Friday, 20 January 2012

Rural Insurance in India the untapped waters

The real source of marketing promise is not wealthy few in the developing world, or even the emerging middle income consumers. It is the billions of aspiring poor who are joining the market economy for the first time.

Rural India is where the next ‘big’ opportunity is. Indian rural market constitutes approximately 72% of total Indian population even as of date. The diverse customers spread through 638,635 villages across the states and union territories of India present a great untapped opportunity. More than half of the Indian population residing in these areas has seasonal income while the other part of the population draws irregular income.

Majority of rural population is involved in farming sector either directly or indirectly (farming, marginal farming, and marginal land laborers etc.) and the balance of the large population comprises of skilled laborers; artisans which includes carpenters, masons etc.; and small scale shop owners etc.

Looking at the spending pattern in Rural India, there is an immense scope for financial services, including insurance services.

Financial services providers like banks, mutual funds, Life & Non-Life insurers, card distributors, chit funds are aggressively looking at rural India for high growth rates. Several research reports state that by 2020 India is poised to have largest youth population in the world and as we all know, much of it will be from the rural hinterland of India.

At present major players in the Indian insurance market are Life Insurance Corporation of India, Bajaj Allianz, ICICI Prudential, HDFC Standard, SBI Life under life insurance segments and New India, National Insurance, Oriental, United India, ICICI Lombard under non-life insurance segments etc.

In the year 2000 when the insurance regulator came into being and the sector was opened up for private sector participation, the insurance penetration (total premium as a percentage of GDP) in India was just 2.1 per cent and the coverage was largely concentrated among the well-off. The Authority, which has been vested with developmental responsibilities apart from its regulatory functions, therefore sought to not only expands coverage but also to correct the imbalances in availability/distribution of insurance across geographic locations and economic classes.

As a first step in this direction, the Authority had come out with IRDA (Obligations of Insurers to Rural or Social Sectors) Regulations, 2002. These regulations require insurers to sell a specified percentage of policies to rural public and to cover a specified number of lives/assets belonging to people below poverty line or those pursuing certain traditional occupations. The obligations have been quite effective in expanding coverage of insurance to the severely under-penetrated rural and low income segments.

Despite the substantial increase in the last decade, the coverage, especially among rural and social sectors, continues to be inadequate looking to the potential and there is an exacting need for its rapid expansion

IRDA’s Obligations of Insurers to Rural or Social Sectors Regulations, 2002 states:

“Every insurer, who begins to carry on insurance business after the commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall, for the purposes of sections 32B and 32C of the Act, ensure that he undertakes the following obligations, during the first five financial years, pertaining to the persons in”---
(a)  rural sector,
(i) in respect of a life insurer, --
                                    (I)    Seven per cent in the first financial year;
                                    (II)   Nine per cent in the second financial year;
(III)   Twelve  per cent  in the third financial year;
(IV)   Fourteen  per cent  in the fourth financial year;
(V)     Sixteen  per cent  in the fifth year;
                                                of total policies  written direct in that year;
            (ii) In respect of a general insurer,--
                                                (I) Two per cent in the first financial year;
                                                (II) Three per cent in the second financial year;
                                                (III) Five per cent thereafter,
                                                of total gross premium income written direct in that year.

Despite government promotion, rural insurance has remained a small part of the total market. Most insurance companies see rural business as an obligation rather than an opportunity.
Future steps taken for the expansion of the rural insurance in India :
  •     The size of the rural or micro insurance is very small compared to the per-policy costs applicable to mainstream insurance. Compared to individual insurance, group insurance is extremely inexpensive owing to low cost of distribution, far lower overhead costs due to issue of a single policy for the whole group, easy underwriting norms and support of nodal agency in remittance of premiums, filing claims, etc.. Therefore insurers have to invent new ways of reducing the same.
  •        Latest technological innovations have revolutionized the way operations are conducted in the financial sector especially in rural areas. Insurers too can benefit by deploying latest technology such as premium collection on hand-held devices connected to insurers through internet; payments and service requests over mobile phones; logging-in proposals and uploading claims and servicing requests on the net; to economize and expand their operations

For any industry to grow, it is necessary that there should be many innovative products available to consumers, suitable to their needs and at appropriate prices. As of now many products are available that are tailor-made to different segments of the population, but mainly for the urban market. Projections for the growth and development of the Indian insurance sector are based on the urban markets, but rural markets remain largely untapped. Let’s hope that the steps taken by IRDA in the future to become successful to explore the true potential of rural insurance market.

Article by 
Sushuma Namasani,
Executive Member of FINATIX,
PGP 2011-2013.

For any further discussion and suggestions please reach me at

Disclaimer: All the names and trademarks mentioned here belong to the respective companies.


Post a Comment