Download How to enhance insurance penetration in rural market

26th India Fellowship Seminar
15th December 2016
How to enhance insurance penetration in rural
market - Opportunity and Challenges
Presenters:
Garima Gupta
Parul Priyam
Saurabh Agrawal
Guide:
Mr. Suresh N Sindhi
Indian Actuarial Profession
Serving the Cause of Public Interest
Agenda
•
Background
•
Types of Rural Insurance
•
Indian Insurance Snapshot
•
Insurance schemes for Rural sector
•
Regulations related to Rural insurance
•
Opportunities and Challenges
•
How to enhance penetration
•
Summary
2
Background (1)
Rural is…
Crop
Farmers
Cattle
Less medical facilities
Kuchcha houses
Low earning occupation
3
Background (2)
The National Sample Survey Organisation (NSSO) defines ‘Rural’ as follows:
• An area with a population density of up to 400 per square kilometer,
• Villages with clear surveyed boundaries but no municipal board,
• A minimum of 75% of male working population involved in agriculture and allied activities.
RBI defines rural areas as those areas with a population of less than 49,000 (tier -3 to tier-6 cities)
At present :
Rural Population %
85%
Rural
76.6%
74.3%
72.2%
Urban
68.8%
80%
75%
70%
23.4%
25.7%
27.8%
31.2%
65%
67.3% in
2015
Source: GOI, Census of India
Source: World Bank data
4
2014
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
2011
1972
2001
1969
1991
1966
1981
1963
60%
1960
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Indian Insurance Snapshot
Insurance Penetration* (%)
4.8
3.17
3.14
FY05
FY06
5.2
4.7
5.1
4.6
4.1
3.96
3.9
3.3
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
* Insurance Penetration measured as a percentage of insurance premium to GDP
Insurance Density** (USD)
10.23 10.38 10.35
11.23
8.6
6.4
3.57
4.14
5.13
6.09
Gross Premium Written (USD billion)
80
6.8
60
40
20
0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
5
24
34
FY05
FY06
FY07
10
11
13.9
12
13
7
7
50
48
56
64
60
52
52
61.78
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
6
4
19
8
Life
Non-life
* *Insurance density measured as a ratio of insurance premium to total population
Source: IRDAI report, 2011 census report
www.actuariesindia.org
5
Rural Insurance - Types
In Rural sector, insurance can specifically cover :
1.
People – Life cover, health cover, accidental cover
2.
Livestock, e.g. cattle, sheep, goat, etc.
3.
Plantation and horticultural crops, e.g. rubber, grapes
4.
Sub-animals e.g., silkworm and honeybee
5.
Property e.g. agricultural pump sets, etc.
www.actuariesindia.org
6
Life Insurance
Facts & Figures:
•833 million people in rural area (only 3%
insured)
•19% of India’s total GDP comes from rural
India
•75% of rural India survives on Rs 33 per day
giving lower premium paying capacity and
risk appetite
•Only 4.6% rural households pay income tax
Challenge:
Low income, absence of need based
products together with thinly spread &
inadequately qualified distribution
channel is the main hindrance to the
growth of rural insurance.
Source: Life Insurance Market : Rural India Connect ( Paper by Aditya Kumar Gupta)
www.actuariesindia.org
7
Livestock Insurance
Facts & Figures:
• Number of rural households 195.60 million
• Households owning cattle 104.52 million
• 512 million livestock according to 2012 census
• 26% livestock contribution to agricultural GDP
Challenge:
Different breeds of livestock
holdings having varying
susceptibility to diseases but no
customised product offerings
result in lower penetration
Source: Livestock in India –diversification for rural development- Swiss Re Publication
www.actuariesindia.org
8
Crop Insurance
Facts & Figures:
• 195.26 million hectare gross cropped land in 2014
22
• 42.82 million hectare covered under crop insurance
• 2013-14 average Sum Insured per hectare under then
national insurance scheme was Rs.18,464
• Average Gross value output (GVO) worked out in
2013-14 was Rs. 47,160 per hectare
78
Challenge:
Sum Insured much below GVO and
claim proportionate on overall
production in area was one of major
reasons for low penetration
Source: http://indianexpress.com/article/india/india-news-india/some-assurance-how-new-crop-insurance-scheme-can-be-a-game-changer/
www.actuariesindia.org
9
Insurance schemes for Rural sector
• Pradhan Mantri Fasal Bima Yojna (by Central Govt)
• Gram Santhosh Rural Postal Life Insurance Scheme by India Post
• Pashudhan Bima Yojana from State Govt (by Haryana Govt)
• Rashtryia Swasthya Bima Yojna (by Central Govt)
• Rajrajeshwari mahila kalyan Bima Yojna
• Kissan package policy
• Package insurance for tribals
• Fish ponds (embankments) insurance
www.actuariesindia.org
10
IRDA Regulation
Every insurer, who begins to carry on insurance business after the commencement of
the IRDA 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 rural sector Life Insurer
General Insurer
Financial
Year
% of total policies written direct in
that year
1st
7%
2nd
9%
3rd
12%
4th
14%
5th
16%
6th & 7th
18%
8th & 9th
19%
10th to 15th
20%
16th and above
25%
www.actuariesindia.org
Financial
Year
% of total gross premium income
written direct in that year
1st
2%
2nd
3%
3rd and
above
5%
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Rural population - Opportunities
Rural sector offers a huge business opportunity for insurance companies
