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Insurance Penetration Meaning: Reasons, Rate

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  1. What is Insurance?
  2. Insurance penetration meaning
  3. Rate of Insurance Penetration
  4. Reason for low insurance
  5. How to Increase
  6. Conclusion

1. What is Insurance?

In simple words, Insurance means protection from any kind of financial loss. Basically, insurance is a contract between a person (who wants to get insured) and a company (who insured that person) to cover any losses if occurs.

A person pays a premium (amount) every month to the company so that they can help him in future if anything happens. There are different types of insurance available such as Health Insurance, Life, Car, and many more.

Read More- Best Insurance Companies in India (2022)

2. What Is Insurance Penetration & Example?

Definition: Insurance Penetration rate shows the level of development of the insurance sector in a country. The penetration rate is measured as the ratio of premium paid in a particular year to the GDP.

In other words, Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service.

EXAMPLE- If there is 300 million GDP in value in a country and 60 million has value paying a premium, the market penetration rate would be 5%.

Currently, the insurance penetration in India is 3.7 percent of the gross domestic product (GDP) as against the world average which is 6.31 percent.

3. Insurance penetration rate in India

insurance penetration meaning

Currently, the insurance penetration in India is 3.7 percent of the gross domestic product (GDP) as against the world average which is 6.31 percent.
However, as per World Economic Forum, life insurance penetration in India is placed better than many larger economies of the world. But, there is a need for a greater increase in insurance penetration.

The general insurance industry, which includes risk covers for motor vehicles, health, accident, and home, has a penetration of just 0.93 percent as against the global average of over 2%. Still, General insurance is growing at 18 percent per annum compared to the previous year.

The life insurance sector in India is growing from 11 percent to 12 percent.

For health insurance, the average growth rate is 35 percent per annum

In fact, even comparing us against comparable Asian economies. India’s insurance penetration percentage and per-capita insurance premium are among the lowest in the region.

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4. Reason Of Low Insurance Penetration In India

1. GENERAL ASSUMPTIONS –  People think that they will be fit and fine throughout their lifetime and would rarely fall ill. The other assumption is people believe that it will only be the minor illnesses that will attack them, whose medical expenses can be easily managed.

 2. WRONG MINDSET:- People do not view the health or life insurance policy as a protection cover for them in case of a medical emergency. The majority of them purchase the policy just to avail the tax benefits under section 80D of the Income Tax Act.  

3. LACK OF AWARENESS – People are still unaware as to how for a small premium they can get a very high medical and life cover.

4. Poor word of mouth – Even though the claim settlement is done according to terms and conditions, sometimes the insured is unaware about what is covered and what is not this leads to makes them feel the health insurance was not worth it and suggests others to not using the insurance. 

5. INCOME LEVEL– India is still a developing country and people still do not have enough kitty where they can buy insurance. They rather believe that instead of paying the amount of premium for years, they would pay some medical bills whenever it props up.  


5. How can we increase peneteration of insurance

The insurance penetration will certainly increase if everyone can be made aware of the various risks associated with their life and business in the context of all other internal/external environments.

Various ways such as customer awareness seminars, aggressive marketing campaigns, press releases and write-ups, direct mailing, etc. Can be adapted to make the consumers aware of the importance of insurance and the availability of its various products in the market.

2. BANCASSURANCE:- Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base.

Bancassurance could be very effective in acquiring new customers and covering wider geographies to sell insurance products. Banks too need to be more serious and dedicated in their approach.   

3. PROPER TRAINING:-  Agents must be given training on communication skills, sales techniques, personality development, and product knowledge to influence others and provide better advice.

They need to be provided with attractive incentives (club membership, conveyance facility, insurance cover, regular job opportunities, etc.) in addition to commission as a reward and recognition for their good work.


Agriculture in India is highly risky due to natural calamities like droughts and floods.
It is necessary to protect the farmers from these natural calamities. India is an agriculture-dominant country as two-thirds of the population depends on it for their livelihood. Agriculture contributes about 18% of GDP.

5. PRICE STRATEGY:- It can be sustainable and successful only if the insurance products are simple and are lowly priced (by keeping minimum procurement costs and profit margin) and sold in large volumes (package policies, group insurance) to them.

Micro offices need to be opened in all smaller towns to spread this message of insurance in every nook and corner of the country. Their recruitment and training procedure be simplified and the job is made more rewarding.


These are the ways to increase insurance penetration in the Indian market moreover we can bring more transparency and establish a quicker grievance redressal system to increase the faith and confidence of the public. 
Insurance products should be more attractive, accessible, and available so that every citizen can make the best use of it


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