McKinsey Report: AI Could Change How Indians Buy Insurance, But Will It Close The Protection Gap?

India has made it easier to open a bank account, make a digital payment, and start investing. Buying insurance has not followed the same path. The number of individual life insurance policies in force stayed around 330 million between financial years 2016-17 and 2024-25, according to a recent McKinsey report. Insurance penetration stood at 3.7 per cent of Gross Domestic Product (GDP), against a global average of 7.3 per cent.

The gap persists even as households face rising medical costs and own more assets that need protection. McKinsey’s argument is that adding policies to the market will achieve little if insurers cannot reach people with suitable cover, explain it properly, and serve them after the sale.

“The next phase of growth in Indian insurance may be determined less by product availability and more by distribution effectiveness,” McKinsey said.

How AI May Change The Sale

An insurer selling online may still depend heavily on an aggregator or paid advertisement to bring a buyer to its website. Those routes cost money and can leave the insurer with limited contact with the customer until a purchase is made. McKinsey sees scope for AI tools to help people discover, compare and buy cover through an insurer’s own service or a partner’s platform.

For a buyer, that could mean answering questions about a family’s needs in a conversational interface and receiving a shortlist of relevant policies. The same system might help with an application or a renewal reminder. Insurers could also work with other businesses that already serve those customers, making insurance available at a point where the need for it is easier to recognise.

Much depends on what the customer is shown. A recommendation that makes the premium prominent but buries a waiting period, exclusion, or co-payment would make the buying journey quicker without making it better. Anyone offered a policy through an app or an AI assistant should still read the policy wording and check who the insurer is, what is covered, and how a claim must be made.

The report also points to work beyond sales. AI could help insurers collect application details, assess risk, and prepare quotes. In health insurance, it could help sort claims for review or identify unusual patterns. These are possible uses, rather than a promise that policies will be issued instantly or claims settled automatically. Insurers would still need sound data, oversight, and people to handle cases that require judgment.

Smaller Towns Need More Than A New Sales Channel

Reaching a town through a phone screen is only part of the problem. A buyer may have little use for a policy with a complicated application, an unaffordable annual premium, or conditions that are hard to understand. McKinsey’s findings point to the need for products and service models that fit customers beyond the large cities.

That also means being available when something goes wrong. A first-time health insurance buyer may need help locating a network hospital, understanding a cashless approval, or challenging a deduction. A life insurance nominee may need guidance through a claim. A local partner or digital service that helps at those moments could do more to build trust than one that is present only when the policy is sold.

Insurers have an incentive to make these changes. McKinsey found that operating expenses at life insurers grew faster than new business premiums over financial years 2021-22 to 2024-25. It also identified weak frontline productivity in parts of general insurance. Better use of technology may help them control these costs, though the report does not establish that any savings will be passed on to policyholders.

For customers, the useful test of an AI-led insurance service is straightforward: did it help them choose suitable cover, understand the conditions, and get help when they needed it? A faster purchase alone will not close India’s protection gap.

FAQs

1. How could AI help someone buy insurance?
It could help a buyer compare policies, complete an application, and receive renewal reminders. The buyer should still check the policy terms before paying.

2. Could AI make insurance cheaper or claims faster?
It may help insurers reduce costs and sort claims for review, but the report does not promise lower premiums or instant claim settlement.

3. What should buyers check in an AI-recommended policy?
Check the insurer, coverage, waiting periods, exclusions, co-payments, and the claims process. A quick recommendation is useful only if the policy meets your needs.