General insurance works in close proximity to almost all the sectors one can think of -- agriculture, aviation, healthcare, automobile, MNCs and SMEs (small and medium enterprises). Auto, manufacturing, and construction by themselves accounted for more than 47% of general insurance premiums in 2019, indicating that a decline in any of these sectors will have a domino effect on the insurance segment as well. Apart from the economic impact of the lockdown, the pandemic has also revealed the sorry state of an underpenetrated insurance sector, not only in terms of business protection, but also on an individual scale where of the total deaths, only a handful (close to 3%) were insured.
A MACRO PERSPECTIVE
India has one of the largest micro, small, and medium enterprises (MSMEs) base in the world. With over 70 million units, these MSMEs contribute about 40% to India’s GDP, generating over 180 million jobs. Covid-19 has exposed the various vulnerabilities that these MSMEs face, right from business continuity to employee and product-liability management.
While the government is aiding in the revival of these sectors in a post-lockdown world, it also cannot overlook the role of insurance acting as a financial safety net against possible risk exposures that these MSMEs face. From natural calamities to cyber threats, there is a lot at stake for these innovators and breadwinners of the country. Educating them on the benefits of being insured will better equip them to face future scare scenarios.
A PANDEMIC POOL
Pandemics are here to stay. There was SARS in early 2000, and now there is coronavirus. The country must prepare for any such eventuality by creating a pandemic pool. This can be similar to the Terrorism Risk Insurance Pool formed in April 2002, after terrorism cover was withdrawn by international reinsurers post the 9/11 attack in New York. The importance of maintaining the pool had come into the picture post the 26/11 Mumbai terror attacks. Since a pandemic insurance cover will also not be available going forward, a pandemic pool can help Indian industries in times to come.
THE MICRO PERSPECTIVE
COVID-19 brought into the picture the diminutive role of health insurance as a financial investment tool for the majority of Indians. With the onset of monsoons, yet another sector will further show the economic gap between the insured and the uninsured – the home and property insurance sector. Changes are being made, albeit at a snail's pace. Recent news out of Nagaland mentioning parametric insurance against flooding gives much hope for such initiatives that the insurance industry has been seeking for so long. Parametric insurance will help with immediate payouts, not only for the affected citizens, but also as a relief to the exchequer from financial deficits. In absence of insurance, the state has to pay for reconstruction of houses and damaged property.
THE INSURANCE PERSPECTIVE
Insurance offers resilience to shocks – both at micro and macro levels. It provides financial security to individuals, families, businesses, and to the national economy. It further pumps in its investment into the nation’s infrastructure and other government-led initiatives. Despite its negative image in the minds of many, insurance is a bleeding industry where claims-outgo is far more than the premium collected. It is hence imperative to analyse its role in nation building and to secure the economy against any financial risk.
For this, there should be a change in perception about the insurance sector. Public and private insurance companies need to join hands to bring insurance to the forefront by relying on data science and clubbing it with empathy to offer solutions at both micro and macro levels. The pandemic has further forced individuals and companies to operate virtually in all areas of business -- from pricing and procurement to supply chains, sales -- exposing the entire economy to the next big risk, cybersecurity. Timely awareness and protection against the financial risk posed by cybersecurity breach, both at individual and enterprise-levels, and the possible protection insurance offers needs to be instilled in the minds of the public at large.
While insurers simplify the entire customer journey through automation and ease of services, the government needs to position insurance as a social security tool by incentivising it through individual and corporate tax rebates. It can also make insurance mandatory in certain cases, just like motor third-party insurance. Further, it can do its part in raising awareness around this financial protection tool. Post COVID 19, the road from rescue to recovery will be long and tardy, but a healthy partnership between insurers, government and the larger public will surely help inject resilience into the economy as a whole.
Author: Tapan Singhel, Managing Director and CEO, Bajaj Allianz General Insurance