Can we make insurance inclusive?

The financial sector industry has been shaken by the Saradha ponzi scam in West Bengal. It has, in particular, been viewed as a setback for the financial sector in the rural areas. There is, indeed, evidence that it is the lack of adequate regulation and consumer protection which led to the scam.

In this context, it would be relevant to look at promoting life insurance, which can be relied upon by the country’s rural population as a reasonable source of both protecting themselves as well as investing their life savings in a safe financial instrument. It is, moreover, an industry with a proper regulator — the Insurance Regulatory and Development Authority.

Low penetration

Currently, life insurance premium payments account for only 4 per cent of India’s GDP. Until the late 1990s, the state-owned Life Insurance Corporation of India (LIC) was the only provider. The entry of new players since then has brought down its share from 100 to about 74 per cent.

But despite that, a survey conducted by a brand asset valuator firm to understand consumer perception regarding brands in the life insurance sector, revealed LIC to be ahead of other brands in terms of differentiation (reason to stand out), relevance (reason to be adopted in consumers’ lives), esteem (regard and loyalty) and knowledge (awareness and saliency).

While others such as SBI Life and Birla Sun Life were also found to have created a strong impression, the fact is that competitor brands need to come up with more innovative strategies to position themselves better in the country’s under-penetrated life insurance market.

Rural engine

It is in this context that it is relevant to note that a little more half of India’s GDP still comes from rural areas, even though urban centres have become the engines of economic growth.

At the same time, programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) have had significant impact on rural wages and incomes. In fact, the last five years have seen the highest ever increases in real wages, partly on account of the MGNREGS.

A study on rural markets undertaken by the consultancy firm Accenture has shown the increase in per capita expenditure in rural markets (19.2 per cent) to have surpassed that in urban markets (17.25 per cent) over 2009-12. The study has also pointed to consumption in rural areas shifting from necessities to discretionary goods and lifestyle products such as mobile phones, TV sets and two-wheelers.

Thus, nearly 42 per cent of rural households were now seen to own a TV set, as against 26 per cent only five years earlier. Similarly, 14 per cent of rural households had a two-wheeler in 2009-10, which was twice the penetration in 2004-05. Moreover, one in every two rural households today has a mobile phone — that includes even poorer States like Bihar and Odisha — with premium products replacing entry-level versions and commodities giving way to branded products.

Also, given that rural markets made up more than a fifth of the total revenues for more than 65 per cent of the 109 large and mid-sized firms (both domestic and multinationals) surveyed by Accenture, it is logical that companies should be looking to expand their footprint further in rural areas (incidentally, insurance companies constituted 7 per cent of the Accenture sample).

Currently, insurance products coverage extends to only 47 per cent of India’s urban population, while it is even more dismal, at 27 per cent, in rural areas. Given this distinct urban bias, it is time the insurance industry looks at rural markets as a massive opportunity.

However, the costs involved in serving the rural market pose major challenges. They include the cost of recruiting partners, attracting and retaining competent sales force, and also building an after-sales network. Lack of physical infrastructure is, of course, another problem.

Road ahead

Critical to addressing the rural market is listening to consumers and building relationships to earn their trust. It is important to realise that rural consumers are different from urban consumers and have different needs to be addressed.

LIC has devised a number of ‘innovative’ products aimed at the rural clientele. In 2002, Aviva and RSA joined hands with the community-based microfinance institution, Basix, to increase insurance penetration in rural India. The partnership basically envisaged selling insurance products at the doorsteps of the rural population at affordable cost through Basix’s branch network.

While not much is known about the success of such initiatives, it is also a fact that no life insurance programme has gone bust! Providing the rural population with adequate financial cover against death at a reasonable cost would be the key outcome measure against which to determine the success of these ventures. The foremost idea here is to spread awareness and the importance of having to provide for unforeseen contingencies.

If insurance companies are successful in spreading the above awareness among the rural population — on the existence of risks that need to be accounted for in their financial planning — it would be possible for them to grow in a socially more inclusive manner.

(The authors are with the Public Affairs Centre, Bangalore and Birla Sun Life Insurance, respectively. Views expressed are personal).

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