India is the second-most underinsured country in the world with an insurance gap of $27 billion (approximately Rs 1.98 lakh crore). A survey by specialist insurance and reinsurance market Lloyd’s said while India’s overall level of insurance penetration (total insurance premiums as a percentage of the gross domestic product) has increased 0.2 percent since 2012, it continues to have one of the highest underinsurance levels globally.

Insurance gap refers to the gap between the actual sum assured required versus that taken. For example, if the insurance needed is Rs 100 and an individual has taken Rs 40, the insurance gap is Rs 60.

Underinsurance is a serious issue because it reflects that a country has to pay the financial costs of any large claims out of their own pockets. An insurance gap occurs when a country's citizens do not buy adequate insurance cover for covering their risks.

In absolute terms, China has the biggest insurance gap ($76.4 billion) followed by India ($27 billion) and Indonesia ($14.6 billion).

In 2012, the first edition of the global report revealed $168 billion in underinsured assets globally. While the global gap has closed by almost 3 percent over the last six years, the gap for Asian countries included in the report has widened by 9.4 percent to $134 billion. At the same time, the world has seen a series of extreme weather-related catastrophes and new risks such as cyber-attacks have emerged, posing additional threats to society.

Shankar Garigiparthy, Lloyd’s India Country Manager said while progress has been made, the rate at which India’s insurance gap is closing is not fast enough.

“Significant exposure to risk remains and with a growing number of social, environmental and business risks, and with India’s economy on the rise, this insurance gap will only increase unless penetration accelerates,” he added.

India has one of the world’s biggest insurance gaps at 1 percent of its GDP or $27 billion. It was $19.7 billion in 2012. India’s insurance gap accounts for 17 percent of the total global insurance gap.

India, along with Bangladesh, Vietnam, Philippines and Indonesia were singled out in Lloyd’s Underinsurance Report as being among the countries most exposed to risks of natural disasters, such as climate change, and are the countries least able to fund recovery efforts. Each of these countries has an insurance penetration rate of less than 1 percent. India has a level of insurance penetration at 0.9 percent of GDP.

However, since Lloyd’s last underinsurance report, India is the only country that has dropped out of the top 10 countries with the highest expected losses per annum as a percentage of GDP. But this was partly due to the fact that the Philippines entered the top 10 as a result of the devastating damage it suffered from Typhoon Haiyan in 2013.

“India suffers, as its neighbour Bangladesh does, from flooding and earthquakes in the north around the Himalayas, but with a far more developed economy, it has significantly more GDP potentially at risk in absolute terms,” the report said.

According to an earlier report by global reinsurance major Swiss Re, the share of insurance premiums in India’s gross domestic product (called insurance penetration) saw a marginal increase to 3.69 percent in FY18 from 3.49 percent a year ago. According to the Swiss Re sigma report, India's insurance density or premium per person stood at $73 for FY18 versus $59.7 in the previous year.