Rural Insurance – A Big Deal

By : Naren N. Joshi
Chief Representative
ING Insurance International B.V.
Date: 8th October, 2005
Venue: Rural Marketing Summit 2005
FICCI, Federation House, New Delhi

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 Rural Market: A Snap Shot
¾ 742 million people, largest potential market in the world

¾ Rural is bigger than urban

FMCGs 53%
Durables 59%
Source: NCAER, IMDR 2002
¾ Estimated annual size of the rural market
FMCG Rs 65,000 crore
Durables Rs 5,000 crore
Agri-inputs (incl tractors) Rs 45,000 crore (1 crore = 10 million)
2 / 4 Wheelers Rs 8,000 crore
Total Rs1,23,000 crore Source: Francis Kanoi, 2002

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 Rural Market: A Snap Shot
¾ Some impressive facts about the rural sector
y In 2003-04, LIC sold 62 lakh policies in rural India (about 50% )

y Of two million BSNL mobile connections, 50 % in small towns/villages

y Billing per mobile in small towns in A P is higher than in Hyderabad

y The 41 million Kisan Credit Cards (KCC) issued in rural exceed the 40
million credit-plus-debit cards issued in urban.
y Of 20 million Rediffmail signups, 60 % are from small towns. Similarly the
1,00,000 who have transacted on Rediff online shopping site, 50 per cent are
from small towns

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 Changing Rural Aspirations
¾ Changing lifestyle – restraint to release philosophy among youth
¾ Youth and women are the demand generators
¾ Buy value for money, not cheap products (branded consumption in
FMCGs accounts for 80% of sale, brands could be national or regional)
Source: ORG-MARG
¾ Land and gold (traditional symbols of security) being replaced with
modern financial savings instruments

1999-00 Urban Rural (million HHs)

Investments made 6.23 6.18

Of these, New Investors 2.53 (40%) 5.13 (80%) Source: NCAER

For marketers this means money liquidity and access to formal funds by rural
customers for purchase of high ticket items
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 Rural Markets : Macro Scenario
All figures in %
Consumer Class Income Groups 1994-95 2006-07
Very Rich Above Rs 215,000 1.6 5.6
Consuming Class Rs 45001-215,000 2.7 5.8
Climbers Rs 22,001-45,000 8.3 22.4
Aspirants Rs 16,001-22,000 26.0 44.6
Destitutes Rs 16,000 & below 61.4 20.2
Total 100.0 100.0

Projections based on 7.2% GDP growth Source : NCAER

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India- Rural Market Opportunities & Challenges
Opportunities
• The rural market in India constitutes 740+ million people, and is by far
the largest potential market in the world
• Rural annual household income averages Rs.56,630 with high savings
rates
• Changing rural aspirations in consumption patterns and lifestyle
unfolds opportunities for rural marketing
• Literacy levels are rising steadily
• IT has made significant in-roads

Challenges
• Lack of understanding of rural customers and data
• Poor infrastructure

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 Rural Insurance Research
ƒ FORTE- A collaboration between FICCI and ING
Insurance, has conducted two research studies to understand
the realities of the rural insurance market space
ƒ Macro Level Study – conducted through MART
“Rural Insurance : Issues, Challenges & Opportunities”
ƒ Micro Level Study – conducted through James Martin & Co
“Developing a Rural Distribution Strategy for Insurers”

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 Macro Study

Objectives of the Research

ƒ Understand rural customers’ current knowledge,
attitudes and practices regarding savings, loans and
insurance
ƒ Identify existing factors, if any, prohibiting the
purchase of insurance policies
ƒ Profile potential rural customer segments in terms of
attitudes, behavior and demographics
ƒ Develop a broad, cost effective distribution strategy

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 Macro Study

Key Findings of the Research

ƒ Rural sector offers a huge business opportunity for insurance
companies
ƒ Savings ratio is a healthy 30% of income across all socio
economic segments
ƒ Awareness about Life Insurance is near universal
ƒ 27% of CWEs already have a life policy
ƒ 51% of all respondents have expressed intention to purchase a
life policy
ƒ There are a total of 124 million rural households
ƒ Nearly 20% of all farmers in rural India own a Kissan Credit
Cards. The 23 million credit cards issued till date offer a huge
data base and opportunity for insurance.

