Rural India: An Unexploited Market For The Insurance Sector
The emergence of micro and bite-sized insurance and points-of-sales (POS), also means that small markets are now more easily penetrable and accessible.
70% of the population in India lives in the rural areas. A majority of this population not only remains unaware of the concept of insurance as a risk management tool, but the rural insurance market also differs from the urban market in terms of needs, levels of income, distribution, penetration, etc. Given the nudge towards preparedness that the COVID-19 pandemic has triggered, insurance is no longer a push product, and rural India provides an untapped opportunity for the insurance sector to capitalise on.
Scope for growth
Within the rural populace, over the last few years, there has been a considerable rise in the income and acquisition of assets. Despite this, factors like low literacy rates, poor awareness, and complex documentation have limited the expansion of the insurance sector in these regions. These circumstances have created a market that has significant potential and is yet to be explored. Furthermore, the emergence of micro and bite-sized insurance and points-of-sales (POS), also means that small markets are now more easily penetrable and accessible. These markets can be highly profitable if careful planning is done to establish low-cost advertising, distribution, product design, and other mechanisms to exploit their potential.
The target segment in rural insurance is largely agricultural or low-income households, or persons with limited financial capacity. However, a huge savings market also exists within these communities, and given sufficient market reach and financial literacy, there is significant scope for the insurance sector to thrive.
Strategic capitalisation of potential
According to the IRDAI, the biggest share of the overall insurance cover levels in rural areas is accounted for by crop insurance. Besides health and life insurance, rural markets provide scope for insurers to cover agricultural and other region-specific aspects. This could include cover for crops that remain uncovered under government schemes such as the Pradhan Mantri Fasal Bima Yojana, small business insurances for businesses started by women’s self-help groups, catastrophe bonds, etc.
The key to penetration in the rural, and more specifically, in the agricultural market lies in the simplicity, easy administration, and affordability of the products available. Seasonal, bite-sized cover and combinations of the two for different types of crops is also an opportunity that can be explored, and will likely bolster interest in insurance products among agricultural communities, as opposed to long-term, comprehensive products with higher premiums.
Furthermore, insurance is based on trust. To gain the trust of rural communities, insurers will not only have to rely more on technology to improve access, they will also have to ensure that such interfaces do not create a sense of disassociation for customers. Product customisation will also play an important role in building this trust. Since agricultural vocations are also dependent on weather, innovation in policy in terms of losses incurred due to changes in weather patterns or natural disasters could also play a part in establishing trust.
Support from the government
Finally, an integral part of any strategy to strengthen the insurance market in rural areas must be to improve awareness on the benefits of spreading risk. There is a need for the benefits of insurance to become visible in the rural community so that the sector can grow while simultaneously benefiting the community. Government has introduced many insurance schemes especially focusing on rural population viz. Pradhan Mantri Fasal Bima Yojna, Ayushman Bharat, Pradhan Mantri Suraksha Bima Yojna, etc.
Apropos the same, the IRDAI has mooted the creation of model insurance villages, and stated that insurance companies will have to study risk profiles unique to villages and design their products according to these specific needs. The proposal recommends that coverage span the entire population of such villages, including their farms, property, farm machinery, vehicles, etc. The sandbox phase provided by the IRDAI in its proposal also affords insurers the opportunity to innovate and experiment with minimal risk. In order to tackle the issue of low penetration in rural areas, public and private players will have to come together to execute solutions.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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