21 February , 2021 Fdiindia
Insurance Sector: Rural India Want Insurance In Packet Form
In 2000, FDI was permitted in the Insurance domain with a limit of 26% stake in a joint venture with Indian collaboration. In 2015, Finance Minister Arun Jaitley raised the FDI limit from 26% to 49% and the Nirmala Sitharaman had raised FDI to 74%. Insurance product inflow in 2001 was 2.71% and right now it is 3.71% which is underneath the global average of 7.31%. The main reason behind raising the FDI limit was to raise Insurance Penetration in India which was low even after increasing the FDI limit from 24% to 49% in 2015.
The undeveloped Rural Market
Before growing the penetration in the Insurance sector, simple products have established a value since 70% of the population resides in rural areas. There has been a rise in the income and addition in the asset that require protection amongst the rural population, enhancing opportunities for exploration and development of insurance business in the undeveloped rural market. All the 57 insurance entities have a strong existence in the urban and metro areas but rural and semi-urban India needs better analysis in product and distribution. Insurance entities can use capital increased by FDI to developing in rural areas with suitable technology.
Personnel in the unorganized sector
Nearly, 90% of the employees in this informal area works with no minimum remuneration or any sort of social responsibility and with less disposable income. As per the ILO report, more than 40 crore informal workers might get depressed due to Covid-19 outbreak. Insurance is necessary for these citizens the most. Insurance can obstruct these people from getting affected due to adverse poverty.
From thrust to push product
While Covid-19 has created havoc in various sectors, it is proved to be a blessing in disguise for the life insurance domain, particularly health insurance. People are aware of the insurance product, but it is difficult for them to afford it. The insurance domain should offer packet insurance to cover the requirement of this segment of the population.
An average Indian household comprises 77% of its total asset in real estate, 7% in durable goods, 11% in gold and rest 5% in financial assets. India is the least insured nation, in 2019, the frequency of the on-life insurance in the nation was merely 19%, the reason behind is the lack of trust. Digitization can be a way of eliminating the cost and changing the human touch with technology which can be a disastrous effect, especially on the long-term contract.
The rise in FDI limit is introducing opportunities in the insurance domain in terms of a foreign capital mixture which is anticipated to be $3.5-4.5 billion as Indian Insurance business needs vast capital and heavy pocket. An additional mixture of capital in business can allow development in the industry but this cannot be considered as the wonder to enhance the insurance inflow and density in India.
Especially for the people at the foundation of the economic pyramid, the insurer must execute a new business model and product to offer and regulates the risk mitigation solution which can meet their needs. This way the insurance sector can bridge a gap.