India’s life insurance firms have exceeded expectations in terms of growing their business in rural India, both among the rural wealthy and the not-so-wealthy, and most firms in the business are actually ahead of targets laid down by the sector’s regulator, Insurance Regulatory and Development Authority, or Irda. The companies claim that apart from helping them grow sales in locations outside the near-saturated urban markets, this strategy also helps them maintain their profitability at existing levels—which means that rural policies are as profitable as urban ones.
“Rural and social insurance is a very good business opportunity. With urban areas having high insurance penetration, the next growth driver will be rural population,” According to India Invest Incomes and Savings Survey 2007 by IIMS Dataworks, a Noida-based retail finance research firm, 58% of India’s 105. 4 million insured people (out of a total of 321 million people who constitute the country’s paid workforce) are from the rural areas. However, in terms of penetration, or the number of policyholders compared with the total population, urban India is ahead.
Thus, penetration in urban India is 47% (which means that almost one out of every two paid workers in urban India is insured), while it is only 27% in rural areas. With a huge population and large untapped market, insurance happens to be a big opportunity in India Insurance penetration or premium volume as a share of a country’s GDP for the year 2005 stood at 2. 53% for life insurance and 0. 62% for non-life insurance. The level of penetration tends to rise as income increases, particularly in life insurance.
India, with its huge middle class households, has exhibited potential for the insurance industry. This has made international players to look at the Indian market. Moreover, saturation of markets in many developed economies has made the Indian market all the more attractive for global insurance majors. There exist a vast potential in the rural areas where more than 70 per cent of the population lives.
But it is common perception and belief among the insurance companies that it is expensive to do business in the rural areas. Most of them are focussing only on meeting the regulatory requirements from the rural areas and do not see them as commercially viable rural business opportunities, waiting to be exploited. It is worth highlighting the existence of a continuum of economic activity between rural and urban areas. Intermediate settlements, such as important villages, kasbas and tehsil towns play a key role in the process of rural-urban economic integration.
Several towns are essentially overgrown villages of the past and have continued to retain their essential rural character. These towns have, indeed, proved critical to rapid economic growth of the rural areas in their hinterland as they provide them significant marketing and financial support. While the prospects in the rural sector are promising, the real challenge lies in distributing and delivering systems cost-effectively and efficiently. It is common knowledge that the cost of building exclusive delivery systems for selling insurance would be prohibitive.
However, valuable data are available on the existence of extensive network built by the rural development agencies, banks, cooperative institutions, NGOs, micro-financing institutions, women’s SHGs, youth clubs, panchayats and some industrial houses in the rural sector. Insurance companies would, therefore, be well-advised to harness this infrastructure and work out collaborative arrangements with these institutions to their mutual advantage. These institutions, having spent huge amounts for creating the infrastructure, will be happy to collaborate and recover some of their costs.
The insurance companies would save on large investments that would be required to build up dedicated distribution and delivery systems and leverage the existing network at marginal costs. This, indeed, is a unique `win-win’ situation. The general notion that it is expensive to do business in the rural areas due to its inaccessibility and other factors, does not hold good due to the institutional infrastructure there, which can be profitably harnessed for reaching out to these areas.
The challenge of developing a cost-effective delivery system is not insurmountable and there is enough scope for innovative collaborations. The general notion that it is expensive to do business in the rural areas due to its inaccessibility and other factors, does not hold good due to the institutional infrastructure there, which can be profitably harnessed for reaching out to these areas. The challenge of developing a cost-effective delivery system is not insurmountable and there is enough scope for innovative collaborations.