I have good brakes, do you have good insurance?

No one needs insurance till we do and since the onset of the pandemic, there has been an increasing need for all kinds of coverage - primarily life and health. The government too, having researched reforms required, has been pushing for universal (life and health) coverage in addition to universal healthcare.

However, the situation remains dire - the double whammy of mortality protection gap as a percentage of protection was at 83% in 2019, one of highest in the world, and most Indian households are overly reliant on a single income earner.

Healthcare too remains dependent on income and savings rather than contingency planning - according to the Policybazaar DRHP, “In 2018, India’s health expenditure was amongst the lowest globally at Rs 5,500 ($73) per capita, compared with Rs 83,300 ($1,111) per capita in USA, and Rs 37,600 ($501) per capita in China.”

What makes this worse is two third of spends on healthcare were paid out from borrowings/savings/earnings with a mere tenth being paid for out of health insurance. Low insurance penetration is akin to general low financial asset savings and exists because of financial illiteracy, affordability, complex products, and a host of other factors contributing in equal measure to coverage apathy and antipathy.

With the advent of platforms and general acceptance of technology in business process and customer service, insurance has come a long way from the days of PSU insurers and paperwork.

From a customer’s perspective, buying insurance has become a breeze – multiple issuers in a single window, ready reckoners generated on the fly with everything from quotes and policy issuances all done real time, online. Insurer integration have also moved much of the servicing online including raising complaints and service issues with a none-to-subtle nudge from IRDA, the insurance regulator.

On the face of it, this looks interesting and with two significant IPOs, Policy Bazaar and LIC, in the offing, there is an opportunity to participate as well. However, challenges remain – we have a significant digital divide in the country.

The success of newer platforms has been on the back of rapid rollout and adoption of technology solutions – getting the same to the next billion customers may require newer approaches, and innovative products as the sector heads to lower income groups and hereto under insured sectors.

Such investment could be sourced from capital markets or even private capital via venture and PE funds giving investors an opportunity to access exposure through either depending on the quantum.

It is also likely there may be more insurance issuance or distribution companies which list on exchanges – while this may increase investible shares supply, it will provide much needed capital to increase penetration.

Lastly, specific to LIC, large government shareholding will ensure a ready incremental supply of shares via divestment programmes. This is something every investor will consider before deciding on direct investment/exposure via the relevant ETF.

Given the supply and demand gap, with the progress made in fulfilling the same with government push for inclusive insurance, the sector seems to be poised for significant growth and a desirable sector for allocating monies to.

At the same time, investors would be well advised to watch out for bubbles with overvaluation, at the same time be aware of opportunities offered by developing market volatility for paring investments.