Enhancing Insurance Penetration in Rural Markets: Opportunity and Challenges

26th India Fellowship Seminar 15th December 2016 How to enhance insurance penetration in rural market - Opportunity and Challenges Presenters: Garima Gupta Parul Priyam Saurabh Agrawal Guide: Mr. Suresh N Sindhi Indian Actuarial Profession Serving the Cause of Public Interest

Agenda Background Types of Rural Insurance Indian Insurance Snapshot Insurance schemes for Rural sector Regulations related to Rural insurance Opportunities and Challenges How to enhance penetration Summary 2

Background (1) Rural is Crop Farmers Cattle Less medical facilities Kuchcha houses Low earning occupation 3

Background (2) The National Sample Survey Organisation (NSSO) defines Rural as follows: An area with a population density of up to 400 per square kilometer, Villages with clear surveyed boundaries but no municipal board, A minimum of 75% of male working population involved in agriculture and allied activities. RBI defines rural areas as those areas with a population of less than 49,000 (tier -3 to tier-6 cities) At present : Rural Population % 85% Rural Urban 80% 90% 76.6% 74.3% 80% 72.2% 68.8% 75% 70% 60% 50% 70% 40% 31.2% 27.8% 25.7% 30% 23.4% 65% 67.3% in 2015 20% 10% 60% 0% 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 1981 1991 2001 2011 Source: World Bank data Source: GOI, Census of India 4

Indian Insurance Snapshot Insurance Penetration* (%) 5.2 5.1 4.8 4.7 4.6 4.1 3.96 3.9 3.3 3.17 3.14 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 * Insurance Penetration measured as a percentage of insurance premium to GDP Insurance Density** (USD) 11.23 Gross Premium Written (USD billion) 10.23 10.38 10.35 8.6 80 10 13.9 6.8 11 6.4 60 6.09 8 13 12 7 5.13 7 4.14 40 3.57 6 64 61.78 60 56 5 52 52 50 48 4 20 34 24 19 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Life Non-life * *Insurance density measured as a ratio of insurance premium to total population Source: IRDAI report, 2011 census report 5 www.actuariesindia.org

Rural Insurance - Types In Rural sector, insurance can specifically cover : 1. People Life cover, health cover, accidental cover 2. Livestock, e.g. cattle, sheep, goat, etc. 3. Plantation and horticultural crops, e.g. rubber, grapes 4. Sub-animals e.g., silkworm and honeybee 5. Property e.g. agricultural pump sets, etc. www.actuariesindia.org 6

Life Insurance Facts & Figures: 833 million people in rural area (only 3% insured) 19% of India s total GDP comes from rural India 75% of rural India survives on Rs 33 per day giving lower premium paying capacity and risk appetite Only 4.6% rural households pay income tax Challenge: Low income, absence of need based products together with thinly spread & inadequately qualified distribution channel is the main hindrance to the growth of rural insurance. Source: Life Insurance Market : Rural India Connect ( Paper by Aditya Kumar Gupta) www.actuariesindia.org 7

Livestock Insurance Facts & Figures: Number of rural households 195.60 million Households owning cattle 104.52 million 512 million livestock according to 2012 census 26% livestock contribution to agricultural GDP Challenge: Different breeds of livestock holdings having varying susceptibility to diseases but no customised product offerings result in lower penetration Source: Livestock in India diversification for rural development- Swiss Re Publication www.actuariesindia.org 8

Crop Insurance Facts & Figures: 195.26 million hectare gross cropped land in 2014 22 42.82 million hectare covered under crop insurance 2013-14 average Sum Insured per hectare under then national insurance scheme was Rs.18,464 Average Gross value output (GVO) worked out in 2013-14 was Rs. 47,160 per hectare 78 Challenge: Sum Insured much below GVO and claim proportionate on overall production in area was one of major reasons for low penetration Source: http://indianexpress.com/article/india/india-news-india/some-assurance-how-new-crop-insurance-scheme-can-be-a-game-changer/ www.actuariesindia.org 9

Insurance schemes for Rural sector Pradhan Mantri Fasal Bima Yojna (by Central Govt) Gram Santhosh Rural Postal Life Insurance Scheme by India Post Pashudhan Bima Yojana from State Govt (by Haryana Govt) Rashtryia Swasthya Bima Yojna (by Central Govt) Rajrajeshwari mahila kalyan Bima Yojna Kissan package policy Package insurance for tribals Fish ponds (embankments) insurance www.actuariesindia.org 10

