NBFC and insurtech vital for deeper financial inclusion

NBFCs address the gap between the banks and the consumers by offering low-ticket loan amounts with less paperwork and less interest to suit the relevant needs of each customer.

NBFC and insurtech vital for deeper financial inclusion

Tuesday July 04, 2023,

3 min Read

At least 30% of India's population, or 40 crore individuals called the missing middle, are devoid of any financial protection for health. This segment relatively has limited access to financial services due to factors such as low awareness of financial tools and unavailability of affordable products. India’s internet penetration is growing rapidly; especially rural areas have witnessed a growth rate of 14%.

By leveraging the accelerated digital adoption, segments such as NBFCs and insurtech are able to provide necessary financial tools such as customized insurance plans and small-ticket loans. Insurtech startups with their tech and easy-to-use platforms are raising adoption to provide more exposure to the missing middle. Meanwhile, another essential pillar of fintech, Non-Banking Financial Companies (NBFCs) have also been providing a range of financial products and services by bundling the best-suited products for the customers.

NBFCs address the gap between the banks and the consumers by offering low-ticket loan amounts with less paperwork and less interest to suit the relevant needs of each customer.

A majority of these customers have low or no credit histories, therefore NBFCs are finding different ways to secure their customers by providing them with small ticket loans in order to prevent them from falling into poverty. Insurtechs on the other hand, work towards creating end-to-end digital distribution channels for insurance at affordable premiums with customised plans to suit the needs of the customer. Their innovative and customised policies cater to the unique needs of the missing middle by providing them the protection that they need.

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As part of their efforts to mitigate risk, enhance credit repayment, and keep livelihoods stable for the missing middle, NBFCs are constantly coming up with a diverse range of products and tools that go beyond traditional lending such as insurance and wealth management services bundled together. Considering insurance is not NBFCs core business and it is difficult to manage the operations manually with high operating cost.

For seamless insurance integration and distribution, insurtech companies bring in end-to-end digitisation of the insurance processes and enable a paperless policy purchase along with secured transaction w.r.t KYC, premium payments, etc. Customers seek simplicity in every process and technology has streamlined and shortened the onboarding, documenting and claim process journey as well. In addition to that, digitization of insurance MIS helps in easy management of insurance with reduced manpower.

Overall the operational cost of the companies gets reduced significantly (up to 25%) which subsequently reduces the manpower involved, hence reducing the fixed cost. Insurtechs help integrate insurance with the NBFCs POCs via which they can access their customers and policy details through a dashboard and instantly select the policy that fits their needs.

This makes the process easier for NBFCs to issue the right policy quickly to their customers without directly reaching out to them as they can submit the documents in the dashboard itself which will be directly taken up by the insurtech.

With insurtech’s end-to-end API-driven insurance solution it digitises the traditional insurance distribution while helping companies to issue policies and transfer premiums faster. Insurtechs' embedded insurance solution can also provide flexibility in offering insurance in a bundled, linked, or related way to the customer at any point in the customer lifecycle.

This approach provides an additional opportunity for NBFCs to expand their product offerings, introduce new revenue streams, and create a more comprehensive financial wellness plan for their customers and creates a win-win situation for both. As a result, creating a more inclusive financial ecosystem that benefits everyone.

Yogesh Gupta is the Chief Business Officer at Bimaplan