<div><em>A recent Swiss Re report finds the gap between ‘actual’ and ‘required’ protection level to be big and increasing in Asia including India. <strong>Sunil Dhawan </strong>reports</em></div><div> </div><div> In spite of nearly 24 life insurance companies, hundreds of products, lakhs of agents, brokers and thousands of bank branches and almost 15 years since the insurance industry was opened up to forge in and private players, a typical Indian household continues to carry risk of life protection or the risk of dying too early. Either a large portion of the population is still without insurance or is grossly underinsured. The financial risk of dying too early can be met through adequate life insurance but there exists a big gap in terms of actual protection. The mortality risk is highly under-penetrated.</div><div> </div><div>Since 2011, the global re-insurance provider Swiss Re has been publishing a study on “Asia-Pacific mortality protection gap featuring multiple markets including India. The recent 2015 report finds the gap between ‘actual’ and ‘required’ protection level to be big and increasing. </div><div> </div><div><strong>How big is the gap</strong>: As per the report – “The mortality protection gap for most markets has widened. Collectively, the size of the gap reached $57.8 trillion in 2014 from $42.1 trillion in 2010.” China had the biggest gap in Asia-Pacific in 2014, amounting to $32.1 trillion compared with $18.6 trillion in 2010. </div><div> </div><div><strong>Indian gap: </strong>The size of the mortality protection gap in India is significant, at $8,555 billion in 2014 and having grown by 11 per cent per annum between 2004 and 2014. India stands at second position followed by Japan and South Korea. </div><div> </div><div>The reason attributed for India to become the second-largest gap country over the past few years are higher growth in the labour force and wages. Overall, India has a life insurance penetration of 2.6 per cent of GDP in 2014, lower than Asia’s average of 3.5 per cent but higher than that of emerging markets with 1.4 per cent. </div><div> </div><div>In India, the protection margin is at 92.2 per cent. The report explains how big is the protection margin with an illustration – “The ratio of 92.2 per cent in 2014 reveals that for every $100 needed for protection, only $7.8 of savings and insurance is in place, leaving a massive protection gap of $ 92.2.” in simple terms it means, only 10 per cent of protection need is met by savings and insurance. Under-insurance and the means to meet an unexpected financial event is high. </div><div> </div><div><strong>Reasons:</strong> India has the highest protection margin in the region as growth in savings and life insurance coverage has lagged behind economic and wage growth, the report identified them as probable reasons. It clearly shows, life insurers haven’t been able to sell ‘sum assured’ to the extent required. “Population and wage growth are key drivers behind the increasing gap in many markets. At the same time, while insurance penetration has increased further, this has proven insufficient to rein in the trend of a widening gap,” adds the study.</div><div> </div><div>However, the report also identifies that “In major emerging markets (eg India and China), the growth of insurance coverage has been faster than economic and demographic growth, thus resulting in a narrowing of the protection margin between 2010 and 2014.”</div><div> </div><div><strong>Industry action:</strong> In Indian market, Swiss Re, as per the report, undertook initiatives with local players in employing the use of online channels to distribute term life insurance. Term insurance plans are low-cost, high-premium plans. Although a must-have for someone with financial dependant, most agents do not push them as commission earnings are low in them because of low premiums. Further, individuals lack awareness and clarity on term plans and view them as something where its ‘premium lost’, on surviving the term of the plan. Most insurers have therefore been using the online channel and promoting purchase of term plans from their websites. Interestingly, persistency on such policies is high compared to non-term policies.</div><div> </div><div><strong>Government action:</strong> Lately, government had announced schemes for general public providing life cover, accident cover and pension. One of them is Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), which is a one-year renewal group term insurance plan proving a life cover of Rs 2 lakh up to the age of 55. It remains to be seen, what impact it will have in bridging the gap.</div><div> </div><div><strong>End note: </strong>The report highlights something which was known to all which is that under-insurance is high in India. But, the quantum is something one needs to look at seriously. As a thumb rule, one should own life insurance (in terms of sum assured) of at least ten times of one’s annual income. Add, future liabilities such as child education, marriage expense and home loan liability to arrive at actual figure. Review every five years to take care of inflation. And the best way to have enough cover is through term insurance plan. Visit insurer’s website and buy it online if your agent doesn’t help you. Use tools on sites to calculate actual coverage. <a href="http://businessworld.in/banking-finance-personal-finance-insurance-web-exclusive/buying-term-insurance-plan-right-ways#sthash.RmW1RmTR.dpbs">To know about online term plan buying click here.</a></div><div> </div><div>The report certainly points out the potential for insurers but as a consumer, anytime is the right time to get fully protected and spend quality time with family without financial worries.</div><div> </div><div> </div><div> </div><div> </div><div> </div>
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