India is home to over 300 million self-employed individuals, accounting for nearly 50% of the workforce. This diverse group includes gig workers, small business owners, freelancers, and independent professionals like doctors, lawyers, and architects, among others.
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Self-employment is the largest source of employment in India, playing a crucial role in driving the economy. The government, through various initiatives, is focusing on fostering self-reliance. Despite their immense contributions, self-employed individuals face significant challenges in securing financial protection, particularly in accessing adequate term life insurance coverage.
Challenges faced by the self-employed
Unlike salaried employees who often benefit from employer-sponsored insurance plans or regular incomes, self-employed individuals encounter several hurdles in obtaining term life insurance. Key challenges include:
Unstable income: Many self-employed individuals experience fluctuating earnings. For instance, a kirana store owner, lawyer, or small workshop operator may see varied monthly incomes based on business conditions. Similarly, chartered accountants (CAs) might earn significantly more during tax-filing seasons and less during off-peak months. Such irregularity complicates insurers’ ability to assess eligibility.
Lack of formal documentation: Life insurers typically rely on formal financial documents like salary slips or income tax returns to determine a person’s income stream. However, many self-employed individuals lack such documentation, making it difficult to secure coverage reflective of their actual earnings.
Perceived high risk: Irregular incomes lead insurers to question the premium-paying capacity or Human Life Value (HLV) of self-employed individuals. As a result, many face rejections or inadequate coverage offers.
This exclusionary approach leaves a large portion of the population underinsured or uninsured, exposing families to financial risks in case of untimely deaths. The problem is especially acute for women in non-metro areas—73.5% of rural women and 43.2% of urban women are self-employed.
Leveraging technology for better underwriting
The insurance industry has been quick to adopt artificial intelligence and tech-driven solutions to address customer-centric challenges. To better serve the self-employed segment, insurers can integrate alternative data sources into their underwriting models.
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Innovative data use: Bank transaction records, GST filings, UPI payments, and other digital trails can replace traditional documentation like ITRs or salary slips.
AI-powered risk profiles: Advanced AI models can evaluate diverse data points—spending habits, loan repayment history, and more—to create holistic risk profiles. Automating this process allows insurers to account for the unique income patterns of professions like lawyers, CAs, or gig workers.
Dynamic premium structures: Based on these personalized risk profiles, insurers can offer dynamic premium pricing that aligns with an individual’s income seasonality, fostering inclusivity.
An inclusive insurance ecosystem
Policymakers, insurers, and financial institutions must collaborate to prioritize the insurance needs of this underserved segment. Insurers need to move away from a one-size-fits-all model and embrace strategies that reflect the realities of India’s self-employed workforce.
Life insurance, often considered a “push product,” continues to see low penetration in India, hovering around 3%. Rigid systems risk alienating self-employed Indians who are increasingly seeking financial security. By adopting tech-enabled underwriting and tailored policies, insurers can contribute to IRDAI’s ambitious goal of achieving “Insurance for All by 2047.”
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A robust, inclusive insurance ecosystem will not only enhance financial security for millions but also help build a more stable future for the nation.
Sabyasachi Sarkar is interim MD & CEO, Go Digit Life Insurance. Views expressed are personal.