IRDA Regulation Every insurer, who begins to carry on insurance business after the commencement of the IRDA Act, 1999 (41 of 1999), shall, for the purposes of sections 32B and 32C of the Act, ensure that he undertakes the following obligations, during the first five financial years, pertaining to the persons in rural sector - Life Insurer General Insurer Financial Year % of total policies written direct in that year Financial Year % of total gross premium income written direct in that year 1st 2% 1st 7% 2nd 9% 2nd 3% 3rd 12% 3rd and above 5% 4th 14% 5th 16% 6th & 7th 18% 8th & 9th 19% 10th to 15th 20% 16th and above 25% www.actuariesindia.org 11

Rural population - Opportunities Rural sector offers a huge business opportunity for insurance companies - Size of the market : Largely untapped, lesser competition - Specific needs of Rural areas - o Safety of crops, Livestock o Key person/asset dependency, o Agricultural vehicles - Distribution infrastructure - District Co-op Banks, Co-op Societies, NGOs, CSCs* - Increasing media coverage - Improving Infrastructure/IT penetration improving www.actuariesindia.org 12 * Common Service Centers

Opportunities (1) Size of the market Nearly 70% of India s population still resides in rural areas Accounts for roughly 26% of India s GDP Insurance penetration rates really low implying strong potential for expansion Diverse customers spread through 638,635 villages across the states and union territories of India present a great untapped opportunity 512 million livestock according to 2012 census Purchasing power parity of the rural population is steadily growing www.actuariesindia.org 13

Opportunities (2) Specific features Dependence on Agriculture - Higher need for safety of crops, livestock from extreme weather conditions such as: o Untimely rain/floods o Drought o Bush fire o Hailstorm - Need to insure farm vehicles Asset/ key person dependency usually rural families are family financially dependent on one key earning member and hence life/health insurance important Strong habit of saving several studies show that an average rural household saves about one third of their incomes Greater need for health insurance products - Level of healthcare in rural areas is substantially low. Low supply of hospital beds, doctors and other facilities. Seasonal income majority involved in farming www.actuariesindia.org 14

Opportunities (3) Distribution Tie-ups with Gramin banks, postal services Extensive network and coverage in rural areas offered by - Rural development agencies - cooperative institutions - NGO s - microfinance institutions - Industrial houses - Healthcare providers (e.g. veterinary clinics) Ongoing IT and Telecom revolution has not bypassed the rural sector there are channels like E-Choupal which is being used by rural farmers for procurement of agriculture products Increasing media coverage Government initiatives like Digital India - About 140,000 CSCs are functioning under different names in different states. www.actuariesindia.org 15

Rural Insurance Challenges (1) Education / Mindset - less understanding of own needs and rights, Savings vs Risk coverage, Government vs Private, Simple vs Complex Low net disposable income -affects their affordability Preference of expenditure -Weddings, Pilgrimages, Constructions Low Level of Literacy / awareness low level of financial sophistication Inadequate Media Coverage lower access to developments, advertisements Many Languages difficulties in communication Records / Documents unavailability of KYC documents Infrastructure Electricity, water, roads, transportation www.actuariesindia.org 16

Rural Insurance Challenges (2) Areas Education, mindset, awareness, literacy Key Challenges Comments - Perception about insurance not required . Less of need based products Lack of proactive consumer outreach from distributors - More focus on savings. - Can t access to all the features / prices available e.g. online plans Rural thinking is changing rapidly with time Income - Low income groups - High levels of seasonal unemployment Small case sizes and high expenses make product unprofitable Difficulty in explaining key features or understanding needs Inadequately qualified distribution channel Communication / languages Betterment in comm / distribution e.g. CSC Difficulties in - - Reaching, Setting up offices, getting agents/channels Rapid improvements in infrastructure underway Infrastructure, transportation, facilities - Connection between customers/agents/employees www.actuariesindia.org 17

How to enhance penetration? Need based products : Simple features, better match to needs Seamless services flexibility in premium payments, simplified claim settlement Enhanced distribution capabilities Proactive agents, advertisements, local people, local banks, CSC Education / Training Promote the importance/need of insurance Higher engagement with local people and organizations, government provide assistance in government initiatives e.g. digital India Establish brand value focus should not be just on LIC www.actuariesindia.org 18

Summary Rural sector is significantly larger in India with almost 70% of population living in rural areas. Despite of numerous Government insurance schemes and prescribed regulations, the rural insurance penetration is still low. There are plenty of opportunities for insurance in rural sector mainly because of specific needs and untapped market. There are also many challenges causing hindrance in progress such as low levels of education, awareness. With constantly improving policies of Government and evolving practices of insurers, the future of rural insurance seems bright! 19