- Size of the market : Largely untapped, lesser competition
- Specific needs of Rural areas o Safety of crops, Livestock
o Key person/asset dependency,
o Agricultural vehicles
- Distribution infrastructure - District Co-op Banks, Co-op Societies, NGOs, CSCs*
- Increasing media coverage
- Improving Infrastructure/IT penetration improving
www.actuariesindia.org
* Common Service Centers
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Opportunities (1) – Size of the market
• Nearly 70% of India’s population still resides in rural areas
• Accounts for roughly 26% of India’s GDP
• Insurance penetration rates really low implying strong
potential for expansion
• Diverse customers spread through 638,635 villages across
the states and union territories of India present a great
untapped opportunity
• 512 million livestock according to 2012 census
• Purchasing power parity of the rural population is steadily
growing
•
www.actuariesindia.org
13
Opportunities (2) – Specific features
Dependence on Agriculture
- Higher need for safety of crops, livestock from extreme weather conditions such as:
o
Untimely rain/floods
o
Drought
o
Bush fire
o
Hailstorm
- Need to insure farm vehicles
Asset/ key person dependency – usually rural families are family financially dependent
on one key earning member and hence life/health insurance important
Strong habit of saving – several studies show that an average rural household saves
about one third of their incomes
Greater need for health insurance products - Level of healthcare in rural areas is
substantially low. Low supply of hospital beds, doctors and other facilities.
Seasonal income – majority involved in farming
www.actuariesindia.org
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Opportunities (3) – Distribution
• Tie-ups with Gramin banks, postal services
• Extensive network and coverage in rural areas offered by
-
Rural development agencies
cooperative institutions
NGO’s
microfinance institutions
Industrial houses
Healthcare providers (e.g. veterinary clinics)
• Ongoing IT and Telecom revolution has not bypassed the rural sector – there are
channels like E-Choupal which is being used by rural farmers for procurement of
agriculture products
• Increasing media coverage
•
Government initiatives like Digital India - About 140,000 CSCs are functioning under
different names in different states.
www.actuariesindia.org
15
Rural Insurance – Challenges (1)
• Education / Mindset - less understanding of own needs and rights, Savings vs Risk
coverage, Government vs Private, Simple vs Complex
• Low net disposable income - affects their affordability
• Preference of expenditure - Weddings, Pilgrimages, Constructions
• Low Level of Literacy / awareness – low level of financial sophistication
• Inadequate Media Coverage – lower access to developments, advertisements
• Many Languages – difficulties in communication
• Records / Documents – unavailability of KYC documents
• Infrastructure – Electricity, water, roads, transportation
www.actuariesindia.org
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Rural Insurance – Challenges (2)
Areas
Key Challenges
Comments
Education, mindset,
awareness, literacy
- Perception about insurance ‘not required’.
Less of need based products
- More focus on savings.
Lack of proactive consumer
outreach from distributors
- Can’t access to all the features / prices
available e.g. online plans
Rural thinking is changing
rapidly with time
Income
- Low income groups
- High levels of seasonal unemployment
Small case sizes and high
expenses make product
unprofitable
Communication /
languages
Difficulty in explaining key features or
understanding needs
Inadequately qualified
distribution channel
Betterment in comm /
distribution e.g. CSC
Infrastructure,
transportation,
facilities
Difficulties in - Reaching, Setting up offices, getting
agents/channels
Rapid improvements in
infrastructure underway
- Connection between
customers/agents/employees
www.actuariesindia.org
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How to enhance penetration?
• Need based products : Simple features, better match to needs
• Seamless services – flexibility in premium payments, simplified claim settlement
• Enhanced distribution capabilities – Proactive agents, advertisements, local people,
local banks, CSC
• Education / Training – Promote the importance/need of insurance
• Higher engagement with local people and organizations, government – provide
assistance in government initiatives e.g. digital India
• Establish brand value – focus should not be just on LIC
www.actuariesindia.org
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Summary
• Rural sector is significantly larger in India with almost 70% of
population living in rural areas.
• Despite of numerous Government insurance schemes and
prescribed regulations, the rural insurance penetration is still low.
• There are plenty of opportunities for insurance in rural sector mainly
because of specific needs and untapped market.
• There are also many challenges causing hindrance in progress such
as low levels of education, awareness.
• With constantly improving policies of Government and evolving
practices of insurers, the future of rural insurance seems bright!
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