~ KSHITIJ SRIVASTAVA
Insurance for ₹1? Sachet Insurance- The fuel for insurance penetration in India
A company launches a new product and, in order to introduce it to customers, starts giving out samples of the product at free or low prices. The customers get to try the product at little or no cost, and if they like it, they go on to buy the actual product.
Sachet insurance policies act as sample insurance products. Although they are not free, they give the consumer a taste of insurance for a comparatively low price. This makes the policy attractive for first-time buyers, as the requirements of a regular insurance policy may be overwhelming for them.
These are also called “bite-sized insurance policies.” Sachet policies are often sold along with the products they intend to insure as a package deal.
The key features of sachet or bite-sized insurance policies are-
Unique Selling Propositions
Designed to insure specific risks
In contrast with traditional insurance policies, which insure life, health, and property, among others, sachet insurance policies generally insure specific needs of the consumer, such as travel, theft, mobile, and even vector borne diseases.
Affordable and easy to buy
These policies generally have lower premiums than traditional insurance policies. The products are designed to be sold on a digital platform with as little documentation as possible in order to make it a hassle-free experience for the customer.
Sachet insurance policies are targeted towards first-time buyers who are not familiar with the concept of insurance. Affordable short-term insurance for specific needs can be the perfect introduction to insurance for customers who are new to the concept of insurance. Moreover, the policies are specifically designed to cater to the needs of the growing young population.
Sachet insurance is generally sold through group platforms.
These policies are usually group insurance policies. These are not sold directly by insurers but are placed on specific platforms where they are sold by intermediaries.
For example, sachet insurance policies from Aegon Life and ICICI Prudential are sold on the Mobikwik app. Here, Mobikwik is the master policy holder. The customer will interact only with Mobikwik throughout their journey, and not with Aegon or ICICI, who are the insurers. Similarly, sachet insurance is also sold on platforms like Paytm and Flipkart.
Role in increasing insurance development
In India, not many people know about insurance. Many of those who know about it are hesitant to buy it because of various factors, including expensive premiums and numerous taboos.
Insurance penetration and insurance density are two measures that reflect the level of insurance development in a country.
Insurance penetration is the percentage of insurance premiums in a country to the Gross Domestic Product (GDP) in USD, while insurance density is the ratio of the premium paid (in USD) to the whole population.
As of 2018, the insurance penetration in India was 3.7%, while the insurance density was 74 USD. This is lower than most developed countries. As an example, the insurance penetration in the UK is 14.3%, while the insurance density was approximately 5100 USD.1
Insurers in India believe that sachet insurance is crucial for increasing insurance development in the country. Due to the USPs discussed earlier, such a policy is poised to increase awareness of insurance in the country. This will lead to confidence in insurance among Indian consumers, spurring the development of the insurance sector.
Sachet insurance for tech-savvy youth
Platforms providing sachet insurance in India include Toffee Insurance, Acko Insurance, and Mobikwik, among many others. Acko Insurance has a seamless and convenient interface, with zero paperwork from purchase to claims to renewals. It has also developed machine learning models that can automate claims estimation.
This type of interface is suitable for attracting new customers to insurance, especially tech-savvy youth. The products, such as missed flight cover and phone screen damage protection, are also tailor-made to suit the needs of the new generation.
The Insurance Regulatory and Development Authority of India (IRDAI) has played a crucial role in enabling sachet insurance policies in India by approving the licences of these new insurance players.
It is to be noted that sachet insurance policies sometimes do not provide enough cover for risks such as life and health insurance. A life cover of ₹2 lakh might not be sufficient for a family of three with a young child. Moreover, these are not comprehensive and do not cover as many risks as a solid insurance policy.
The design of sachet insurance policies as group insurance gives rise to another drawback of its long-term availability. The policy is dependent on the relationship between the insurer and the intermediary, and if they decide to part ways, it is uncertain what will happen to the policy.
Range of Products offered
Policies can be of various types, ranging from mobile insurance to life insurance. All sorts of risks can be covered under sachet insurance, but with comparatively cheaper premiums. According to Rohan Kumar, CEO and co-founder of Toffee Insurance (a popular provider of sachet insurance), policies with premium of up to ₹1,000 per year with sum insured of up to ₹4-5 lakhs can be called sachet insurance. The following infographic shows the various types of sachet insurance sold in India.
About the author:
Kshitij Srivastava is a second-year student at the Institute of Actuarial and Quantitative Studies (IAQS). He is an aspiring actuary and finance professional with an interest in data science. He has a passion for sharing what he learns during his quest for knowledge.