Why does awareness of insurance not translate to action?

Despite concerted efforts by the insurance industry, the Insurance Regulatory and Development Authority of India (IRDAI), and the General Insurance Council, the penetration of general insurance in India remains abysmally low. While a lack of awareness was historically cited as the primary culprit, today’s reality is far more complex. Awareness campaigns like “Bima Bemisaal” have ensured people know about insurance, but awareness alone isn’t leading to action. Why is this the case?

Let’s delve into the factors holding back Indians from embracing insurance, the misconceptions they harbour, and why insurance should no longer be viewed as an afterthought.

Risk appetite

Indian society has a natural aversion to risk, coupled with an inherent optimism bias: the belief that “nothing bad will ever happen to me.” This mindset often leads individuals to perceive insurance premiums as a waste of money if no claim is filed. They fail to realise that insurance is not an investment—it is a safeguard against unforeseen calamities. For anything bad, faith, belief and divine intervention is often looked at as the solution. 

Many Indians mistakenly equate insurance with investments and expect tangible returns. This misperception undermines the true purpose of insurance—protection against pure risk. Buying insurance isn’t about profiting; it’s about ensuring financial stability in times of crisis.

Too complicated?

One common criticism of insurance is that policies are full of jargon, legalese, and fine print, making them hard to understand. While this may be true to an extent, the same does not deter us from buying say a smartphone or a streaming service, click on ‘I agree’ to their terms and conditions. 

Despite the complexity of such agreements, we trust the system and proceed, often because we perceive the benefits outweigh the effort of understanding every detail. Insurance, however, gets treated differently—held to a higher standard of simplicity, even though its importance far surpasses that of most daily conveniences.

Understanding an insurance policy’s inclusions, exclusions, and claim processes is essential. The principle of caveat emptor (let the buyer beware) applies here—customers must take ownership of their decisions. Transparency from insurers is crucial, but so is the willingness of customers to actively seek clarity and make informed choices.

Waiting for catastrophe?

Insurance penetration in India is just 1% for general insurance—a startling statistic. During the COVID-19 pandemic, there was a surge in health insurance queries, yet this interest didn’t translate into significant policy purchases.

Similarly, uninsured vehicles remain a pressing issue. Over 70% of two-wheelers in India lack insurance. The cost of third-party (TP) insurance for two-wheelers is less than ₹1,000, but failure to have this essential coverage can lead to financial ruin in the event of an accident. The ever-increasing threat of climate change is playing out with economic destruction caused by frequent natural catastrophes. And yet, the gap between actual loss and insured loss is more than 95%

The missing middle

India’s “missing middle”—an estimated 40 crore individuals—find themselves in a precarious position. They earn too much to qualify for government-subsidised schemes like Ayushman Bharat but too little to afford private health insurance. Without adequate health coverage, these families are one hospitalisation away from poverty.

As per a NITI Aayog report, 60% of health expenses in India are out-of-pocket. Shockingly, 8-9% of Indian households are pushed below the poverty line each year due to medical costs. How long can we afford this?

The solution lies in comprehensive and affordable health insurance products that bridge this gap and provide security to these vulnerable segments.

Cost of ignorance

Insurance is not just an expense—it’s a shield. Without it, individuals face the harsh reality of bearing catastrophic losses out of their own pockets.

Yet, many Indians opt for alternative investments, falsely believing they can rely on savings in times of need. They overlook that no savings plan can match the financial coverage insurance offers in the face of unforeseen disasters.

The blame game

It’s easy to point fingers at insurers, accusing them of prioritising profits over policyholders. While grievances do exist, they are far fewer than perceived. According to a IRDAI reports,  the grievance ratio for the insurance industry in FY 23-24 was just 0.003%, one of the lowest among industries.

Moreover, insurers settled claims worth ₹1.72 lakh crore last year, with over ₹80,000 crore directed towards health insurance. The claim settlement ratio exceeds 80%, yet the focus often remains on the 20% of rejected claims—most of which arise due to fraud, exclusions, or non-admissibility.

Changing the narrative

To boost adoption, insurers must focus on simplifying communication, run campaigns for awareness and provoke action and ensure transparency.

On the flip side, customers must, take an active interest in understanding their policies and treat insurance as a necessity, not an option.

(The author is Head, Corporate Communications, Bajaj Allianz General Insurance Company)