India is fast emerging on the world map as a strong economy and a global power. The country is going through a phase of rapid development and growth. All the vital industries and sectors of the country are registering growth and thus, luring foreign investors. And insurance sector is one of them. The rural market in India, constituting 742 million people, is by far the largest potential market in the world. The annual rural household income of Rs 56,630 (as per NCAER, IMDR 2002) coupled with changing rural aspirations in consumption patterns and lifestyle unfolds tremendous opportunities for rural marketing.
However, some of the issues that seem to be hindering large-scale advent in the rural markets are lack of understanding of rural customer, inadequate data on rural markets, poor infrastructure, low levels of literacy and poor reach of mass media. The penetration of insurance in India is pitifully low and if the aim for the modest target of insurance premium becoming 5% of GDP, insurance companies need to look at newer market segments rather than fight for a share in the same pie. There exists a vast potential in the rural areas where more than 70% of our population lives.
But it is common perception and belief amongst the insurance companies that it is expensive to do business in rural areas. Most companies are focusing only on meeting regulatory requirements from rural areas and don’t see them as commercially viable rural business opportunities, waiting to be exploited. Interesting findings The study brought forth revealing data. The rural folks have a strong saving habit—they save about one-third of their income annually across the three income segments studied.
What was stunning was that the respondents, even those residing in backward areas, were quite conversant with insurance. The Indian rural market for insurance is not entirely an uninformed market. Almost 93% of the respondents were aware of life insurance; while 61% were aware of motor and accident insurance. Around 36% of them had bought some insurance or the other and another 38% of these policyholders had intention to buy more. A little over half (51%) of all the respondents had intentions of buying insurance products. Out of the non-policy holder respondents 62% intended to buy.
If these numbers are extrapolated over the macro level, rural population being 742 million, the potential market could be of mind-boggling proportions. Vibrant market Our research clearly indicates that the rural market is a vibrant market and holds tremendous potential for growth of insurance business, particularly because of the strong saving habit. While the industry would certainly be much heartened by the promising prospects in the rural sector, the real challenge for them would still be the distribution and delivery systems.
Here again research has come up with valuable data about the extensive network built by the rural development agencies, the banks, the cooperative institutions, the NGOs and some industrial houses in the rural sector. Insurance companies would therefore be well advised to work out collaborative arrangements with these institutions to mutual advantage. Building infrastructure These institutions, having spent huge amounts for creating the infrastructure, will be happy to collaborate and recover some of the costs.
Insurance companies would be saving on huge potential investments that may be required to build up dedicated distribution and delivery systems and leverage the existing network at marginal costs. This indeed is a ‘win-win’ situation. Another important observation is that the ongoing IT and telecom revolution in India has not bypassed the rural sector. The rural folks are reasonably technology-literate and are not averse to its use in their day-to-day activities. The state governments have also done their bit by inducting technology in their interface with them.
This would certainly help in integrating the rural-urban markets. In order to further validate these findings, FORTE commissioned another research study to develop a rural distribution strategy as a case study in district Muzaffarnagar, UP. The study, titled ‘Developing a Rural Distribution Strategy for Insurers’ focused and looked threadbare at various distribution and delivery channels available in the district to reach out to the rural markets in a cost-effective manner.
The channels finally identified for distribution of insurance products were the panchayats, district cooperative banks, agriculture & dairy cooperatives and the agents. The study detailed operationalisation of these channels along with a comprehensive cost analysis to clearly highlight the viability of going to the rural markets. Therefore, there exists an immense opportunity to explore the rural potential with all its complexities and variables and meet the challenge of developing the insurance business in this sector, in tandem with its considerable economic growth.