Introduction :- 

India's insurance gap widens despite deeper penetration according to report “A world at risk- Closing the insurance gap” by Lloyd’s of London. In India, the insurance gap has widened from $19.7 billion in 2012 to $27 billion in 2018, even though non-life insurance penetration has improved marginally from 0.7 per cent of Gross Domestic Product (GDP) in 2012 to 0.9 per cent as of 2018.

Terms in association of Insurance sector :- 

• Insurance gap: It is a measure of the total value of assets divided by the value of assets that are protected by an insurance cover.
•  Insurance penetration: It is the ratio of the total premium underwritten in a particular year to the GDP of the country or industry. It was 3.49% in 2016-17.
• 'Penetration' states the value of total premiums in relation to GDP, while 'Gap' measures the total cost not covered by.

Insurance Sector in India :-

• The Indian Insurance Sector is basically divided into two categories – Life Insurance and Non-life Insurance.
• Both the Life Insurance and the Non-life Insurance is governed by the IRDAI (Insurance Regulatory and Development Authority of India).
• Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that, among the non-life insurers there are six public sector insurers. The Non-life Insurance sector is also termed as General Insurance.
• In India, the insurance gap has widened from $19.7 billion in 2012 to $27 billion in 2018, even though non-life insurance penetration has improved marginally from 0.7 per cent of Gross Domestic Product (GDP) in 2012 to 0.9 per cent as of 2018.
• The Indian insurance market is a huge business opportunity. India currently accounts for less than 1.5 per cent of the world’s total insurance premiums and about 2 per cent of the world’s life insurance premiums despite being the second most populous nation.
• India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a Compound Annual Growth Rate (CAGR) of 12-15 per cent over the next five years. The insurance industry plans to hike penetration levels to five per cent by 2020.
• India had also increased FDI limit to 49 per cent from 26 per cent in insurance sector to increase the investments in insurance.

Role of Insurance :- 

• Provide safety and security: Insurance provide financial support and reduce uncertainties in business and human life.
• Generates financial resources: It generate funds by collecting premium which are further invested in government securities and stock. It also helps in providing Employment opportunities leading to capital formation.
• Promotes economic growth: It generates significant impact on the economy by mobilizing domestic savings. It provides capital into productive investments especially for long-term investment needs. It enables to mitigate loss, financial stability and promotes trade and commerce activities those results into economic growth and development.
• Spread of financial services in rural areas: IRDA Regulations provide certain minimum business to be done in rural areas, in the socially weaker sections.
• Spreading of risk: Insurance facilitates spreading of risk from the insured to the insurer. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.

Challenges in Insurance Sector :- 

• Low Awareness: A huge part of Indian population does not use health insurance to finance their medical expenditures. A large majority of people in India believe that health insurance is not a worthy investment and therefore, avoid buying such insurance products.
• Poor Distribution: Distribution outside large cities is poor. There are large parts of the country where access to general insurance is limited. The reason insurers and distributors do not build a presence in small towns is that it is unviable.
• Fewer product innovations: While many essential products to mitigate risk are available, there are gaps in the insurance product portfolio that leaves large risks uninsured.
• Pricing: Insurers have been focusing on growing sales even if that creates a distortion in pricing for individuals.
• Perception by influencers: Another major challenge is posed by the media and influencers. Often, the life insurance industry is portrayed in a negative manner and hence the consumers become skeptical of the life insurance industry. The result is that, they may not purchase life insurance, even though a legitimate need exists.

Way forward :-

• Promote Awareness: It is necessary to promote more awareness among public about benefits of insurance. It can be raised through videos, social media, ads, organizing campaigns etc.
• Multiple Channels of Distribution: This is a key determinant of success for companies which creates larger database. Linking insurance with allied finance products like housing loan, mutual fund investment in companies, banks credit cards etc are the new channels for life insurance.
• Huge Untapped Market: Middle class people are having more awareness than the lower class and high class people. The demographics and macro-economic factors in India are diverse and insurance systems have to be aligned to other programmes in the country in order to target every section.
• Better regulation: Regulatory policies can be made to ensure that insurance companies focus more on insurance targets than profitability.
• Use of Technology: Stakeholders will have to leverage Internet and other technology options to provide single window service so as to cross-sell and retain customers. It will also be easier and cheaper for them to process requests, claims settlement process, complaints and payments online.