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 Macro Study

Key Findings of the Research (contd.)

ƒ Delivery infrastructure in the form of District Cooperative
Banks, Cooperative Societies, NGO’s and Self Help
Groups already exists in most villages.
ƒ Rural connectivity through IT.
ƒ E-choupal of ITC and other similar initiatives are available
as additional delivery channels of insurance
ƒ An extensive rural agent network for sale of Life insurance
products exists
ƒ The agent plays a major role in creating awareness,
motivating purchase and rendering other insurance services

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 Macro Study

Key Findings of the Research (contd.)

ƒ 78% of respondents prefer various combinations of life
insurance like life + accident, life + loan, life + health +
accident.
ƒ Flexibility in Premium payments is important.
ƒ Security of income and bulk returns, especially for daughter’s
marriage and children’s education are major persuasions for
taking life policy.
ƒ While individuals are undecided about purchasing insurance
from private players, members of different groups are favorably
disposed to purchasing group insurance through a private player
vetted by the group… Herd mentality…Safety in numbers.

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 Macro Study

Complementary Delivery Systems

Name of the institution/ Accessibility/ coverage of each Rural presence/
instrument branch penetration
Regional Rural Bank 15-20 villages 5000+ pop size village
Commercial bank (Rural 5000 account holders spread 5000+ pop size village
Branch) over (35-40 villages)
Post office 5-6 villages 2000+ pop size village
Cooperative society 10,000 members spread over 20- 5000+ pop size village
25 villages
*ITC E choupal 5 to 7 villages Prosperous village
District cooperative bank 7500 accounts Block head quarter
Kissan Credit Card 20% of total no. of farmers in Farmer of any village
rural area

* E-choupals manned by a “Sanchalak” provided with computer and internet connectivity for
procurement of agri produce and giving information on variety of services to villagers.

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Micro Research Study

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 Micro Study

Study Phase
• Develop a comprehensive description of available channels
and their delivery capabilities in the context of rural
insurance potentials
• Identify and understand the concerns of insurers and their
strategies for facing the challenges that rural market presents
• Develop an Evaluation Framework as a basis for selection,
design and operationalisation of distribution channels
• Primary research in the Muzaffarnagar District of UP for the
feasibility of each available channel applying evaluation
criteria
• Develop an activity based cost model to profitably
operationalise the feasible channels

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 Micro Study

District Muzaffarnagar - Span of a Block

District 1
Per Block
Tehsils 5
Blocks 14 8
Panchayats 112 74
Villages 1031
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 Micro Study

Available Channels
Distribution Channels
Banks
Cooperatives Evaluation Criteria

Panchayats
Reach Feasible Channels
Agents
Influence on target segment Coop Banks
Post Offices Trust & reliability Cooperatives
Cybermediaries Business acquisition capability
Panchayats
Industrial Fin Support requirements
Inst. Financial transaction handling Agents
Eco Exchange Pts Operational discipline
Customer servicing
Brokers
NGO’s &
SHG’s

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 Microinsurance – another way forward
• Group insurance to SHG’s /Federation of SHG’s
• Individual small ticket size policies through NGO’s &
SHG’s
Support : Appropriate training inputs & integrate
with them for outsourcing some functions
• Challenges:
– Pricing, cost effective distribution & delivery,
operational linkages, grievance redressal / claim
settlement touch points etc.

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 Take Away
• The rural market offers tremendous growth opportunities for
insurance companies but their success will depend upon their
ability to:
– Develop viable, cost effective & customer friendly distribution
channels
– Develop appropriate products
– Build consumer awareness and confidence

• ING Vysya Life is one of the few private insurance companies

highly committed to the rural insurance market in India . In
fact, it is currently running a pilot project in East Godavari
District of Andhra Pradesh to fine tune its rural penetration
strategy.
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