The distribution of general insurance outside large cities in India is poor, resulting in non-life penetration in the country standing at a low 0.7%.
The solution to this is to allow distributors to earn more when they operate outside large cities, says Mr Kapil Mehta, a co-founder of Securenow. in.
General insurers in the country have about 10,000 branches, of which 57% are in Tier I cities with a population of over 100,000. In particular, in the private sector, 96% are in these larger cities, says Mr Mehta in an article in Livemint.
In addition, insurance brokers, typically a large distribution channel for general insurance, have 85% of their 385 corporate offices in just seven states, and mostly in the large capitals of Mumbai and Delhi.
Mr Mehta says that the reason insurers and distributors do not build a presence in small towns is that it is unviable. A salesperson in a Tier 2 town will have to sell over 10 covers a month to just recover his or her salary. In contrast, in the much better distributed life insurance sector, agents sell just 3-4 insurance covers each month.
People buy less general insurance compared to life cover because they don’t know where to buy non-life cover, products are not adequately tailored to their needs, and non-life covers are mostly not mandatory, says Mr Mehta.
Furthermore, a problem that has worsened over the years is that insurers have been focusing on growing sales even if that creates a distortion in pricing for individuals.
Health insurance illustrates this flaw. This is a large segment that accounts for over 20% of the industry and is broadly split into group insurance (sold to relatively large companies) and individual policies. The loss ratio is over 120% for group health sold to companies and less than 80% for individual policies.
Yet, insurers are increasing premiums on individual covers, and lowering prices for group health because that drives sales growth. This is counter-productive as companies will buy group cover even if prices are raised. It is individuals who are price sensitive.
Lack of mandate
Mr Mehta also says that the government should consider making property, catastrophe and certain liability insurance covers mandatory. Making such insurance compulsory will result in prices falling to an extent that they become marginal incremental costs.