The Great Divide in Insurance Innovation

Protector IQ
Jul 15
5 min read

India’s insurance sector is, paradoxically, both vibrant and vacant.

On one end, we’ve seen a surge of innovation in rural-focused microinsurance—driven by state support, public sector insurers, and development finance. Crop cover, health top-ups, and livestock bundles now reach deep into the hinterlands, albeit unevenly.

On the other end, the urban elite enjoys frictionless protection embedded into flights, EMIs, e-commerce carts, and app-based healthcare subscriptions. These are sleek, API-enabled, and instant—engineered to delight a salaried millennial with a credit card.

But between these two poles lies the largest, riskiest, and most overlooked segment of all: the missing middle.

This includes:

Urban self-employed: from Zomato delivery partners to freelance designers
Small retail and digital businesses: boutique shops, sellers on Meesho, Amazon, and Instagram
Startup-led SMEs: founder-driven entities with real directors, no D&O, and no business continuity plans
The mass salaried class: who buy motor and health insurance because they’re told to, but have no coverage for income loss, critical illness, or legal risks

They power India’s economy. They are neither poor nor wealthy. And they remain under-protected.

Why Does This Middle Keep Getting Missed?.

It’s not for lack of awareness. Everyone in insurance knows this segment exists. Yet when it comes to actual product launches, this market is treated as either:

Too risky to underwrite, or
Too fragmented to distribute

Let’s unpack the structural issues:

1. Incentive Misalignment

Innovation is skewed by incentives. Government programs focus on rural coverage metrics. VC-funded insurtechs chase embedded growth through elite platforms. There is little commercial pressure to innovate for the ₹4–10 lakh income bracket unless they belong to a captive employer.

2. Lack of Transactional Data

Actuarial teams and reinsurers rely on structured data to price risk. But gig workers, small proprietors, and informal sector earners don’t leave predictable digital footprints. They straddle formality and informality. That makes them unscorable in legacy models.

3. Systems Are Not Built for Them

Many core insurance systems still reflect legacy groupings: retail vs commercial, rural vs urban, individual vs corporate. But what about a startup with 8 employees? Or a Kirana store with a part-time cashier and two delivery boys? These don’t cleanly map into existing operational rules, and that friction halts innovation at the execution layer.

4. Fear of Claims Leakage

The middle market—especially gig workers and informal SMEs—is seen as high-fraud, low-ticket. Without robust claims control systems, most carriers avoid these products unless heavily subsidized.

5. Low Broker Interest Due to High Effort, Low Return

For most commercial brokers, this segment just isn’t worth the effort. Ticket sizes are small, policy complexity is high, and product constructs are often misaligned with actual risk. Servicing ten SMEs with ₹10K premium each requires more handholding, negotiation, and system navigation than closing one corporate account. Without smart bundling and simplified execution, this layer will always fall outside broker economics.

SMEs Contribute, But Don’t Convert

Metric	Value
Share of India’s GDP from MSMEs	30%
Share of commercial insurance premium from MSMEs	<10%
Brokers actively pursuing SME clients	18%
Top broker challenges	Low commissions, high effort, poor fit

Source: IRDAI Annual Report 2023–24, FICCI–Swiss Re Survey 2023

6. Agents Lack Support and Product Fit

Traditional agents—especially generalist agents serving urban markets—have little incentive or support to sell insurance for this segment. Most carriers don’t equip them with the training, tools, or customized products needed to target local freelancers, shop owners, or micro-entrepreneurs. As a result, agents stick to motor renewals and retail health—products they understand and can convert easily. The rest is left untouched.

The result? Risky status quo.

Agents Are Not Equipped for the Middle

Metric	Value
Total insurance agents in India	2.5 million+
Agents trained/licensed for commercial lines	<5%
Agents with SME pitch tools or product kits	Rare
Common agent feedback	“Too vague. No toolkit. Too much paperwork.”

Source: Industry interviews, IRDAI data, Protector IQ field insights

What This Middle Actually Needs

Let’s stop designing in binary. The missing middle has unique risk patterns—and solving for them means rethinking product logic, not just pricing.

Here are real examples of what this segment needs:

D&O for Startups

First-time founders often operate without directors' liability cover. But they sign investor contracts, manage employees, and face regulatory scrutiny. A modular D&O product—built for early-stage startups with flexible limits and plain-language triggers—is overdue.

SOP Bundles for Digital SMEs

From cyber risk to accidental damage, small e-commerce businesses need plug-and-play insurance that works like a safety net, not a maze. Bundled products linked to inventory size, shipment volumes, or seller rating make far more sense than traditional fire policies.

Health + Disability + Income Loss for Gig Workers

A cab driver doesn’t just need accidental death cover. They need a policy that pays when a broken wrist stops them from driving for 3 weeks. Combining base health, short-term disability, and daily income replacement into a single portable policy can change the game.

Property + Liability for Local Shops

Small storefronts can’t manage complex schedules or audit requirements. But they still face property damage, employee theft, and customer injury risks. These can be simplified into location-based, self-declared covers with rapid onboarding.

Mass-Market Living Benefits for Salaried Class

Coverage for mental health downtime, critical illness cash, or EMI protection—tied to employment status—can meet growing needs without relying on hospitalization triggers.

The common thread? Practicality, simplicity, and usage-aligned benefits.

Case in Point: When Product Meets Real-World Demand

A Tier 1 insurer recently scoped a pilot product for platform sellers on a large Indian e-commerce marketplace. Sellers earning between ₹6–18 lakhs annually were offered a bundled cover: cyber breach liability, warehouse fire protection, and accident cover for delivery helpers.

The product design followed three rules:

Self-declaration-based underwriting (no inspection)
Claim triggers linked to platform activity (automated)
Easy premiums split quarterly, embedded into seller dashboard

The result? Over 35% take-up within the first 2 months—without a salesforce or push marketing. It proved what we know instinctively: the missing middle will buy protection if it’s designed for them, not imposed on them.

So, How Do We Actually Fix This?

Tapping into the missing middle isn’t about just lowering premiums or partnering with a new app.

It requires a full-stack rethink:

Risk-first segmentation: Mapping the real-world risks of urban informal work, retail digitization, and small enterprise dynamics
Human-centric product design: Using behavioral insights and transaction context—not just actuarial history
System readiness audits: Ensuring your core systems and APIs can handle non-standard structures (e.g., flexible insured entities, variable incomes)
Regulatory foresight: Aligning with sandbox protocols, ensuring clear claim definitions, and avoiding gray zones that regulators will flag later

At Protector IQ, we specialize in this middle.

We design insurance products end-to-end—starting with risk mapping and need validation, and ending with system-tested, regulatory-compliant products that can be launched, tracked, and scaled. These aren’t slideware concepts. They’re real, modular, and built for execution.

Whether it’s a startup-friendly D&O product, a gig-income continuity cover, or a compliance-lite cyber bundle for digital SMEs, our approach is consistent: build for the real economy, not just the tech economy.

The Road Ahead: This Middle Is the Future

If India wants to go from 4% to 10% insurance penetration, it won’t come from another embedded travel policy or another crop subsidy.

It will come from building trust, products, and systems that serve the missing middle—India’s quietly ambitious backbone.

They’re not waiting for freebies. They’re looking for solutions.

It’s time insurers, product teams, and regulators make them the new default, not the exception.

Explore how we help design for the middle. Talk to us at Protector IQ.