If you’ve recently taken an Ola ride, you must’ve noticed the “ride insurance" option at just ₹2 at the time of booking, or if you bought a mobile phone through Flipkart, you may have had the option of buying a mobile insurance starting at just ₹99. These are only a few examples of how insurance is becoming more and more affordable, with insurers breaking down complex policies into smaller and cheaper ones.
Insurance penetration in India is one of the lowest globally at 3.69%, according to the annual report of the Insurance Regulatory and Development Authority of India (Irdai). From high costs to a complex fine print, there are a host of reasons why people delay or avoid buying insurance. To attract more subscribers, insurers are now offering “sachet" or bite-sized products at lower premiums through digital platforms. From shampoos to pickles, sachets have always worked for Indian consumers. But do these sachet or bite-sized policies really work for you?
What are these?
Traditional policies offer a wide range of covers within a single product, whereas sachet policies are designed to address specific risks. “Traditional policies are multi-purpose and broader in scope. Sachet policies have targeted coverage duration, and specific sum assured. This makes the underwriting process simpler and the premiums more affordable. Traditional policies generally provide annual, round-the-clock cover with relatively higher sum assured and, therefore, require a more comprehensive underwriting," said Abhishek Bondia, principal officer and managing director, SecureNow.in.
The selling point of sachet policies is the low premium. Toffee Insurance, a digital insurtech startup, offers various bite-sized policies such as fitness insurance, which covers accidental injuries related to a fitness activity or sport, cyclist insurance which covers cycle theft and damage as well as accident-related death or disability, and backpack insurance which covers theft of your backpack or laptop bag. The premiums of these policies range between ₹25 and ₹449 for a time period of 180 days to a year.
“We realized that the industry was in desperate need of innovation. Policies were filled with jargon. There was a lot of ambiguity, mistrust and lack of context, making it difficult to penetrate the growing digital economy," said Rohan Kumar, CEO and co-founder, Toffee Insurance. The fintech has partnered with companies such as Apollo Munich Health Insurance, HDFC Ergo, ICICI Prudential, India First, Tata AIG and Religare Health Insurance to repackage their products and curate tailor-made policies. Kumar said the company breaks down large policies into simple, mass-market constructs.
Acko General Insurance partnered with Ola in April last year to offer in-trip insurance to riders. “The policy comes into effect when the ride begins and ends with the ride. Claims can be initiated and completed from within the Ola app. The product offers a missed flight cover (for rides to the airport where the rider ends up missing their flight due to cab-related or traffic-related delays) as well as a personal accident cover," said Ashwin Ramaswamy, business head, strategic partnerships, Acko General Insurance.
The Ola City cover is essentially a personal accident policy with a sum insured of up to ₹7.5 lakh, an additional accidental medical expense reimbursement up to ₹2 lakh, and other allowances. However, most of the inclusions such as missed flights due to traffic can be subjective as it would depend on multiple factors such as how much in advance the policyholder started the ride and what qualifies as heavy traffic. Acko said the terms and conditions are shared directly with the passenger.
Note that none of these policies come with a flat premium. For example, the premiums for Ola’s ride insurance are ₹2 for intra-city travel, ₹15 for Ola rentals and ₹49 for Ola outstation. Similarly, the premiums for Toffee Insurance’s backpack policy are linked to the value of the bag. For a bag value up to ₹2,000, you pay a premium of ₹25, whereas for a bag value between ₹5,000 and ₹10,000, you pay a premium of ₹100.
Do they work?
“Bite-sized policies are aimed especially towards the millennials, who are more inclined towards covering their immediate insurance needs," said Devendra Rane, founder and chief technical officer, Coverfox.com, an online insurance aggregator. Though these policies serve your immediate needs at an affordable cost, know that they don’t offer holistic protection that traditional policies give and, hence, can’t be a replacement for your regular insurance.
“Bite-sized policies have their place in expanding insurance penetration and making an individual aware of the features of insurance. The danger is that you may feel having a bite-sized policy is enough," said Lovaii Navlakhi, founder and chief executive officer, International Money Matters Pvt. Ltd, a financial planning firm.
Rane agreed that these policies have limited scope. “These products are developed for meeting immediate insurance needs and have limited coverage, developed for meeting just a specific risk. Hence, it is not wise to fully depend on such products for providing full coverage," he said.
Apart from limited scope, sachet policies also suffer in terms of the timeline of claims payment. Except for when you are admitted to a hospital that is a part of the insurer’s network, you will be able to file claims only at a later date because the payouts happen on indemnity basis for most of these policies. Since these policies are very specific in nature, processing of claims could require you to submit additional documents, making it a cumbersome exercise. Even if there are no additional documents, the paperwork is the same as required in a traditional policy. For instance, in case of a cycle theft cover offered by Toffee Insurance, the customer will have to file an FIR, upload pictures of the broken lock or chain with which the cycle was protected and provide CCTV footage so the company can eliminate the possibility of fraud. The process is similar for a theft cover under home insurance.
Last but not the least, just like in a traditional policy, it’s important to read the fine print closely to figure out the exclusions in these policies. For example, a backpack or laptop bag policy will not cover any gold or silver articles, cheques, money or even watches that were part of the lost bag.
It’s advisable not to bank on sachet policies for your complete insurance needs. You could consider buying them if you already have significant health, life and personal accident covers. Navlakhi said bite-sized policies can then act as add-on covers for specific events.