Indian insurance ecosystem shows limited appetite for pure risk policy: JM Financial

Despite several initiatives by Insurance Regulator and Insurance companies, pure risk policy is not picking up in India.

A recent report by JM Financial suggests that the conversation about death is off-putting for large segments of societies. Secondly, value-conscious consumers do not like a insurance product where they pay for something and do not receive any benefit if they survive the term of a pure risk policy.

In the last three years, while individual savings and investments in fixed deposits or equities markets vary with market conditions, the investment in insurance products remained constant at 18 per cent of individual financing funds. Insurance has consistently commanded 18 percent of household financial savings assets in FY21, FY21 and FY23.

The report further says that intermediaries too don't take much interest in selling a pure risk term policy. Since the term of a pure risk policy is longer, consumers tend to be more sensitive to premium amount and apply to multiple insurers before making a purchase. So for the intermediaries conversion from prospect to sale is lower.

In a country of 140 crore people, in-force insurance policies stood at just 3.285 crores in FY23, of which LIC accounted for 2.774 crores or 84.5 per cent.

JM Financials report says, the number of new policies by the industry has grown at just 0.2% CAGR over FY18-FY23.

However, there has been strong growth from upselling and ticket size increase, Private players have seen a 12% CAGR over 10 years while LIC has grown at a CAGR of 8% over the same period. Average ticket size of private players have grown at a brisk pace over last 10 years.

Due to focus on higher ticket savings products, India pays 3.0 per cent of its GDP in life premiums, while sum assured per person remains very low at Rs 143,000 or USD 1,746 in FY23. In FY22, as per Swiss Re, India had a sum assured of 85% of GDP compared to 140-150 percent to South Asian peers, like Thailand and Malaysia.

Experts say, India's sum assured to GDP at 85% in FY22 implies sufficient headroom for growth. Sum assured to GDP growth of Singapore is 332 percent, for Japan it is 252 percent and for USA it is 251 percent.