Why Indians are not at home with home insurance

Necessity is the mother of invention, goes an old saying. However, when it comes to the home insurance segment it seems even necessity has not been able to invent this product portfolio and it continues to be one of the most neglected areas of concern for average home buyers. This is not to suggest that the awareness and acceptance about insurance otherwise is very high in this part of the world; but the willingness for home insurance is even lower. This calls for introspection as to why  home insurance has so few takers in a country where the threat perception and insecurities with life’s most valuable asset are even higher. 

 

“Home insurance schemes are vague and it is not clear to an average home buyer like me as to which are the covered instruments and which are not. Then the depreciation clauses made me realise that eventually I would be paying more than I would be compensated in case of any eventuality. Added to this, I have been told by friends that the claim settlement is a lengthy legal process and it often does not come out as a transparent process,” says Bhatnagar while voicing his reasons for not taking a home insurance policy.    

Due to such fears and apprehensions in the minds of average Indians like Bhatnagar, home insurance ratio is pathetic in India. Facts speak for themselves. The penetration of general insurance industry in India at present is 0.78 per cent of GDP, which is very low as compared to the global standards. The penetration of basic personal packages of insurance like health or home is dismally low. Health Insurance is less than 10 per cent of the people who can afford it. Home insurance is still less at hardly 1 per cent. So, there is scope for personal lines of insurance, especially the retail lines of business to grow exponentially.

Maneesh Gupta, MRICS, Director, Valuation & Advisory Services and Residential Services with Colliers International, maintains that the penetration of insurance across all products in India is very low and home insurance is no exception to this. It is a negative reinforcement product and hence difficult to sell. Home is treated as the biggest security and people do not associate any kind of risks with it.

“Home insurance doesn’t provide adequate compensation in case of an unfortunate incident. It could be attractive for people owning houses; however, for individual apartments it may not be attractive. It may be more attractive if RWA insures the whole building and renewal is not a headache of individual owners of apartments,” says Gupta.

Experts opine that home insurance companies must offer attractive packages to attract customers. The one-size-fits-all solution would not work for home insurance companies in penetrating a market that may be big but reluctant to invest. The financial modeling of the home insurance will define the success of this small but potentially dynamic portfolio of insurance companies.    

The requirements of different segments of housing are different as far as home insurance is concerned. In my opinion, it is a necessity at the top of the property pyramid since the investment is huge in luxury housing and hence a back-up plan is needed for future casualties, if any. But even among that set of home buyers there is reluctance as there are issues ranging from trust to the poor track record of claim settlement in this part of the world. Of course, if a level playing field is created the developers would also encourage the home buyers to opt for home insurance.

 Currently there are three types of insurance products pertaining to homes that are being sold in the Indian market. First is the loan insurance product which banks are pushing aggressively at least in urban areas and with a fair degree of success. This acts more like an insurance product for the bank rather than for the end user.

Second is home structure insurance where the insured values are too low. The insurance of the structure is provided as per the construction cost of the structure without taking into account high-end bathroom fittings, tiles etc. What happens is that perhaps one would be buying an apartment in Gurgaon at Rs10,000 per sq ft with top of the line specifications; however the insurance companies would insure it against structural damages for Rs2,000 per sq ft or even lesser. This would also decline with time in accordance with depreciation. Hence, this is also not an attractive proposition.

Nikhil Hawelia, MD of the Hawelia Group says that the anomaly also lies in the way insurance package to the houses are calculated. “For instance, assuming a scenario in which one is buying a 25-year-old apartment in Nariman Point or Malabar Hills in Mumbai, paying about Rs100,000 per sq ft. The insurance that would be provided would be less than Rs1,000 per sq ft against damage to structure; this would hardly be called insurance”.

Additionally, what works against this insurance is that it is typically sold as a one-year product, which needs to be renewed every year. If one buys a five-year insurance, the money is to be paid for all the five years in advance, there is no concept of annual payments as in life insurance policies.

“Structures older than 30 years are not insured. Insurance of contents is also typically sold on annual basis and hence needs to be renewed every year. In contents, jewellery is covered upto a maximum of Rs1 lakh only; cash is not covered; art work is not covered and hence the exclusions are many. Contents can be lost due to burglary, natural calamity, act of terrorism, fire and perhaps a few other reasons. “Burglary is at the top of the list when one thinks of loss of contents at home and the burglars would rather take away cash and gold, of which cash is not covered and gold to a maximum of Rs1 lakh,” says Hawelia.

Of course, the track record of claim settlement also has to improve in order to get an image makeover of home insurance companies in the minds of Indian home buyers as well. Their growth has been flat, if not in negative, despite India being one of the most lucrative markets for the success of home insurance. 

 Due to these constraints home insurance is an additional “avoidable” expense in the collective consciousness of  Indian homeowners.   Some of the critical elements that a home owner should keep in mind while opting for home insurance are:

 

 

what are the most probable occurrences covered, like floods and acts of terrorism covered in say like Srinagar. 

Finally, one must ensure whether one would be able to recover a significant portion of economic losses in case of an unforeseen or unwarranted occurrence.