It is well known that India is under-insured and in terms of life insurance, women, rural dwellers and the self-employed have been left even further behind. A report by Swiss Re places the protection gap in India as the second highest in Asia. The protection gap is defined as the gap between how much life insurance cover a person buys and how much they actually need.
Despite rapid sales growth and recent improvements in terms of insurance penetration, savings and insurance in India still only meet less than 10% of the population’s mortality protection needs.
Some recent consumer research* we conducted at LexisNexis Risk Solutions shows the extent of misunderstanding and apathy amongst consumers, as well as their attitudes to the insurance buying experience.
Only just over one-third (36%) of life insurance customers said they had conducted a ‘great amount’ of research before purchasing a policy. Worryingly, 14% of the people surveyed had done little research or none at all before purchasing life insurance. This figure was as high as 26% for people living in Tier 1** cities. Some 50% of people overall said they had done a ‘fair amount’ of research prior to purchase.
On the positive side, consumers purchasing life insurance direct from the insurer tend to do more research prior to purchase, with 58% of them doing a ‘fair amount’ of research.
Consumers currently rely on agents, friends and family
Over three quarters of consumers purchasing life insurance (76%) rely on a broker or agent as their main information source, whilst much fewer numbers rely on information directly from an insurance company (39%), word of mouth (38%), direct mail (34%) or information directly from a bank reseller (32%).
Only 23% of consumers said they would rely on information from an insurance company website, suggesting the industry as a whole is letting down customers when it comes to engaging information. Rather they tend to rely on intermediaries.
Spreading awareness and reaching insurance education to the masses, is of course, not an easy task. The difficulty of reaching India’s uninsured groups with insurance products is compounded by the fact that over half of them are self employed with irregular earnings and a third of them live in rural areas, according to another study from the National Council of Applied Economic Research (NCAER) with IRDAI.
Consumers tend to rely on advice from friends or family, as well as agents, to tell them which product is right for them, rather than doing their own research through other sources. But greater use of digital information, personalised by the customer’s own ID and profile – delivered to the hands of the rural or disadvantaged consumer through their mobile phone – has great promise for the future.
Insurance products must be made simple
Some 25% of the uninsured group in our study said they know nothing about insurance, and another 29% said they find insurance policies difficult to understand.
The industry efforts so far at making insurance easy to understand have been on simplifying the language used to describe product features. The right attempt would be to simplify the products and customize them with information about the individual’s needs – and their profile – that’s already known. It could have a big impact in the market if the products themselves are simplified and made intuitive, rather than just the explanations.
Make insurance selling transparent
A large percentage of respondents to our LexisNexis study said they refrained from buying any type of insurance because of a lack of trust. 19% said they do not trust the insurance company or the bank distributing the insurance product, while another 18% lacked trust in agents.
Technology can be the means for insurers to automate and ensure information is provided in a transparent and comprehensive way, curbing any potential for mis-selling or bad practice by intermediaries.
Insurance seems difficult
Even with the basic knowledge that most consumers admit they have, few have purchased insurance in the past. The results show there is a perception gap around the need for insurance, combined with a difficulty in understanding policies and in the insurance process which are the major barriers to purchasing.
- 29% consider policies difficult to understand
- 25% consider the claims process to be difficult
- 20% feel the claims process takes too much time
- 23% consider application process difficult
- 24% consider customer service to be poor.
Effects of the insurance awareness gap
- Decisions by consumers tend to yield less than desired benefits, leaving them unaware of suitable products
- Consumers maintain the status quo in coverage, ignoring the need for higher coverage as their lives change
- Better coverage options get overlooked as they become available
- Consumers unaware of risks throughout their life-stages
- Consumers unaware of consequences of not paying premiums regularly, to prevent a policy from lapsing
- Uncertainty in the claims process and the circumstances in which a claim is admissible or non-admissible
- Pre-conceived notions about insurance are left uncorrected
- Advice is sought from family or friends who themselves may have low levels of knowledge.
Insurance education initiatives and more transparency in the sales process could help eradicate these biases and lead to an improvement in the quality of choices.
The dependence on agents in the market shows that training the captive agency force, and tracking their behaviour and product recommendations with analytics, will be key to better product awareness and education in future.
The training of agents for consumer education needs to be an ongoing effort with emphasis on training for agents and an education element for consumers. This will also require a change in the mindset of the agents and brokers.
The large protection gap in India flags up opportunities for insurance companies to further unlock the potential, increase their relevance in society, and improve their value propositions. Closing the gap will require close cooperation amongst all the stakeholders. But, it is also a major business opportunity, tapping into the digital space for better insurance distribution and awareness.
*With KS&R, a global market research firm, LexisNexis Risk Solutions India carried out a comprehensive survey of 1,902 Indian insured and uninsured consumers, ages 35-54 from both Metro and Tier 1 cities, November-December 2016.
**Metro and Tier 1 cities defined as cities with 1 million-plus population and 100,000-plus population respectively (as per census data 2011).
Follow the link to the LexisNexis Risk Solutions India website to find out more about how we support insurers.