The Entrepreneurial Households (EHs) Class: A transformative force in India’s insurance market
India, with its population of 1.4 billion, represents an expansive and thriving market of limitless possibilities. This isn't your average market, it's an aspirational one, one driven by a middle class eager to elevate their standard of living. In this burgeoning middle class, one segment stands out as a beacon of opportunity: The Entrepreneurial Households (EHs). 247M strong, EHs are non-affluent industrious communities making substantial investments in high-priority goods and services (HPGS) like education, health, financial services, housing, and business activities. Of the 321M households in the country, around 70% are categorized as EHs. This isn’t merely a demographic statistic—it’s a vibrant economic force ready to reshape their future, and India’s.
India’s insurance remains relatively low at just 3.8% of GDP compared to global penetration of 6.5%, despite its huge potential. This indicates that a significant proportion of all households, including EHs, still lack adequate insurance coverage despite their willingness and capacity to invest in HPGS.
To understand the reasons behind this insufficient insurance coverage among EHs, we must also look at the segment of ‘missing middle’ - non-poor segments underserved by insurance industry. Much like these missing middle households, EHs, also are ineligible for subsidized government insurance and unable to afford high premium private insurance, essentially leaving them out of the insurance safety net. Whether we call them the ‘missing middle’ or ‘Entrepreneurial Households’, the fact remains that a significant population is vincible to life's uncertainties.
This also presents an opportunity for insurance carriers to become the guardians of financial security for the large yet underserved EH segment, which is all set to rise going forward. It is expected that average HPGS spend per EH will grow from US$ 4.9K in FY23 to US$ 54K in FY43 at a CAGR of 12.8%. As aspirations and income levels of EHs grow, their spending on high-priority goods and services (HPGS) will also increase, leading to a corresponding rise in insurance expenditures. The EH segment, currently outside the focus of insurers is the one that will drive the insurance growth in India in the coming years.
Another important driver for India’s insurance growth is government support. With the introduction of Ayushman Bharat Digital Mission (ABDM) and its components, interoperability and digitization in health services are set to enhance the robustness of underwriting and claims settlement. Additionally, the Insurance Regulatory and Development Authority of India (IRDAI) is advancing initiatives such as Bima Sugam with the mission of achieving ‘Insurance for All’ by 2047. These measures are expected to significantly boost insurance penetration across various products and population segments, including EHs. Making this the opportune time for private insurance players to capitalize on the growing insurance demand from the EH segment, backed by favorable government initiatives.
However, this opportunity comes with its own unique set of challenges. To tap into the potential of insurance penetration within EH segment, insurance providers must effectively address the challenges. In the following section, we will analyze the key challenges present within this segment: low awareness, complex underwriting, difficult outreach, and affordability.
1) Low awareness:
EHs are eager to invest in HPGS that enhance their quality of life. Insurance, being a virtuous investment, can function as a ‘save game’ feature for these households, allowing them to safeguard their financial progress and continue their upward journey ensuring they don’t have to start over from scratch!
Given that EHs are open to making such beneficial investments, why is insurance penetration still low? The primary reasons include a lack of awareness about insurance benefits and the perception that it is complex and difficult to understand. To address this, targeted awareness campaigns can be implemented to enhance financial literacy among EHs. Insurance providers can also focus on the younger population, emphasizing the advantages of starting early with lower premiums.
Another point of contact for promoting awareness about insurance is the purchase of two-wheelers. As of 2023, 178M Indian households (around 55%) owned two-wheelers. Offering two-wheeler insurance and loan protection insurance at the point of sale of the two-wheeler can kickstart the insurance journey of EHs, protecting their vehicles & loans, and opening the door to selling other insurance products.
2) Complex underwriting:
The underwriting protocols of insurers need updating to meet the specific requirements of the EH segment. Insurers should leverage alternative data sources such as mobile app and GPS data to develop accurate risk profiles, subject to necessary regulatory approvals. An account aggregator setup can be used to consolidate data from different sources (such as borrowing and banking activities) after obtaining the individual’s consent, providing a comprehensive view further enhancing underwriting precision.
3) Difficult outreach:
In line with increasing digital adoption of Indian customers, the insurance industry, once dominated by offline brokers, is also now embracing digitization. Tapping into the EHs market requires an omnichannel approach including both online and offline strategies. This includes crucial measures like providing proactive agent connections, simplified documentation, and online platforms in vernacular language.
To strengthen insurance uptake among EHs, insurers should also focus on embedding insurance offerings at key points of sale to leverage the growing Indian embedded finance industry. In the property, casualty and general insurance sectors alone, the embedded insurance market is anticipated to soar to $722 billion in gross written premiums by 2030. This would be over six times the level in 2023 and constitute 25% of the total market size.
Another important outreach method is through bancassurance, leveraging the widespread reach of public sector units and scheduled banks. Partnering with local financial institutions and microfinance companies can also extend insurance reach. Additionally, engaging Key Opinion Leaders (KOLs) within EH communities, referral programs and group insurance schemes, promoted through employers and cooperatives can help expand reach along with building trust and credibility.
4) Affordability:
Affordable policy options, such as microinsurance products specifically designed for the EH class, and flexible payment plans are crucial for enhancing insurance penetration within the EH segment. Microinsurance, with its low premiums and simplified coverage, can address the financial constraints of EHs while providing essential protection, thereby making it an appealing choice for this group.
Like a rising tide that lifts all boats, the rise in EH class spending is poised to reshape India's insurance landscape. To harness this opportunity, insurers must innovate and adapt, addressing the challenges mentioned above. By implementing strategies to address these challenges, insurance providers can tap into a lucrative market to drive their growth. And at the same time contribute to the financial inclusion and economic empowerment of millions of Indian households. As we look ahead, the EH class represents not just a market opportunity, but also a chance to drive meaningful change in the insurance ecosystem. With this forward-thinking approach, the future of insurance looks bright, promising greater inclusion and security for all.
Author – Vishal Bhave, Practice Leader, Financial Services, Praxis Global Alliance