Monday, July 23, 2018

Ways To Increase Insurance Penetration In India

When we talk of insurance in India, we talk about the insurance penetration in India, not specifically the urban or rural areas but India as a whole. The insurance penetration in India is pretty low when compared with other countries – just 3.49% (global insurance penetration rate is 6.28%). Some of the emerging economies of Asia, such as Malaysia (4.77%), Thailand (5.42%) and China (4.77%) have higher insurance penetration than India.

The rural India represents around 70% of the population of India and the Government of India has introduced a number of insurance and social security schemes for the people of the vulnerable sector. These schemes provide insurance cover at a cost of a nominal premium –

  •   Pradhan Mantri Suraksha Bima Yojana
  •  Pradhan Mantri Jeevan Jyoti Bima Yojana
  •  Pradhan Mantri Jan Dhan Yojana
  •  Aam Admi Bima Yojana
  •  National Health Protection Scheme (Ayushman Bharat Scheme) – Not out yet.

For most rural Indians, access to clean drinking water, children's marriage and shelter is higher on their list of priorities than a phenomenon called 'insurance'. Most remain unconvinced of insurance benefits. Unsurprisingly, penetration rates remain low.

Status of Insurance in Rural India

The market size in the rural areas are smaller in comparison to the urban regions. Lower population is a hindrance to the growth of insurance companies in the rural areas in India. During 2015-16, the number of lives covered under the Health Insurance policies was 36 crore, which is approx. 30% of total population of India. Every subsequent year, this number has seen an increase (around 28.80 crore people had the insurance policy in the last fiscal). The life insurance industry recorded a new premium income of over Rs. 1.87 trillion during June 2016 to May 2017 period. In April-November 2016, the life insurance industry saw a 9 % increase in overall annual premium.

The insurance sector in India saw over 10 M&A (merger and acquisition) deals in 2017 that were worth US$ 903 million. In 2017-18, enrolments under the PMSBY (Pradhan Mantri Suraksha Bima Yojana) reached 130.41 million while the National Health Protection Scheme was announced by the government under Budget 2018-19 as a part of Ayushman Bharat. The mentioned schemes are reported to provide an insurance cover of over Rs 500,000 to more than 100 million vulnerable families in the country.

According to news publisher Asian Age, the central government is not happy with the slow progress and poor feedback of the three financial inclusion schemes under the Gram Swaraj Abhiyan (GSA) of Narendra Modi government – PMJDY, PMSBY and PMJJY, which is why it has directed the state run-insurance companies and banks to station their top-level executives and make sure the targets under these schemes are achieved.

The banks and insurance companies have been directed to send their regional and zonal heads as well as banking correspondents on field visits to ensure targets are achieved.
Also, under the recent IRDAI Regulations, all insurance companies, which are transacting non-life insurance business, have been asked to underwrite business in the rural sector of at least 2% of total gross premium in the first financial year while in the second financial year, they have to underwrite business of atleast 3%. Further, they have to underwrite 5% of total gross premium in the third and the further financial years.

What can be done?

Here are some of the recommendations I have:
ü  To be successful in selling their products, an insurance company must have quality people, innovative management, be able to employ technology effectively, besides having the right products and distribution channels.
ü  A report published by the Insurance Information Bureau[1] revealed that there is a direct correlation between banking inclusion and insurance penetration. Adoption rates of digital payments in rural India indicates that the potential for disruption in the insurance industry by going digital is high.
ü  Financial literacy is one of the key drivers for penetration of insurance. The National Institute of Security’s market report on financial literacy shows a clear gap between urban and rural levels of literacy and knowledge of insurance products in specific. It means that the people living in urban areas had more knowledge about insurance products in comparison to people living in rural areas and to remove this gap, it is important to hold meetings and workshops in rural areas. Further, TV ads and newspapers can help for this purpose.
ü  People living in rural areas require trust the most. They have very limited trust in insurers but if the insurance companies get local people to work as their agents, the level of trust as well as insurance penetration can increase in rural areas.
ü  Rural and urban customers alike would appreciate total clarity[2] in enumeration of products’ benefits, and use of normal language in place of legalese for in policy wording. Hence, it is amply clear that application and claim processes need to be streamlined to achieve predictable outcomes.
ü  The use of CSCs (Common Service Center) is important for increasing sale of policies in the rural India. IT Minister Ravi Shankar Prasad said recently that the network of Common Service Centres (CSCs) will be expanded to 2.5 lakh gram panchayats by the end of this year. Here’s some information on what CSCs are doing and how successful they are – link.
ü  App like the mobile app brought by recently can also help in the growth of insurance in rural India. A white paper, released by InsuringIndia, underlined that 25% of the online insurance demand of the country comes from Tier V cities (which has less than 5 lakh population). The penetration of insurance in India is bound to increase if similar apps are introduced by the insurance companies.
ü  Video vans can be used in rural areas for publicity of insurance products and government schemes. A single video van can cover 2 /3 villages in a day to cover up to 22 to 78 villages in one route cycle of 26 operating days. These rural publicity vans can reach the target segment and has his/her undivided attention. Also, this provides an opportunity for 2 way communications. An opportunity to make the consumer understand the product and influence him positively to buy it. Further, they can be used for promotions.
ü  For several years, Nukkad Naatak has been used to bring up the adversities of the society but it can also be used to bring awareness among the rural population about insurance. It can also be used by the insurance companies to promote insurance products.
ü  I would like to add what Director General of CII, Chandrajit Banerjee, said “All stakeholders – the industry, intermediaries, government and regulator need to work together in transforming customer experience.”

At last, if you have any suggestions, please do comment! Looking forward to read your recommendations.

[1] Source: Rural Marketing – Tech Disruptions in Rural India to drive Growth in Insurance Sector
[2] CII-PWC Report, Rural Marketing blog

Nishtha Singh

PGDM [Insurance Business Management]

2017-19 Batch, BIMTECH