Insurers should fix protection gaps now

The workforce participation in the gig economy is growing. Hence, life insurers need to have a different outlook towards such consumer markets. Because the gig lacks the structure of formal employment, benefits such as life, health and group covers are almost absent or voluntary in most cases and hence there is large protection gap for people in such work arrangements - MR Kumar, Chairman, LIC

Mumbai: MR Kumar, LIC Chairman, believes that a combination of micro insurance, group coverage and flexible pension plans can play a major role in addressing protection gaps visible in the society in the underserved section and regions.

For an emerging economy of the 21st century, the problem of protection gaps may pose multiple dimensions and facets. The Swiss Re estimates the additional annual premium potential at $292 billion per year for the Asia-Pacific region alone.

Therefore, an early intervention in addressing the Protection Gap problem in all together also means collaborating on solution orientation that would help us achieve multiple resilience goals at the same time much needed for a smoother and safer drive towards prosperity of an emerging economy.

"We also need to ensure sustainability of efforts undertaken to close these gaps and find opportunities in them. Closing this gap represents a huge opportunity for insurers," LIC chairman, MR Kumar said while addressing 17th Insurance Summit, which was held by National Insurance Academy here this morning. The trinity of Life/Health insurance and Pension products possess immense restorative powers to reduce the shocks of economic and financial nature affecting the overall well-being of a household and arising out of events such as natural calamity or a pandemic, and not only in the event of death of the breadwinner but also living too longer or loss of income due to incapacity.

But not all men, women and sections of society are fortunate enough to understand and appreciate this well before and probably would get subjected to utter poverty in the absence of insurance protection.

This may be due to various reasons such as not having access to insurance, in-affordability, or not being aware of the mechanism, etc. Whatever be the reason, the industry must jointly take ownership of the challenge and should continue to steer towards a brighter day.

At the same time, protection gaps exist for all kinds of risks and in various lines of insurance, but they are more prominent in the 'Life'/'Health'/'Pension' businesses as their absence has direct bearing upon the household which is the basic pillar of the economy, he said.

On the pension frontier, the Indian households' finance landscape is distinctive through the near total absence of pension wealth.

Pension accounts and investment-linked life insurance products exist, but they are only used frequently by households located in a small group of states, while in most other states, the contribution of pensions wealth to household wealth is negligible. Whereas the case of multiple authorities and tiers of governance at the Central and State levels have joined together with insurers in finding solution to Protection gaps only highlights that much of what we have achieved has been only because of coming together. However, more such concerted efforts would be required at all level to address the protection gap problem in a holistic manner, he added.

India would definitely see a gradual reduction in life, health insurance and pension protection gaps over the next few years given the several positives in the economy and tailwinds for the financial sector as a whole. The prospects of an emerging economy like India such as its enviable economic growth, increased per capita income and availability of disposable income in the middle-income groups, supported by mobility, awareness and visibility of insurance intermediaries all through increased participation in economic activities is where the opportunity lies for us. Technology and Data Analytics can help to identify the new frontiers instrumental in closing protection gaps with innovative and cost-effective product design. Providing granular data on households, the availability of their assets, income level statistics to quantify the protection problem. The deepening of and collaboration of the Insurance, Re-insurance and Capital Markets entities in India will usher in an era of absorbing severe losses by spreading them over a vast pool of holders of such risks leading to alternate solutions of financing. On the frontier of innovation in distribution, the insurance industry needs to work closely to monitor, handhold and grow business with new distribution entities such as CSC and PoS. "In today's time, both the CSC (Common Service Centres) and PoS (Point of Sales) partners are digital oriented and may prove cost effective if scaled properly," Kumar said.

As these new distribution entities are focused on reaching out to people rapidly with government schemes regarding insurance and other simple monoline products, the insurance industry can grow its presence in rural and deep rural areas as also in the urban geography.