Traditional insurers have focused on the premium segment where margins are higher and risks lower. Microinsurance would work better for lower-income people, but systemic issues have kept its share below 2% in 2019-20. One of its biggest impediments is the minimum capital requirement of ₹100 crore to set up an insurance firm.
That is one reason why the number of insurance companies is low in India compared to developed countries where other models have emerged to mitigate risks of insolvency. An expert committee of the Insurance Regulatory and Development Authority of India (Irdai) has, therefore, recommended a reduction in the minimum capital requirement to ₹20 crore.
“At the moment, because of the minimum capital requirements, it is not possible to set up standalone microinsurance (SAMI) companies. However, if SAMIs are permitted, as we have recommended in our recent committee report, much better product design and distribution are likely to happen. This is essential if we are to make insurance products available to low- and middle-income households,” says Nachiket Mor, a member of the Irdai committee, who has been advising central and state governments on redesigning healthcare systems.
Currently, innovations by non-governmental organizations (NGOs) and startups have focused on new ways to distribute products of the large insurance companies. For example, VimoSEWA, a cooperative supported by SEWA in Gujarat, has been bringing insurance cover for loss of livelihood, accident or death to women working in the informal economy.
Several startups have entered this space in the past few years. One of them is Gurugram-based Toffee, which came up with offerings like dengue insurance catering to those who could only afford a specific, seasonal protection rather than full-fledged health coverage.
Toffee is registered as an insurance agent. But unlike a traditional agent, the startup found a way to deconstruct existing products of large insurance companies.
Toffee identifies a specific feature, such as coverage for dengue, and then works with the underwriting and pricing teams of the insurance company to offer only that feature of the health insurance product to a target segment.
“It becomes a narrow, single-event offering that’s easy to explain to a customer. If you get dengue, you are covered,” says Nishant Jain, co-founder and chief product officer of Toffee.
Such an offering does not require separate regulatory approval because it’s already included in the larger health insurance product.
However, distribution remains a challenge despite these hacks to create affordable options for low-income people. In the case of dengue or malaria insurance, the startup has been partnering with healthcare givers, pharmacies and other entities working with the target segment.
Here it gets more complicated, because it involves a range of offerings, with no clear point of engagement with customers, who also need to be educated on what they are getting for their money.
“For an insurance product to be meaningful for every Indian, it needs to be contextual, have a simple product structure, clear communication and a simple selling process,” says Amol Warange, director of investments at Omidyar Network India. “In one of our portfolio firms, GramCover, which focuses on the underserved in rural India, we can see that adoption of products such as hospi-cash and personal accident cover is rising.”
Hospi-cash refers to a payout for each day of hospitalization, mainly to cover for the loss of income during that period.
Warange adds that insurance products need to be accompanied with assisted selling in the initial phase until they become familiar in the underserved segment. It’s also crucial for the claims settlement to be free of hassles so that consumer confidence builds up.
All this requires patient investors who will let startups develop their value propositions. Warange sees investor interest rising in the sector, especially after covid-19 increased awareness of the need for some form of health insurance.
“During the last two years, we have seen the emergence of many startups leveraging technology in the insurance space—in health insurance, asset insurance, or B2B models enabling insurers to be more efficient. We are bound to see more capital flowing in,” he says.
A change in the regulatory framework for microinsurance, following the recommendations of the Irdai committee, would give that an added impetus.