies. Insurance is capital intensive business. Companies have to maintain capital to settle claims that can come in future. A higher FDI percentage will help insurance companies who have to follow strict IRDA regulations in investment and liquidity to tap into foreign capital to meet their growth requirements.
The changing landscape of businesses have also brought forth InsurTech companies in this sector. Most common being policy bazaar along with Acko and others which has brought insurance to everyone's fingertips. The global InsurTech market is expected to grow at approximately 36% CAGR and Indian companies are leading this revolution.
Why don’t people buy insurance in India?
The count of people actually opting for insurance is increasing with each passing year. But the rate of increase is very low.
Fig: Number of people with health insurance in India per capita level
(Source – www.statista.com)
One of the major reasons why people don’t buy insurance is because of state and national level schemes introduced for BPL, lower middle-class population or residents of a state. These usually cover a narrow disease and hospitalization range. However, people usually opt for these care schemes because of low or no premiums and do not hold a separate policy that would cover them at bad times. Eventually they face a tough time claiming these benefits in certain cases. Consider “Mukhyamantri Amrutam Yojana” holders who cannot claim any amount for non-emergency healthcare treatments and have to bear these unplanned expenses.
Secondly, people are usually skeptical about buying insurance. With policy document clauses running for pages and in terms that cannot be easily grasped there exists a sense of distrust in their minds.
In a nutshell the lack of knowledge regarding insurance and distrust among the population towards these agencies are major reasons for not buying insurance. Another reason is overconfidence of educated individuals over their future at times.
Like Jack Ma said – “After toiling for decades an illness can wipe out an entire family’s savings by medical bills incurred”, buying insurance ensures protection against today's uncertain world. No insurance can fill the void of loss of a loved one but it will at least support you in tragedy and continue to care for your loved ones even after your death.
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