This blog post summarises key takeaways from a virtual workshop we recently hosted. It was conducted against the backdrop of a study that we recently concluded titled “Can information disclosures influence life insurance purchase decisions for low-income households?”. The workshop had participants from the Fintech and Insurtech industries working in the financial inclusion space. The objective was to share insights from the study, garner feedback and make the study implications actionable and relevant for insurers and insurance service providers in India.
Life insurance can serve as a critical product in the financial portfolio of low-income households (LIHs) as they lack adequate safety nets (such as savings, health insurance, or pension) to tide over adverse income shocks. Yet, despite its importance, only 38.3% of Indian households reported owning a life insurance product as of September 2021. Among those who own a life insurance policy, traditional life insurance plans such as endowment plans (bundle of insurance plus investment) are much more prevalent than term life insurance plans (pure risk protection products). We find this to be true for low-income households as well. However, traditional life insurance plans are less than ideal for meeting life insurance needs of LIHs.
There are several reasons for the low acceptance of life insurance policies in general, specifically term life insurance. Dvara Research concluded a study aimed firstly, to understand the barriers and drivers of life insurance purchase among LIHs and secondly, to test the effectiveness of information disclosure formats in encouraging customers to make thoughtful insurance purchase decisions. The study used methods from behavioural science to understand the preferences and biases of LIHs. We found that when participants were shown comparable product disclosures, they were interested in the newly created product bundle similar to an endowment plan but with more low-income-friendly features. This affirms that there is merit in exploring insurance-cum-investment bundles tailored to the financial needs of LIHs in India.
This blog summarises the key takeaways from the online workshop conducted by Dvara Research among a small group of Fintechs. In this workshop, we sought to share insights from the study with stakeholders from the FinTech and InsurTech space to garner feedback and make the implications of this study actionable and relevant for insurers and insurance service providers in India. Particularly, we wanted to understand the motivations and constraints of the sector in serving LIHs and create a space for solutions, approaches, and avenues best suited to make life insurance accessible, suitable, and affordable to this underserved segment. The workshop saw participation from industry players like Mool, Entitled Solutions, KarmaLife AI, GramCover, Fundfina and Dvara Money.
The following are key takeaways from the workshop:
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Insurance is a push product, and there is not enough demand for life insurance among LIHs. Not many affordable term life insurance products have emerged in the retail insurance space for low-income households, and the distribution of insurance products in the low-income segment remains tricky. Products that lead to higher incentives for agents are sold, taking away the focus from customers’ needs and the suitability of the product sold.
- Strategies that could work to improve the take-up of insurance by low-income households:
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To improve the appreciation of life insurance among LIHs, an insurance sales conversation could be initiated against the backdrop of the household’s specific financial context.
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Bundling is a good product design strategy that could resonate with LIHs. A pure-term life product will not be able to attract attention and demand from customers. Given customer behaviour towards insurance across all income segments, bundling insurance with credit, investment, or savings could be the go-to strategy. For example, insurance-cum-savings products that match the aspirations and motivations of the LIH like goal-based saving for children’s education would see a better reception.
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Co-creation of group products with insurance service providers is another useful strategy that can aid in product design that LIHs find relevant. For this segment, distribution and operational costs can be reduced by providing group plans. Group plan in this context refers to a fintech/intermediary aggregating a group of customers who are homogeneous on one or more parameter/s and acting as a master policyholder. The data about such a cohort could be used to make better decisions on the product type for the target customer segment.
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Alternate distribution and servicing channels like InsurTechs and FinTechs in the digital space, and kirana stores and other accessible touch points in the physical space could ease the sale of life insurance among LIHs.
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Alternate distribution and servicing channels like InsurTechs and FinTechs in the digital space, and kirana stores and other accessible touch points in the physical space could ease the sale of life insurance among LIHs.
The workshop highlighted the importance of creating new life insurance products with suitable features considering the financial context of LIHs. Though distribution is recognized as a key challenge, insurance players have an interest and appetite for designing new products for this segment by harnessing new distribution channels. A key takeaway from the workshop was to take the behavioural biases and constraints of LIHs as a given and solve for product suitability by optimizing across different points of the product supply chain – from distribution and servicing to claim settlement. This would enable increasing life insurance penetration among this segment and lead to better financial security for LIHs in India.
Cite this blog:
APA
Prasad, S. G., Ganesan, P., & Sharma, M. (2023). Workshop on life insurance for low-income households. Retrieved from Dvara Research.
MLA
Prasad, Sowmini G, Priyadarshini Ganesan and Misha Sharma. “Workshop on life insurance for low-income households.” 2023. Dvara Research.
Chicago
Prasad, Sowmini G, Priyadarshini Ganesan, and Misha Sharma. 2023. “Workshop on life insurance for low-income households.” Dvara Research.
