Digital Solutions for Growth in the Life Insurance Industry
Introduction
Of the seven[i] guiding principles for financial institutions given by the World Bank on Financial
Inclusivity includes the aspect of commitment to development, innovating products that meet
transaction needs, products that are safe, efficient and widely reachable through financial and ICT
infrastructures, provisioning the availability of a broad network of access points and interoperable
access channels, coupled with effective awareness and leveraging of large-volume and recurrent
payment streams to advance financial inclusion objectives - Life Insurers in India are broadly capable
to meet several of them on back of digital capacities in tandem with the market size, scale and scope of
volumes available through the data revolution currently happening in the country.
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This paper aims to discuss the contours of digital solutions that would place in perspective the life
insurance penetration goals with a suggestive methodology for on-boarding of prospects that fare on a
minimal numerical rating scale given the huge opportunity that awaits Indian life insurers on the back
of several positives such as:
 A Billion plus people with identity (UIDAI)
 Low cost data connectivity to villages owing to Digital India mission and
 Successful deployment of various socio-economic schemes for the benefit of the
marginalized and poor people such as the PMJDY, PMSBY, PMJAY etc
Harnessing Digital Footprints for Life Insurance Penetration
Life insurance penetration is an indicator of insurance sector development within a country and is
calculated as the ratio of total insurance premiums to gross domestic product in a given year. Apart
from insurance penetration another metric which measures the premium per capita is known as
insurance density. When targeting financial inclusion or penetration goals in insurance much of the
thrust is on coverage rather than premium and as such penetration ratio is a more reliable metric to
assess the development of life insurance.
For India, the ten years average life insurance penetration ratio is 3.27 pc; the absolute ratio is 2.74 pc
for the year 2018, which is low in comparison to BRICS economies and other Asian peers. Many
developing countries are trying to fill up the gap through the vehicle of Micro-insurance using different
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models and strategies that specifically include experimentation with digital solutions to reach out the
masses in the most effective and efficient way.
One big area would be using technology for ease of doing business and allowing enterprises to flourish
with minimal human interface. Digital solutions for increasing life insurance penetration could be a
well thought of strategy given the rapid pace of proliferation of devices, connectivity and mobility in
the country especially in rural India.
Fast-tracking Life Insurance Penetration
The statistics of low insurance coverage for India presents a huge challenge and an opportunity for
policymakers. Riding on new digital solutions, many institutions are finding it convenient to reach out
to people / target prospects in the most efficient manner.
In the life insurance scenario a whopping 98.8 Crore Indians[ii] are still out of the ambit, the unorganized
sector segment happens to be the worst hit of all. As a result, the most basic unit of the economy –
the Household is bereft of financial resilience to economic shocks arising out of losses due to
incapacitation, ill-health and disability, untimely death and also living too long without any income
support.
To mitigate the hazards to which the households are exposed to it is important to have a fast-tracking
strategy that would comprise of the following sub-set of activity for the same:
 A simple / no-frills, affordable approach to product design. Life insurance product (Term /
Endowment / Annuity) that are able to flow through the digital pipeline
 Creating a digital life insurance platform with a vernacular (regional) language focus
 Creating content that is local focused and utilizing centres of influence
Strategic Partnerships with Socio-Economic Focused Institutions
The digital adoption pace is also seen accelerating with microfinance institutions doing the groundwork
on a grand scale. Because of the unprecedented flow of financial services taking place through digital
means, India also stands with a big potential market for mobilizing products such as micro-insurance,
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micro-loans, micro-housing, micro-health etc for segments such as small and marginalized farmers,
landless agricultural laborers, unorganized sector workers and micro enterprisers.
Today, many countries in the world are using Digital Solutions for furthering life insurance penetration.
India is in the sweet spot for increasing life insurance penetration through simpler / no-frills product
such as micro-insurance that would surely increase a households’ resilience to economic shocks as
discussed.
