Low penetration is one of the oft-heard travails of the industry and the reasons are many, ranging from high cost of distribution to ignorance about insurance. The under-penetrated segments are also many; health is a prime example. But there is never just one reason for under-penetration of insurance in a segment -- there is usually a host of factors often working at cross-purposes.
Take for example, the ubiquitous shopkeepers. Visible on every street, they should present a sizable business opportunity for insurers due to their sheer numbers. However, the ground reality tells a different story. The average neighbourhood shopkeeper is vulnerable to all kinds of accidents such as fire, burglary, riots and floods, and should never be without an insurance cover. Most, unfortunately, are either under-insured or not insured at all.
In most cases, insurance is taken only by traders who have taken loans from financial institutions. Usually, the trader takes a policy only to the extent of the loan just to cover his financier's interest. But he stills remain under-insured because a sizeable part of his property and contents would continue to remain without cover. In cases where the shopkeeper employs his own capital, he is under no obligation to take an insurance policy and, more often than not, prefers to remain uninsured. The primary reason for this is a lack of true appreciation of one's own risks and how to manage them.
From an insurer's point of view, a small shopkeeper does not have any standard system for security and safety, and this heightens his vulnerability to loss or damage due to various perils. Absence of any risk management practices makes him an inherently poor risk for insurers. This too stems from lack of appreciation of risks and the inability to clearly view safety issues from a long-term business continuity perspective.
The 'shopkeepers' segment is very wide and includes every description of establishments from small kiosks to HyperMarts. There is a clear need for insurers to offer differentiated product lines aligned to the profile and needs of each subsegment within this wide group. There has been some movement in this direction and some of the insurance companies are now offering specific products for micro-traders etc. There still remain a lot to be done.
Traditionally, this segment has been serviced by individual insurance agents who operate within a narrow geographical area or within the circle of their existing customers and acquaintances. The size of this distribution force is not commensurate with the size of the market and most potential customers are either not reached or do not get the complete guidance on how to manage their risks. More active participation of other channels of distribution will see a significant change in the penetration in this segment.
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This segment presents an excellent opportunity for insurers. What is needed is cost-effective distribution, education of the customer and suite of products and services which reflect the true need of the business.
The writer is Managing Director, Royal Sundaram Alliance Insurance Co Ltd