Money & Banking

From next year, insurers may have to open 25% of branches in rural areas

G. Naga Sridhar Hyderabad | Updated on November 21, 2017

The IRDA proposal doesn’t go well with insurers

Insurance penetration in rural areas is set to get a boost as insurers may have to open 25 per cent of their branches in rural areas from next year.

All insurers who have completed 10 years of business will be required to open at least 25 per cent of new branches in places with below one lakh population, the Insurance Regulatory and Development Authority said in its draft Places of Business Regulations, 2012. The limit of one lakh population is “to encourage the opening of places business in tier-2 and below town/villages,” the draft states.

The insurers who have had a solvency ratio of 1.5 in the preceding three years are likely to be permitted to open new offices/branches.

All companies should have a board-approved business expansion programme for every financial year and submit the same to the IRDA before end-February of the preceding financial year.

While deciding the new locations, the long-term nature of insurance business should be kept in mind to avoid short-term presence of offices in new places, the regulator cautioned.

Closure of offices

Interestingly, the new norms have been mooted at a time when the private life insurance industry is facing tough times.

During 2010-11, while private life insurers closed 593 offices, Life Insurance Corporation opened 121 new offices.

As of March 2012, the total number of offices declined to 11,082 offices from 11,546 in the year-ago period. The number of non-life insurance offices was about 7,000.

When contacted, a top executive of a leading insurance company, with presence in life and non-life sectors, said there would no business viability in areas with less than one lakh population.

Even in the current context, many insurers have had to close offices in tier-II locations, he said.

The life insurance penetration in the country is about 5 per cent of the gross domestic product, while in the non-life segment it is 0.7 per cent, according to IRDA data.


Published on December 23, 2012

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