Information Asymmetry in Insurance Markets: The Case of Car Insurance in India

Most people buy car insurance without fully understanding what they are paying for. Financial literacy plays a huge role in helping consumers make informed choices and avoid costly mistakes. Platforms like ACKO have made policy details more accessible, but how much do consumers really know about what they are signing up for?

This blog will dive into the question of what financial literacy in car insurance really means and why it matters more than ever.

What is Financial Literacy in Car Insurance?

In financial terms, literacy in car insurance means the ability to know aspects of car insurance to make informed decisions regarding your money management. Under this umbrella of car insurance literacy comes knowing about the policy terms, being able to manage unexpected situations, and more. Being knowledgeable about insurance helps a person make smart choices and secure their financial well-being.

How Aware are Indian Consumers of Insurance?

To spread awareness to the Indian population, the government has taken several steps. The Insurance Regulatory and Development Authority of India (IRDAI) has held awareness campaigns, like ‘Bima Bemisaal’.

While India is more aware and knowledgeable about insurance, some things are still stopping people from getting insurance and learning about it. These factors include:

• Indian psychology of risk aversion and denial of future danger.
• Having several misconceptions regarding insurance, such as that insurance is complicated or that insurance is a waste of money.
• People generally wait for a catastrophe to strike before taking action and learning about/ buying insurance.

Due to all of these reasons, the Indian population procrastinates learning about insurance. Therefore, these are the reasons why in India, insurance for two-wheelers is only 40%.

Why Do You Need to Know and Learn About Car Insurance?

Learning about car insurance has become very important in today’s time. This is primarily due to the rising costs of everything (inflation) in India, including owning a car. Knowing about car insurance provides you with the knowledge that you can use to financially protect yourself by getting good insurance.

Ultimately, getting car insurance can provide you with several benefits, such as:

Financial Security

Car insurance covers you in cases of unexpected emergencies by minimising your out-of-pocket expenses. If you are knowledgeable about car insurance, you can also minimise your expenses for it.

Third-party Law Mandate

In India, the Motor Vehicles Act makes it mandatory to have at least third-party liability insurance for vehicle owners. Thus, having car insurance can provide you with third-party coverage in case of accidents.

Car Insurance Awareness Among Indians

Certain patterns can be noted in people who are aware of car insurance. The Indian population also reflects these patterns. The patterns are as follows:

Drivers Who Know More Pay Less

People who actually know about car insurance and the management of money after investing in car insurance usually pay less. The trick here is to know every aspect of what you are investing in. This not only saves you money but also provides confidence while taking any action regarding making a claim.

Difficulty in Detecting the Value of Car Insurance

Many individuals are not able to understand the true value of car insurance even after they have invested in and used it. This happens because many think that investing in car insurance is of no use. Apart from this, several people consider themselves good drivers and think they do not need insurance.

Incomplete Knowledge of Car Insurance

Not many people know about car insurance. Out of them, only a handful try to educate themselves on every aspect of car insurance. There are many people out there who still do not know about the law mandate for having insurance if you own a vehicle.

Role of Indian Organisations in Encouraging Learning

Several organisations in India have worked towards making people aware of insurance and its importance. For instance, the NIIT Foundation has a financial literacy program for drivers, especially women, so they are more aware of car insurance.

Making people aware of different schemes that the government runs is also a part of the programme. Furthermore, the Indian government has also held awareness campaigns such as ‘Bima Bemisaal’.

All of these efforts that are put towards encouraging insurance learning have had a positive impact on people. This has also impacted the insurance industry in India, making it grow at a rate of 32% - 34% each year.

Bottom Line

Understanding the financial side of car insurance helps you take control of your coverage and spending. When you know what you are paying for and why, you are better protected. The feeling of getting lost in the fine print of your insurance policy might be scary, but with proper knowledge, you can make confident decisions.