Swiss Re finds big gaps in insurance coverage

Finds that mortality protection gap has seen 11% CAGR from 2004-2014 in India

Global reinsurer Swiss Re has found big gaps in insurance coverage (pure protection) in Indian households. The mortality protection gap report for Asia Pacific by Swiss Re has found that the gap in India was $8,555 billion in 2014.

Clarence Wong, head of economic research and consulting, Asia Pacific, Swiss Re, said while there was an increase in insurance coverage in India, it has not been adequate to fill the protection gap, which referred to the extent to which a family was insufficiently covered for death of their earning member.

The reinsurer is now looking to engage with Indian insurance companies to use technology for better penetration of the products. India had life insurance penetration of 2.6 per cent of gross domestic product in 2014. The study said the sum insured per working person with dependents in India was $2101 in 2014 (about Rs 1.3 lakh), which is much lower than other APAC countries like Australia, which has a sum insured of $303,401 per working person with dependents. India ranked ninth with respect to per capita sum insured in 2014.

In China, the protection gap has seen a CAGR (compound annual growth rate) of 17 per cent of 2004-2014 and has seen the gap rising to $32,074 billion in 2014 from $6,540 billion in 2004. In India, the gap was $3,067 billion in 2004, which has gradually seen a rise every year.

The reinsurer is planning to firm up its India plans and intends to apply for a branch licence. But it has said it will do so only after the insurance regulator brings out detailed regulations for foreign reinsurers' branch presence in India. The new insurance Act allows foreign reinsurers to have presence by way of physical branch in India.

"Abroad there have been insurers using technology to close the gap. Some markets have even used wearable devices where one's physical activity monitored on it will be used to determine premiums. This will soon become common. But insurers will have to focus on protection products, rather than savings and investment products," said Wong.

However, Indian families are most willing to pay for term-life products, even if they are higher than the market price range. Wong explained that there was also the problem of under-insurance, since life protection cover should ideally be 10X the annual income. Per working person, the protection gap was $35,181 (about Rs 22 lakh) and this has seen a 10 per cent CAGR growth from 2004-2014.

The increase of the foreign investment limit in Indian insurers to 49 per cent from 26 per cent in 2015 will help insurers close this gap, according to Wong. The study showed that India was at the top with respect to ratio of protection lacking or protection needed. For every $100 of protection needed in India, only $7.8 of savings and insurance are in place. Wong explained that emerging markets like India are more likely to be under-insured with increased economic pressure and wage growth. Swiss Re has said insurers should focus on diversifying distribution channels, apart from having incentive structures (commission) for agents such that they focus on renewals and also have an easier underwriting process for customers. Wong added that in some high sum assured segments, the medical check-ups could be done away with, by using data analytics to get customer information.