From Sachets to Security: How Small Insurance Policies Are Changing the Game in India

Introduction:

India, with its vast population of 1.5 billion, is a land of untapped potential. Yet, when it comes to insurance, penetration remains at a mere 4%. Surprisingly, two-thirds of this market is dominated by life insurance. The real question looms: Is bite-sized insurance the need of companies or the need of the consumers? Let's dive deeper into this transformative landscape.

The Current Scenario:

General insurance offers a plethora of unique products, but the cost-sensitive Indian market often finds them less enticing due to hefty one-time premium payments. Enter innovative solutions like monthly payments, pioneered by disruptors like PhonePe. While this addresses one challenge, it also introduces more risk to insurance portfolios in the pursuit of customer acquisition. The Insurance Regulatory and Development Authority of India (IRDAI) is on a mission to make 'Insurance for all by 2047' a reality, confronting the industry's challenges head-on.

The Bite-sized Revolution:

A game-changing approach to achieve this goal is by introducing bite-sized or sachet insurance. These policies come with significantly lower ticket sizes and assured sums. Take, for instance, the extra rupee paid for accidental insurance when booking a ride on Ola. Industry experts foresee this niche as a potential multi-billion-dollar sector. Global players like Zhong An (China) and Lemonade (U.S.A.) have already embraced it. In India, companies like Toffee, Digit Insurance, Acko Insurance, and MobiKwik are offering sachet insurance in the general insurance domain.

Unleashing Potential in Life Insurance:

While the life insurance sector still awaits a need-based bite-sized product, the numbers tell an intriguing story. Only 3% of households in India earn over 3 lakhs per annum, mirroring the current life insurance penetration rate. To extend their reach and achieve 100% penetration, insurance companies must target the middle-class segment, with annual incomes ranging from 50 thousand to 3 lakhs. This segment constitutes around 30% of Indian households, making it a prime target for sachet insurance offerings, such as mobile or cycle insurance.

Designing the Future:

The million-dollar question is how companies will design these sachet insurances. Will it be a need-based or a sale-based approach? In the world of insurance, companies operate in a pure risk environment, pooling individuals with similar risks and transferring the risk from the customer onto themselves. The answer lies in a balanced approach—a fusion of need-based and sale-based strategies. What truly matters is the percentage combination they choose. As we embark on this transformative journey, it's crucial not only to introduce new ideas but also to monitor key financial indicators, including the Value of New Business (VNB), Number of Policies (NOPs) sold, and Total Raised Claims, among others.

Conclusion:

Bite-sized insurance is more than just a trend; it's a paradigm shift. It holds the potential to unlock the future of insurance in India, bridging the gap between companies' aspirations and consumers' needs. As insurance providers chart this new territory, the balance they strike between need and sale could well determine their success. In a world of calculated risks, this revolution promises to be a game-changer.