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Insurance in Rural India: Tremendous Potential, But a Tedious Task There is a severe need to consider the expansion of the insurance domain in the rural sector, both by the insurance companies, as well as the central and state governments on a whole.

By Subir Mukherjee

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For the longest time, the focus of the insurance sector in India has largely been urban-oriented for various reasons. Although there has been a silent economic revolution in the rural segment resulting in a significant growth since the late 1960s, factors such as a lower literacy rate, lesser awareness and the complexity of insurance documents have posed as a major challenge for both public and private insurance firms to expand their avenues in rural India. Through planned efforts and a thorough commitment, great dividends can be generated from the rural areas, thereby reinforcing on a tremendous potential for the development of the insurance sector. Therefore, there is a severe need to consider the expansion of the insurance domain in the rural sector, both by the insurance companies, as well as the central and state governments on a whole.

Scope and challenges faced

According to the government-appointed Rangarajan Committee's Report to Review the Methodology for Measurement of Poverty drafted for the Planning Commission in June 2014, the percentage of below poverty line (BPL) families has significantly dropped on a national level at the rate of 2.18per cent per annum from 2004-05, amounting to around 21.9per cent in 2011-12. Among the major trends that were observed in this report, it became evident that the decline in poverty was steeper in rural areas as the percentage of BPL population came down to 25.8per cent (2011-12) from 42per cent (2004-05), with a considerable drop of around 17per cent as opposed to 12per cent in urban areas. This clearly shows that there has been an enhancement in the incomes and acquiring of assets that need protection amidst the rural population, subsequently creating opportunities for exploration and expansion of insurance business in the otherwise untapped rural market.

Despite having an immense potential, the rural market poses many challenges and setbacks for the insurance segment. For instance, the complexity in the documents of insurance policies with the fine prints, technical jargons and other elaborate wordings makes it difficult for the common person to comprehend. With a sizeable rural mass struggling with lack of education, awareness or even basic literacy, insurance seems to be an intangible product with little value proposition. Apart from that, people are also unable to produce the various certifications required for the processing of insurance claims. Additionally, rural people face a major difficulty in understanding the difference between the benefits committed by the Government of India through various insurance programs, and what they actually receive. There have also been instances of people losing money in chit fund scams in rural areas which makes it hard for them to trust insurance companies as they are not able to distinguish between legitimate insurance providers and dubious chit funds.

While insurance companies, as well as intermediaries, do not face as huge an issue in serving the urban population where the awareness levels are relatively high, expanding out to rural areas poses to be a major challenge. It is therefore very important to understand the requirements of the population and transform policies accordingly in order to recognize and work extensively upon the prospects and opportunities for insurance companies in rural India.

Need for planned efforts by domain players

The penetration level of existing insurance sector players in the immensely potential rural marketplace is not significant. Customers in rural areas do not have direct access to multiple insurance companies. The lapsation rates of policies are high due to a general lack of awareness about the due dates for the payment of the premium amount. Furthermore, there is an absence of focus on pure risk policies by insurance providers and lack of inclusion of policy schemes such as "Low Premium Maximum Benefit' in rural areas. Therefore, there is a need for adequate investment by the government, as well as both public and private insurance companies, to bring forth a change in how insurance is viewed in rural areas, and promote it as a risk mitigation tool among the rural population.

In a bid to increase insurance penetration, the Insurance Regulatory and Development Authority of India (IRDAI) has allowed micro-insurance products to be distributed through point-of-sales (POS). To further facilitate the same, more domain players are coming up with their own products and services to create awareness about the importance of insurance among the rural populace.

The insurance sector plays a vital role in the economic growth and sustainability of a country, its citizens, and households alike. Hence, capitalizing on the enormous opportunities pertaining to the growth of the insurance sector in rural India can have a direct impact on rural development and subsequently, the economic growth of the country. Therefore, it is imperative for the central and state governments, along with public and private insurance companies, and intermediaries to be actively involved in the facilitation of insurance in rural India. The need for such a collaboration is especially higher now, given the rapid pace at which the rural populace is developing socio-economically and catching up with urban Indians in their consumption habits.

Subir Mukherjee

Founder & Director, GIBL

Subir Mukherjee is the Founder and Director at GIBL (Greenlife Insurance Broking Limited), India’s leading online and offline insurance distribution network. A serial entrepreneur with 20 years of experience working with top multinational companies across the globe, Subir’s forte lies in scaling up companies by leveraging software, internet, and mobile technology. At GIBL, he is responsible for overseeing key functions such as 360-degree marketing and sales, growth analysis & strategic expansion, corporate build-up, financial management, and manpower management
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