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More than 70% of India’s population is financially vulnerable, of which 50% is covered by government schemes when it comes to insurance and credit, while the remaining 30% remains highly underserved.

Typically, the Tier II and beyond segment has low financial literacy and is wretched due to the unavailability of relevant financial tools. Overcoming these hurdles, microfinance institutions can tap the segment with small-ticket credit tools to fulfil their planned and emergency financial needs.

Microfinance landscape

India boasts a formidable number of 232 microfinance institutions (MFIs), armed with the capability to reach the underserved for credit. These institutions have carefully developed strong channels that smoothly combine physical and digital methods to reach out to customers. Their role extends beyond merely granting credit; they also empower the underserved segment at various stages to foster economic growth and self-sufficiency. 

While MFIs have made considerable progress in delivering financial assistance, there still exists a gap when it comes to providing another vital tool, i.e., insurance.

Insurance is not the core business of MFIs, and hence, high operating costs, manual processes, and poor claim resolution make it even harder to provide insurance at an affordable premium. This is where insurtechs are instrumental in simplifying insurance distribution for MFIs, making insurance accessible.

Role of insurtech startups

Insurtech startups play a vital role in enabling the seamless distribution of insurance. The instant availability of customised plans with low premiums and end-to-end digital processes enhances convenience for customers. Insurtechs enable easy KYC through digital means, eliminating the need for manual documentation.

The instant issuance of policies and simpler online processes for claims further build trust, contributing to an overall enhanced customer experience. Moreover, for MFIs, single API integration can activate multiple insurance products, making the process efficient and accessible for customers and financial institutions.

The synergy between MFIs and insurtechs

In insurance, the traditional one-size-fits-all approach no longer meets the diverse needs of individuals with varied financial and geographical backgrounds.

For instance, a farmer might prioritise a vector-borne disease cover, while a blue-collar factory worker may find personal accident coverage more fitting. Hence, customisation plays a crucial role, and insurtechs can customise insurance for MFI customers at affordable prices while ensuring the plan’s effectiveness is not compromised. 

MFIs can act as distribution channels that offer holistic solutions to their customers, and insurance can help them cope with human or financial losses at an affordable premium.

Further, insurtech startups empower MFIs by providing flexibility in how insurance is given to customers. For example, it can either be bundled with the core product or offered to the customer at the point of sale as a relevant add-on product. It helps in customer engagement and retention since MFIs can build stronger connections with their clientele by providing holistic solutions.

In conclusion, the collaboration between MFIs and insurtechs has been playing a significant role in providing financial backing to the missing middle. This collaborative effort is designed to prevent individuals from falling into poverty or a debt trap due to high healthcare expenses—an issue that affects at least 7% of India’s population every year.

As these two sectors come together, they create a synergy force that can uplift the underserved, paving the way for a more inclusive and financially secure future for all.

Yogesh Gupta is the Chief Business Officer of Bimaplan.