Euphoria vs Reality – Is the rural market really a gold mine?

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Key Takeaways

  • Insurance premium amount is subject to increment with an increase in the risk factor.
  • Customers can reduce such eventual increases by maintaining a low claims history, a good driving record and by avoiding lapses in insurance coverage.
  • It is beneficial to adopt an insurance plan at a young age to attract lower premium rates.
  • The lifestyle and location of the individual also impact the premium amount.
  • Medical inflation results in an increase in the premium rates prevailing in the insurance industry.

In our latest post of #PeopleOfInsurance, we are glad to welcome Orindam Sen, CEO of JK Insurance Brokers, to discuss the situation of insurance in the rural market and if it is rightly regarded as a gold mine for the insurance sector. 


Mr. Sen has been in the sector for over 22 years. He joined the newly privatized insurance arena in the year 2000, primarily, on the distribution side and was initially part of the very first broking company in India. 


With experience in the three major sides of insurance – rural insurance, commercial insurance, and reinsurance, Sen is the right person to offer an understanding of the role of insurance in the rural market. 


#PeopleOfInsurance is a platform where we share insights, opinions, and stories from people from the insurance industry – whether they have years of experience in this space or have just joined the industry.

Let’s get started.


Overview of the Indian rural insurance market


Although India is the second-most populated country in the world with a whopping 140 crore people, its insurance industry is yet to come of age. As per Swiss Re, the insurance regulator said that India ranks eleventh in the global insurance business, with a share of 1.72% in 2020.


Further, India’s life insurance penetration stood at 3% in 2021. This is due to nearly 65% of the country’s population falling under the untapped rural market. 


“It is virgin territory. It is still an unfulfilled wish, euphoria at best. It needs a few good years and some very good minds who believe it is a worthy market space to convert this untapped dream to reality.  It is nowhere close to where it could actually be.” 

Simply stated the low figures of overall insurance penetration and even lower than the national average in the rural market from a macro perspective speak out for a significant opportunity. 

To make the most of this unexplored territory, insurers need to focus on the products, the distribution system and the buying habit of the customers. 


What is the structure of the rural insurance market?


The current limited scope of rural insurance specially designed for the occupants of rural India comprises products such as crop insurance, livestock insurance, small personal accident insurance, bite-sized life insurance, bite-sized medical insurance, etc. However, many of these products are subsidized by the government.


According to IRDA, the definition of rural insurance must follow certain criteria such as the area where insurance is sold having a population of below 5000, a minimum of 75% of the male population engaged in farming activities, etc. 


The Government’s immense focus and support for crop insurance in the last few years has proven to be the biggest thing to hit the rural insurance scene in the past 7-8 years. India’s crop insurance program is the world’s largest with 25 million farmers insured.


How is it different from the urban market?


Insurance in India is treated as an urban affair. The rural and urban markets are strongly influenced by their respective social dynamics. 


“The priority list of rural population ranks savings and insurance after concerns such as shelter, agriculture, marriage, social commitments, health expenses etc.”


Owing to the lack of insurance education in the rural areas, people are still not familiar with insurance as a security in times of stress. This is because insurance distributors such as banks, agents brokers, CSCs etc do not find business viability around it as most of the programs are subsidized and the presence of the insurers is around such subsidized programs only. 


“Selling a product is not the only task. There needs to be infrastructure to service & support the product and this could happen if the insurers were to really  Leverage technology that can ease and expand insurance in this sector.


Is the rural market really a gold mine for insurance?


“There is still a long way to go to reach the point of profitability despite efforts from the insurer’s end to reach customers via common service centres, banking channels, etc.”


From a macro perspective, rural India is a vast field with immense opportunity. However, the dialogue surrounding rural insurance has still not progressed beyond this obvious fact. 


How to turn the rural sector into a viable business proposition remains as yet to be an unanswered question.


The insurance industry to be viable must be able to cover its claims and management expenses over the long run apart from making a reasonable profit for its shareholders. Since there is a perception that rural insurance shall yield very little or nil profit margins because of higher product distribution and servicing costs the insurers are hesitant to solicit these products. Pricing a product for this sector is a matter of deep concern and significant discussion.


A thorough effort to reach the rural sector with an actual, appropriate product is still missing because the purchasing behaviour of the rural citizens has been marred by and has grown around subsidies. 


Most participants of businesses in the rural market are also part of the value chain of the schemes that are provided by the government in some way. Independent effort to bring about serious change in the rural market is heavily lacking. 

Hence, seeing any early breakthroughs in achieving serious rural penetration is tough.


What can be improved and what should be done?


While designing focused products for the rural population is important, creating sustainable distribution channels which can also deliver post-sales services is even more important. Product + Availability+ Service is the ammunition that can really start a rural insurance revolution. To extract the potential of the rural sector, we need focused teams and organizations, driven by sustainable but reasonable profit who have the financial and mental strength to enter this market with a long-term commitment. 


“However if the premium subsidy is seen as the only successful approach to rural insurance then the rural masses will continue to only look to the state/central government for free bees and the distribution channels too will only wrap themselves around the subsidy gravy train and that is not a successful formula for market development.


While the apparent number of people insured in this sector is huge, most of them are on this map through subsidy programs and most insurance companies are happy to only operate around these subsidies. The government schemes of the past few years have benefitted the people. However, subsidies cannot be the permanent solution.

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