Insurance adoption in India remains low at around 4%, with life insurance contributing 3% and non-life only 1%. There is significant potential for growth in the non-life segment to meet global standards.

Incentivizing investments in health insurance

A key driver of the non-life segment is health insurance. In FY24, the health insurance segment surpassed ₹1 trillion in premiums, growing by 20.2%. 

However, it is also true that close to 73% of India's population is not covered by health insurance. If we consider this, along with the fact that at 14%, India has one of the highest rates of medical inflation, we have a challenge that needs to be resolved on priority.

There is no doubt that a lot needs to be done to promote awareness about adequate medical coverage, especially for families with a significant number of dependents requiring medical care due to age or chronic conditions. Offering a reduction or complete waiver of goods and services tax (GST) on health insurance premiums could encourage purchase and renewals of health insurance in the long term.

Additionally, providing tax benefits for insurance for senior citizens would ensure that all sections of the population are suitably covered in terms of health insurance.

It would also be pertinent to mention that including insurance spends by corporates under corporate social responsibility (CSR) could incentivise several companies to opt for comprehensive group health insurance coverage for employees and by extension, their families.

Bridging protection gap

The insurance protection gap is an equally formidable challenge. Let's consider property insurance, for instance. Having a roof over one's head to call one's own remains a dream of the average Indian household. 

Due to government schemes, rising income levels and growing urbanisation, owning a home may have become easier than before, but protecting it from damages remains an area of concern. More than 84% of low- and middle-income categories, and over 77% from coastal regions and tier II and III cities, do not have property insurance. At the same time, courtesy climate change, the number of natural calamities has only been on the rise, resulting in frequent earthquakes, floods, drought and wildfires, among others.

Given that an individual's significant life savings are invested in property, and it is increasingly being exposed to potential external threats, encouraging investments in property insurance is imperative. 

Today, property insurance contributes less than 5% of total non-life premiums. Similar to health insurance, a GST waiver for property insurance or tax exemptions on the category could go a long way in improving adoption and reducing the protection gap that the government has to bear in case of damages due to natural calamities.

Similarly, just as workmen's compensation is mandatory for employee welfare and protection, minimum insurance should also be made mandatory for anyone starting a business. Depending on the type of business, they should be required to have fire, marine and liability insurance, to be able to operate.

Further, all listed companies where public money is involved should be directed to conduct insurance audits to weed out potential protection gaps arising from underinsurance, inadequate coverage, wrong policy issuance, etc.

Empowering investments in the future

Citizens are a country's most critical asset. For a country like India, which has one of the world's youngest populations, this demographic dividend can lead to next level growth only if they are economically secure. 

Investing in the future through pension and retirement plans is vital for economic security. Presently, the annuity and pension protection gap in the country is over 93%. 

Given the growing rate of inflation and the cost of living, which is only likely to rise over the years, incentivising increased investments in retirement plans will be important, either by increasing the amount of ₹1.5 lakh under exemption (Section 80C under old tax regime), or by creating separate exemption provisions for pension plans, including those for senior citizens.

While the Insurance Regulatory and Development Authority of India (Irdai) and the government are taking steps to enhance insurance adoption, innovation, offerings and affordability, the recommendations made in this column could help accelerate the process.