India's protection gap is an underwriting problem
The industry explains low term cover in India as a failure of awareness. For most self-employed households the obstacle is that insurers cannot verify their income, so the remedy lies in underwriting design rather than advertising.
Every few years someone in the Indian life insurance industry commissions a survey of the protection gap, and the conclusion rarely changes. Households are insured for a fraction of their income and debts, term cover remains a small share of new business, and the explanation offered is a lack of awareness. Campaigns follow. Comparison websites explain what a term plan is. Advertisements remind families what would happen if the earner died without cover.
I do not doubt that awareness matters, and nothing here argues against explaining products clearly. But after four years of studying who applies to us for term cover and who actually receives it, I have come to think that awareness is the smaller part of the problem. For a large share of Indian households the obstacle is not reluctance. It is that insurers cannot verify enough about them to offer the cover they need at a price that reflects their risk.
Awareness is not what is missing
Look at who reaches the end of a term insurance journey. In 2023, 82 per cent of the term policies we issued went to salaried customers, though salaried work accounts for a minority of working Indians. Self-employed applicants were declined, or offered far lower cover, about three times as often. The commonest reason was not their health. It was that they could not produce the income evidence our rules required: salary slips, an employer's certificate of tax deducted or income-tax returns large enough to justify the cover they asked for.
Those rules exist for good reasons. Insurers limit cover to a multiple of income because cover far above a person's economic value invites anti-selection and, now and then, fraud. A shopkeeper who files a modest income-tax return while running a business with substantial turnover is, on paper, a poor candidate for a large sum assured. The consequence is that the households most dependent on one earner's continuing work, and least likely to have group cover from an employer, are precisely the households our processes turn away.
No campaign changes that. A trader who has been declined, or offered ₹15 lakh of cover when his family needs ten times as much, is not short of awareness. He is short of a product built around the evidence he can provide.
Reading income that has no payslip
That evidence exists. A GST-registered business files returns showing its turnover month by month. Its bank account shows what comes in and goes out, and the account aggregator framework now lets a customer share those statements with an insurer digitally and with explicit consent. Neither source is a salary slip, and neither should be treated as one. Turnover is not income, and a shop's account often mixes household and business money. Together, though, they say a good deal about the scale and stability of a business, and so about the cover its owner can reasonably need.
In February 2024 we launched a term plan for GST-registered traders built on that evidence. Underwriting reads two years of returns and statements, converts turnover into an assessed income using margins that differ by trade, and allows cover of up to ten times that income, capped at ₹1 crore. We priced it 9 per cent above our salaried rates because we had no mortality experience for the group, our reinsurer took 60 per cent of the risk, and we began in three states only.
The results are early and should be read with care. By March 2026 we had issued 1.12 lakh policies with an average sum assured of ₹42 lakh. Claims so far are close to what we priced for, but the numbers are too small for firm conclusions, and I would not want any board to lean on them yet. What I can say with more confidence is that most of the people who bought would have been declined or under-covered by our earlier process.
A live product also teaches what a pricing model cannot. Traders' cash flow is seasonal, and a premium due in a lean month lapsed far more often than one due after the festive season. Persistency improved markedly once customers could choose dates that fitted their trading year. Few policyholders were women, although many family shops are run jointly, which tells me the product still assumes a single owner.
Questions a board should put to a protection strategy
If the protection gap is mainly an underwriting problem, a board judging an insurer's protection strategy should ask different questions from the familiar ones about market share and advertising spend.
The first is who is being declined, and why. An insurer should be able to show its board decline and reduced-cover rates by occupation, income type and channel. If self-employed applicants fare much worse than salaried ones, the board is looking at a design choice, not a fact about the market.
The second is what evidence the rules accept. Income rules written for salaried customers a decade ago may not reflect the data customers can now share. Directors need not judge the actuarial detail, but they can ask when those rules were last reviewed and whether alternatives were tested.
The third is what happens to a proposal that cannot be accepted as submitted. A decline is the easiest outcome for an underwriter and the worst for a family. Lower cover, a premium loading or a shorter term is often better for both.
The fourth is how reinsurers shape the product. Much Indian protection risk is reinsured, and reinsurers' terms mark the edges of what a direct insurer can offer. A board should know where those edges lie and whether management negotiates them or simply accepts them.
None of this makes protection easy. Underwriting a new group of customers carries real risk, and an insurer that extends cover too generously will discover it in claims years later, when the people who approved the design have moved on. We accepted a thinner margin on our trader plan than on salaried cover and passed most of the risk to a reinsurer, because we did not trust our own early estimates. That caution costs value of new business, and I report it as a cost.
Still, I am convinced the industry will not close the protection gap by explaining term insurance more loudly to people it has already turned away. It will close it, if it closes it at all, by building underwriting that can read the lives of people who have never earned a salary.