The Hindu Business Line : Private insurers reach out to rural customers

THE Life Insurance Corporation of India sells about 23 per cent (62 lakh policies) of its total number of policies in the rural areas, a segment that is integral to its social security objectives.

Rural insurance, much like priority sector lending in banking, is seen as some kind of a poison pill by the private sector players in the insurance industry. Insurance companies are mandated to sell 7 per cent, 9 per cent, 12 per cent, 14 per cent and 16 per cent of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively.

A change in the definition of what constitutes `rural' has given some leeway for insurance companies to get in the mandatory percentage. In August 2004, Insurance Regulatory and Development Authority altered the definition, aligning it with the census definition of `rural'.

The census does not define rural area. It defines only an urban area. And by inference, what is not urban is a rural area.

The erstwhile IRDA definition of rural areas included all areas with a population of less than 5,000, with a density of population less than 400 sq km and where at least 75 per cent of the male working population was engaged in agricultural pursuits. The IRDA had amended the definitions earlier in 2002 to bring down the requirement stipulating that at least 25 per cent of the population had to be engaged in agricultural pursuits.

The revised definition has widened the market.

Mr Vivek Khanna, Director, Marketing, Aviva Life Insurance Company, said, "A couple of thousand villages would now be brought under the fold. The earlier definition meant that only some remote villages could be tapped. And there is no ambiguity now."

Ms Anjana Grewal, Vice-President of Marketing at Birla Sun Life Insurance Company, said, "The revised definition brings a larger part of the population under `rural' - almost 72 per cent compared to 42 per cent under the earlier definition. What this would do is make it possible for insurance companies to introduce different products with higher premiums."

According to analysts, 80 per cent of the rural population earn less than Rs 6,000 a month and a high premium may not suit them. Designing customised products and developing infrastructure and distribution systems is the way towards tapping this segment, they said.

Ms Shikha Sharma, MD, ICICI Prudential, said, "We have been able to hit the rural pockets through NGOs and direct marketing ."

ICICI Prudential's rural distribution model involves agents, brokers as well as referral arrangements with NGOs, micro-finance institutions and corporates. There is a presence in 15 States through partnership arrangements with Uttaranchal Co-operative Marketing Federation, nLog Communications, ICICI Bank and ITC's e-Choupal . As of 2003-04, 64,764 policies were sold.

According to Mr Sam Ghosh, Managing Director, Bajaj Allianz Life Insurance Company, "Rural policies are not an issue for us; we are present in more than 300 towns across the country and our offices and agents find it easy to reach and sell in rural areas."

Tata AIG has also been working with brokers, corporate agents and NGOs. It offers products with premium ranging from Rs 120 to Rs 720 per annum with coverage ranging from Rs 15,000 to Rs 60,000. For 2004-05, 19 per cent of their business came from rural and social insurance.

Mr Vijay Atre, National Head, Rural Insurance, Tata AIG, said, "We have created rural community insurance groups. This 120-strong self-help group consists mainly of women. It has been very successful in Andhra Pradesh. In areas like Latur and Osmanabad, we work with women's federations where there is the concept of cluster leaders."

While these tie-ups seem to be achieving the twin objectives of social rehabilitation and distribution, there is still a long way to go. Most private players admit that the rural areas can never be their target audience. Insurance will continue to be urban-centric.

As Mr Atre said, "When one talks about rural insurance, there is confusion about whether it is a product, a distribution channel or a market. It's about time it is considered a market."

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