Effective strategies to increase insurance coverage among rural and low-income households in India

1. Indian Insurance Industry: Strategies Aimed at the Bottom of the
Pyramid
J. Ashok Antony∗, Nandita Mukherjee
Prudential Process Management Services (a subsidiary of Prudential Plc, UK),
Published in Pravartak Volume II, Issue 4 l July-September 2007
Overview
Developing economies of Asia, Eastern Europe and Latin America are emerging as
the growth engines for MNC life insurers. Compared to developed economies, these
emerging economies have a large uninsured low-income/rural population, which
requires a different product-distribution mix to be a sustainable business model. This
segment of the population referred to as the “bottom of the pyramid” by C.K.Prahlad,
holds a major potential for life insurers.
The case of India
India’s economic growth at 9.4 per cent in 2006-2007, makes it a likely candidate
joins a select club of trillion-dollar economies. However this economic boom has to
be sustained growth has to trickle down and impact the bottom of the pyramid.
According to the Indian Prime Minister ‘an inclusive approach would ensure that the
prosperity of economic growth is distributed to the grassroots level rather than
creating cesspools of prosperity. An improved purchasing power at the bottom of the
pyramid will give an upward push in the demand for goods and services and act as the
power engine for the economy.1’ Thus the concept of micro-finance – micro-credit,
micro-insurance and micro-pensions gains relevance in India.
India, with a life insurance penetration (premium as a % of GDP) of only around
2.5% covering only 25% of the total households, serves as an ideal example as a
market with a larger proportion of the population in the bottom of the pyramid. With
70% of the population living in rural and semi-urban areas and a large portion of the
labour force still dependent on agriculture, this target segment requires an innovative
as well as a low-cost product-delivery mechanism to create a profitable business
model.
∗
Written in a personal capacity and the views expressed here are the authors own, not those of the Prudential Plc or its member
companies.

2. In the April-September 2006 period, life insurers covered 6 million lives in the
social/rural sector with a premium income of Rs.23.4 billion (USD 530 million)
comprising just 8% of the total insurance premiums written during the period. Micro
insurance, which has a market according to a study by UNDP, is USD 342 million –
448 million, will enable insurers to tap the 90% of the India’s population or 950
million people who are uninsured2.
Regulatory push also provides the necessary impetus for increasing insurance
coverage among rural and low-income households. IRDA has been pushing insurers
to increase their rural and social obligations. The Insurance regulatory development
Authority has specified that certain percentage of policies written by insurers should
cover exclusively the rural and weaker sections of the population. Insurance
companies are required to sell 7 per cent of their policies in rural areas in their first
financial year which goes up to 10 percent in the tenth financial year. Similarly for the
social sector, insurers are required to covers 5000 lives in the first year which goes
upto 55000 lives in their tenth financial year. LIC has to cover 2 million lives between
2006 and 2010 and is required to write 25% of its policies in rural areas in 2009-
20103.
Simple and Easy Products
Indian Public insurer, LIC has been targeting the rural customers through
microinsurance. For LIC simplicity of the products hold the key as simple and easily
understandable products like protection products with affordable pricing are essential
to tap the bottom of the pyramid customers. LIC’s micro-insurance product Jeevan
Madhur, a modest savings linked life insurance product, launched in September 2006
has covered more than 80,000 under-privileged people with coverage of Rs 110 crore
(USD 25 million).
Major private players including ICICI Prudential, Bajaj Allianz, and Aviva have been
actively targeting rural/semi-urban market for their life insurance products and more
companies like SBI life are foraying into micro-insurance. Bajaj Allianz with 900
1
Business Line, July 11, 2007
2
United Nations , Mare Socquetl, 2005. ILO / STEP, Microinsurance Workshop, October, Hyderabad,
3
Business Line, June 06, 2007

3. offices in India mainly in smaller towns offers “Samraksha”, a single premium term
assurance policy for Rs 75, offering a life cover of Rs 10,000 for a 10-year term.
ICICI Prudential has issued more than 0.5 million policies targeting the rural and
social sector since its inception. The company also offers “Suraksha “and “Suraksha
Kavach” targeting rural consumers. Aviva offers “Credit Plus” for BASIX, a micro
financial institution and hopes to cover one million micro insurance lives by 2008.
Distribution holds the key
Reaching the semi-urban/rural customers in a cost-effective way is critical as
distribution of rural insurance products through an entirely agent led model is not
sustainable due to the high commission fees. Banks and rural agencies/co-operatives
play a major role here. In addition to having a well-established rural distribution
network, these channels are also viewed by the target customers as reliable.
LIC has tie-ups with specified Micro Insurance Agencies like Confederation of NGOs
of Rural India (CNRI) which has over 800 NGOs across the country involved in
microinsurance.
Major private insurers have rural tie-ups to drive penetration of their insurance
products. Bajaj Allianz has partnered with seven regional rural banks sponsored by
Syndicate Bank to tap the rural market. Bajaj Allianz has 18% of agents rural based
(vs. 11% among private insurers). Bajaj Allianz has also teamed up with humanitarian
agency Care International to launch micro-insurance venture. Bajaj Allianz in
association with the German Agency for Technical Cooperation (GTZ), the United
Nations Development Program (UNDP), and other NGOs has sold life insurance to
around 80,000 people. ICICI Prudential has a tie-up with over 200 micro finance
institutions and NGOs across the country and with ten regional rural banks of Bank of
India covering nearly 1,000 branches across semi-urban and rural areas. Aviva has
bancassurance tie-ups with more than 20 co-operative banks across the country. ING
Life is considering tie-up with India Post, the largest postal network in the world, for
a foray into micro-insurance business. Companies, like Birla-Sunlife, which had
initially focussed on higher premiums per policy, are beginning to tap the rural
segment. Birla-Sunlife has tied up with NGOs including Dhan Foundation,

4. MYRADA, Pradan, Prayas and micro finance agencies like Spandana and Cashpor to
target the expanding rural market.
In case of micro-pensions, UTI Mutual Funds initiative on micro pensions has been
fairly successful due to its tie-up with various co-operative agencies like SEWA
Ahmedabad, Bihar State Co-operative Milk Producers Federation among others. UTI
has also taken this scheme overseas and is offering the scheme to NRIs in UAE in tie-
up with UAE Exchange.
Marketing Communication
Companies also follow a follow a different approach when communicating to rural
consumers. Unlike high profile advertising campaigns targeting urban customers,
marketing communication in rural areas use simple vernacular language to convey the
need for insurance as well as create awareness by using films, posters and wall
paintings.
Tata AIG Life has special films to spread awareness of its micro insurance products in
rural India. The company also uses its mobile vans to reach out to people and creates
awareness through paintings and posters.
Outlook
LIC has 60% of its agency force in rural India and with active initiatives by private
players who are aggressively promoting their products in rural areas, insurance
penetration is set to increase with a larger proportion of the population getting life
cover. However, the scalability of rural insurance operations and the success of
products targeted at these segments will determine the future growth of life insurance
in the bottom of the pyramid. Further according to Prahlad, investments targeting the
bottom of the pyramid help in generating employment, bringing people out of poverty
thereby bridging the urban-rural divide in emerging markets like India.