Low Insurance Penetration Has Drags on Sustainability Goals
Chasing penetration goals would also help us to achieve multiple development targets and improving
National level scores on sustainability parameters, at the same time including the very important SDGs
(Sustainable Development Goals given by the United Nations)
 Financial inclusion[iii] intends to help people secure financial services and products at
economical prices such as deposits, fund transfer services, loans, insurance, payment services,
etc. It aims to establish proper financial institutions to cater to the needs of the poor people.
 SDGs such as reduction in inequality, sustainable communities, well-being, no poverty and
economic growth are relevant from the point of life insurance penetration.
Numerical Rating Approach to Risk Scores
Given the deluge of data coming from multiple sources, partnerships and strategic channels it is
pertinent in how swiftly Life Insurers could gain insights about them. Digital solutions using DataScience, Artificial Intelligence (AI) and Machine Learning (ML) could come handy for the same. A
suggestive marketing model comprising of numerical rating for a better peep in to risks to be followed
through a no-frills life insurance, is proposed as below:
 Methodology for developing a ‘Life Score’ on the scale of 1 to 10
 On-boarding leads who score a minimum 5 points out of the reference data points
 Offering a simple regional language powered prospectus cum proposal form
 Offering no-frills life insurance to suitable prospects
A numerical approach to risk-score would help to have a better insight in to risk analysis and dealing
with problem such as informational asymmetries and avoiding adverse selection issues that affect life
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insurance pools. Using layers of digital technologies, life insurers can easily sift through data, draw
appropriate campaigns and reach out to prospects.
‘Life-Score’ Methodology: For Predictable Outcomes
A prospect would be scored upon various parameters that have complementarities with life insurance.
Such data could be sourced from the numerous Governmental and Non-Governmental organizations
that specialize in these formats. To speed up Life Insurance penetration, Life Insurers in India can
think of marrying these kinds of insights on to / with the Socioeconomic High-resolution Rural-Urban
Geographic Dataset on India (SHRUG) which is a new data[iv] source that describes socioeconomic
development in India. Life Insurers in India can apply several data science and digital solution filters
(including AI and ML) to reach out to prospects using this methodology.
Life Insurers can also experiment with other data platforms for better prospecting and identification of
leads, as an example and utilize the same for developing life insurance APIs (Application Programming
Interfaces). For example, with the Ayushman Bharat health stack/platform or Aadhaar technology stack
one can easily reach out to people through digital pipelines. The APIs are a boon in digital technologies
since they help different platforms interact in an easy manner. What is required is the kind of user
experience and interface that we create to send out our messages strongly.
Life Insurers can have a fairly viable business structure / model with such kind of initiatives given the
level of transparency that data provides in inferring risk factors of the prospects and gaining new
insights that would drive business at lower costs given the falling overheads of IT infrastructure mainly
due to virtualization and evolution of on-demand digital services (SAAS, PAAS etc). Penetration goals
can also be deployed for new economic structures such as the gig-economy whose participants pose
difficulty in creating outreach through traditional distribution methods.
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References:
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[i]
World Bank, Guiding Principles https://www.worldbank.org/en/news/press-release/2016/04/05/sevenessential-guiding-principles-to-boost-financial-inclusion-laid-out-in-newreport#:~:text=The%20seven%20guiding%20principles%20are,and%20payment%20product%20offerings%20t
hat Retrieved on 30.12.2020
[ii]
https://www.bloombergquint.com/business/988-million-indians-do-not-have-life-insurance Retrieved on
30.12.2020
[iii]
https://www.bankbazaar.com/personal-loan/financial-inclusion.html Retrieved on 30.12.2020
[iv]
https://www.ideasforindia.in/topics/miscellany/the-shrug-a-new-high-resolution-data-platform-forresearch-on-india2.html Retrieved on 30.12.2020
[v]
https://en.wikipedia.org/wiki/India_Stack Retrieved on 30.12.2020
[vi]
https://aimablog.com/nandan-nilekani-explains-how-india-is-going-digital/03/
Retrieved on 30.12.2020
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