National Insurance Awareness Day: What Are The Protection Gaps In Insurance In India? Are You Adequately Covered?

Both the issues of the protection gap and under-penetration of insurance need systemic policy redressal
National Insurance Awareness Day
National Insurance Awareness Day

Two major concerns exist within the insurance sector - under-penetration and a significant protection gap, according to experts. At present, according to a recent National Insurance Academy report, the insurance penetration stands at only 4.2 per cent, which is lower than the global average of seven per cent. This means that 73 per cent of the population doesn't have health insurance, there is an 87 per cent protection gap for life insurance, and 95 per cent of the population lacks catastrophe coverage. Additionally, only 24 per cent of employees are enrolled in employee retirement schemes. Even for those with insurance coverage, there is a substantial gap in the sum insured and coverage adequacy, with property insurance underinsurance exceeding 25 per cent and out-of-pocket health expenses exceeding 50 per cent.

According to a recent Swiss Re report, over the next decade (2024-34), insurance penetration will increase from 3.8 per cent currently to 4.5 per cent in 2034.

According to experts, to address these issues, we need to focus on simplifying policy wording, standardizing terminology, providing easier access to services, facilitating hassle-free claims processes, and leveraging technology and digital solutions to reduce processing and distribution costs. Implementing initiatives targeting rural areas will also be crucial in bridging this gap.

Says Anuj Parekh, co-founder and CEO, Bharatsure: “As per Insurance Regulatory Development Authority of India (Irdai) statistics, around 90 crore Indians still don't have access to insurance. This gap exists because people lack the awareness and the intent to buy insurance for themselves and their families. Only a small proportion of Indians have health cover buy an insurance. They are mainly covered through government or group insurance schemes. The model of promoting individuals to buy insurance for themselves has failed in India.”

How Can Policyholders Ensure They Are Adequately Covered?

It’s now widely known that if you or your family are not insured, you might have to pay a heavy price for it. In the event of an emergency or the sudden death of the chief earner of a family, the entire savings can be wiped out in a day. Along with that, there could be loss of property and vehicle, gold jewelry too. Having lived through Covid, a global pandemic, it’s high time we make sure our insurance coverage is in place, before everything else. This is the right time when policyholders, insurers, and insurance industry stakeholders must all come together to address this issue.

According to the NIA report, despite perceiving life insurance primarily as an investment product, 67 per cent of customers still prefer savings for the future, tax benefits, and safety. Many do not opt for mortality protection coverage, leading to a high protection gap. While most policyholders believe their coverage is adequate, perceptions vary across demographic segments. Younger and middle-aged customers wrongly perceive adequacy, emphasizing the need for education on risk protection. Private and government sector employees generally believe their coverage is sufficient, potentially due to employee benefit schemes.

“Policyholders should look at coverage that is comprehensive and also takes care of critical illnesses. Treatments of diseases like cancer, transplants, and strokes can be in multiple lakhs if not crores. Having a policy that can cover the cost of these illnesses is a must and therefore policyholders should aim to cover at least Rs 20 lakh of insurance cover. They can supplement their existing insurance through super top-ups that can be an affordable way to ensure high coverage,” adds Parekh.

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