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Good morning. In today's edition, we explore why India's insurance penetration is slowing; how credit devaluation is impacting consumers; the factors driving Bitcoin to record highs; and India's puzzling GDP growth figures.

THE TAKE

India's Underinsurance Problem Demands Attention

I have been approached by several life insurance agents over the years and on almost all occasions have found it tough to buy a pure term cover, which is a stripped-down pure insurance cover that provides for the family on my death. 

I am not alone, as I find several people wary of life insurance unless there is something tied to it, like a home loan cover, which is that you have taken a home loan but in the case of your untimely demise, the insurance will take care of the rest of the loan.

There are other products, like Unit Linked Insurance Plans or ULIPs, which are linked to stock markets and offer capital appreciation, which have done better, but insurance remains a problem. And this applies to life or general insurance, distinct as products but also displaying many similarities from a consumer behaviour and usage point of view. 

Not surprisingly, a new McKinsey study says that the industry’s penetration rate has slipped from 4.2%in 2022 to 4% in 2023 indicating that progress has not been at par with India’s economic growth.

On the other hand, while insurance achieved a robust CAGR of over 17% in New Business Premium (NBP) the top five private life insurance companies in India have experienced tepid net profit growth of under 2% CAGR over the past five years. 

One reason is costs are rising faster than incomes, which is also unlike other segments of the financial services industry, including banking and asset management.

Moreover, the McKinsey study says the growth in premiums for general insurers has been predominantly driven by increased hiring, with little to no improvement in productivity among top players. 

On the other hand, the study also says the government could potentially save about $10 billion annually by expanding insurance penetration to encompass underserved populations and events. 

McKinsey also added that comprehensive life insurance coverage could assist the government in alleviating the burden of providing ex-gratia benefits to families affected by the loss of life or livelihood due to accidents, or unforeseen events.

Targeted intervention programmes for crop insurance could contribute to minimizing crop losses, reducing loan defaults, and improving yield. The creation of natural disaster insurance pools with mandatory coverage for ecologically sensitive areas could minimize financial losses for small and medium-sized enterprises caused by catastrophic events

These are not new arguments in themselves but useful as a reminder.

Interestingly, it is also about what we think of as insurance and do not.

McKinsey says some 70% of customers spend over Rs 25,000 annually on purchasing or repairing appliances, yet only 40% have any form of insurance coverage.

On the other hand, Peeyush Dalmia, one of the authors of the report, tells me insurance is better communicated and thus sold while we are at retail stores, like a Croma while buying a refrigerator or even a smartphone. 

Similarly, with homes, there is so much to insure—expensive gadgets, appliances, and even the structure itself—which we may not always think of.

So maybe one lesson in this is the fact that there is diminishing person-to-person contact in selling a product that takes some convincing and explanation

Insurance was never an easy sell but that only underscores its importance. 

Selling it profitably without promising the earth and the moon is as important as the lives or homes it covers.

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THE SWIPE

The Devaluation Effect: Are Credit Card Rewards Losing Their Luster?

Credit card rewards programs are in a state of turmoil, with banks slashing benefits and leaving consumers wondering if their cards are still worth holding onto. It's a delicate balancing act – juggling multiple cards for specific perks, only to see those perks vanish and your credit score take a hit from cancellations. 

Meanwhile, Air India's revamped Maharaja Club is causing a stir among frequent flyers. Can the airline strike the right balance between enticing rewards and sustainable benefits? Or will the Maharaja Club suffer the same fate as those devalued credit cards?

CORE NUMBER

$94,000

This is the value of bitcoin that reached a record all-time high on Wednesday on hopes that Donald Trump's upcoming term in the White House may bring a crypto-friendly administration. The massive record-breaking price was reached Wednesday specifically after reports broke a story indicating that president-elect Trump-backed social media arm is in talks to buy cryptocurrency trading platform Bakkt. Bakkt, a cryptocurrency trading platform owned by Intercontinental Exchange (ICE), went public in 2021 and had Kelly Loeffler, a former Republican senator from Georgia and current co-chair of Trump's inaugural committee, as its first CEO.

FROM THE PERIPHERY

—🏠 In the first half of fiscal year 2025, the average ticket size of homes in India's top seven cities reached Rs 1.23 crore, up from Rs 1 crore a year earlier. This increase follows a surge in new launches and sales of more expensive homes post-pandemic. According to Anarock's report, Bangalore’s average ticket size rose from Rs 0.84 crore to Rs 1.21 crore, while Hyderabad's climbed from Rs 0.84 crore to Rs 1.15 crore. NCR saw the highest growth, jumping 56% from Rs 0.93 crore to Rs 1.45 crore, while the Mumbai Metropolitan Region (MMR) remained steady at Rs 1.47 crore.

—📉 India's GDP growth for Q2 is projected to decline to 6.5% due to heavy rains and weaker corporate performance, according to ICRA. The rating agency maintains its FY25 growth estimate at 7%, expecting a second-half pickup. However, this is at odds with weakening FMCG, corporate earnings, and auto sales, signalling broader economic concerns. The RBI sticks to its 7.2% forecast, but many analysts expect growth to fall below 7%. While government spending and agriculture show positive trends, industrial sectors like mining and electricity are likely to slow down. Full-year recovery hinges on the services sector.

—🚘 According to the Federation of Auto Dealers Association (FADA), carmakers are ramping up offtakes while retailers are left with 75-80 days’ worth of inventory, valued at Rs 75,000 crore. According to Moneycontrol, this excess stock has extended the season of discounts well past the festive period. Typically, year-end discounts clear out old stock, but this year’s unusually high inventories have led to aggressive price cuts, offering buyers significant savings. Original Equipment Manufacturers (OEMs) are dispatching around 3.25-3.3 lakh passenger vehicles in November, with discounts of 20-30% available at dealerships through December 31.

—🚫 India's Public Distribution System (PDS), which serves 80.6 crore beneficiaries, had 5.8 crore fake ration cards that were linked through Aadhaar-based authentication and electronic Know Your Customer (eKYC) verification, according to government findings. This revelation raises concerns about the effectiveness of digitization and biometric authentication in ensuring the integrity of the PDS. Despite nearly all 20.4 crore ration cards being digitized and linked to Aadhaar, the system has clearly failed to prevent the creation and use of fraudulent ration cards, highlighting persistent vulnerabilities and the need for stronger safeguards to prevent leakages and ensure that subsidized grains reach the intended beneficiaries.

Editor's Note: In yesterday's newsletter, we incorrectly stated that 48 lakh weddings were expected in CY2023. This figure actually refers to the total number of couples expected to tie the knot in CY2024 and not CY2023. We regret the error.

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