Life Microinsurance in India: Potential and Pitfalls

Financial inclusion has become a buzzword in India. Insurance firms have woken up to the possibility of profitably addressing the needs of the lower income segment of the market. As a result, after the interest in microfinance, we are now seeing a microinsurance wave.

In a new report, Life Microinsurance in India: Potential and Pitfalls, Celent analyzes the progress of the life microinsurance sector in India. In the last two to three years, the industry has made rapid strides, and both public and private sector firms are catering to it.

The number of new policies has risen from 13.2 million in FY2008 to 19.8 million in FY2010. Of this group, insurance forms a large segment, as a many of these policies are sold through cooperatives, non-profit organizations and microfinance institutions to their members. Also, we can see below that the Life Insurance Corporation (LIC), a public sector entity, sells the majority of such policies. Its long established network and wider reach are important factors in this.

“India has a large population below and marginally above the poverty line,” says Anshuman Jaswal, Celent Senior Analyst and author of the report. “Microinsurance can be a crucial medium to provide risk coverage to these people, and innovative channels should ensure that it remains a viable proposition for insurance firms.”

The Indian microinsurance environment presents some interesting challenges. In a country as vast as India, reaching the target consumer is easier said than done. Even technology has its limitations, especially due to low literacy rates in rural areas. With this report, Celent hopes to inform readers about the development of this market, as well as some of the interesting lessons that can be drawn from the Indian experience.