Indians' Discomfort With Planning For Misfortune Listed As One Of The Reasons Behind Poor Health Coverage

India may be inching toward a $7 trillion economy by the end of the decade, but its insurance story is not keeping pace. Even though the country’s insurance sector has seen steady growth in premium collections and a broad push for financial inclusion, only half of Indians above the age of 18 have life insurance, and just two in five have health coverage.

The latest report by Insurance Brokers Association of India (IBAI), titled ‘Leading the Path to Insurance for All’, finds that the disparity is even starker when government schemes are excluded, bringing actual individual health coverage down to just one in four.

The Insurance Regulatory and Development Authority of India (Irdai) has set an ambitious goal: “Insurance for All by 2047.” But on the ground, progress has been uneven, blocked by a range of structural, cultural, and systemic challenges.

The report finds that 90 per cent of Indians have bank accounts, which points to a growth in financial inclusion, however it raises a tough question: why is insurance still lagging so far behind?

Take health insurance. The IBAI surveyed 2,500 retail customers and 100 institutional customers and found that around 60 crore Indians are covered, but 40 per cent of that is through government-sponsored plans. This coverage drops to 1 in 4 if government schemes, such as Rashtriya Swasthya Bima Yojana, are excluded.

Meanwhile, life insurance covers just half the adult population.

Rising Premiums, But Not Rising Protection

There is no shortage of money flowing into the sector. Between financial years 2020 and 2024, total insurance premiums grew from Rs 7.8 lakh crore to Rs 11.2 lakh crore. But this has been driven more by higher-value policies than by more people being covered. In fact, the number of policies sold has barely grown, just 1 per cent a year.

This disconnect is even more glaring in rural India.

Rural India is no longer Underbanked but still Underinsured

As per the findings of this report, rural India accounts for 65 per cent of the population and contributes 45 per cent to the GDP. But when it comes to life insurance branch presence? Just 2 per cent of branches operate there.

Compare that with the banking system, about 40 per cent of bank branches are in rural areas. However, insurance, it seems, has not even started catching up. This lack of presence has a direct impact. Fewer than 10 per cent of rural Indians have individual life insurance. Even fewer have any comprehensive health coverage. It is not just about location; it’s about design too.

The report notes that products available in the market do not reflect the seasonal, unpredictable incomes of rural workers or the financial constraints of the “missing middle”, the 30 crore Indians who are ineligible for government benefits but can’t afford private insurance either.

Why are people not buying insurance?

Even when products exist, people do not always buy them.

The top reasons for the low uptake are:

• Discomfort with planning for misfortune

• Limited financial literacy

• The perception that insurance is too complex or filled with fine print

In fact, for many, the purchase gets delayed or dropped altogether.

This is not unique to rural India, as even in urban centres, awareness doesn’t always translate to action. In the IBAI’s survey, a large number of respondents across income segments cited cost, complexity, and distrust in claims processing as key deterrents.

India’s protection gap in comparison with other countries

India’s health and life insurance penetration levels, at 1 per cent and 2.8 per cent respectively, are lower than those of both developed economies and several emerging ones. But even more telling is the “sum assured” relative to GDP - which is a mere 25 per cent. In comparison, that number is 265 per cent in the US and 95 per cent in China.

The result? As of 2021, the mortality protection gap was as high as 91 per cent and 93 per cent of disaster-related economic losses going uninsured. Meanwhile, out-of-pocket health expenditure stands at 39.4 per cent in India (as of 2022), far higher than the US (11 per cent) or the EU (15 per cent).

The three big gaps, namely awareness, affordability, and access to insurance still require industry’s serious attention. The report notes that the next big shift may lie in rethinking distribution. Brokers, especially those who understand local communities, could play a larger role. But for that to happen, the whole system will need to do more than repackage old products, but reimagine them.