A Study on Rural Insurance in IDBI
By – Devanshu Divya
Roll no. 2012105
IMT-Nagpur
Company Guide Faculty
GuideC.Shanthi Prof. Hanish
Rajpal
Asst Branch Head.
IMT, Nagpur
IDBI Federal Life
Date 14-06-2013
1
AcknowledgementI would like to express my sincere gratitude to my company
guide Mrs. C. Shanthi Yagyanath, Asst Branch Head, IDBI
Federal Life Insurance Co. Ltd., Coimbatore for guiding and
helping me complete my Project Report. Her encouragement, time
and effort are greatly appreciated.
I would then like to thank my faculty guide, Prof. Hanish
Rajpal, for all his valuable inputs and constant support
towards me and providing me an opportunity to learn outside
the class room. Till now, it has been a truly wonderful
learning experience.
I would like to thank all my friends who are doing their SIP
from IDBI Federal Life Insurance Co. Ltd. for their valuable
suggestions and support. Last but not the least I would like
to thank all the respondents who are offering their opinions
and suggestions and sometimes critical views, which is helping
me to constantly update myself and come out with a successful
project report.
Devanshu Divya
2
Table of ContentsS. No. Title Page no.
1. Executive summary 4-6
2. Introduction 7-18
3 Objective of the study 19
4 Description of model studied 20-21
5 IDBI profile 22-24
3
6 Research Methodology 25-27
7 Tabulation and Results 28-40
8 Interpretations and conclusion 28-40
9 Recommendations 41-45
10 Limitation of study 46
11 Scope for future improvements 47-48
12 Bibliography 49
Executive summary IDBI Federal entered into Microinsurance as a condition for
acquiring a license to sell insurance in India. Unlike many
other insurance companies, IDBI Federal immediately saw the
benefits of microinsurance. These included fulfilment of
corporate social responsibility; use of the microinsurance to
get the brand into a new market (today’s micro clients may be
tomorrow’s high premium clients); and as a means of developing
a good relationship with the Indian insurance regulator. The
Insurance Regulatory and Development Authority (IRDA) feels
strongly about the importance of microinsurance and the need
4
for private insurers to play a role in serving the rural and
social sectors. Company realised that microinsurance would
require innovative thinking because insurance products for
low-income households was not just normal insurance with lower
premiums and benefits. In particular, company also realised
that selling micro insurance would require a new distribution
mechanism.
Rural market of India is one of the most unexplored markets so
far. A huge customer base of rural market is opening new
dimensions of marketing. IDBI has also entered into rural
market with insurance coverage named Microsurance. This plan
is extremely useful to Micro Finance Institutions, Self Help
Groups and NGOs to insure the lives of their group members and
thus provide security to the group members’ families. The plan
can also be used for providing loan protection to the group
members’ families. This project will aim to gather more
information about rural market and try to find new insurance
plan. Also a SWOT analysis can be done for IDBI in rural
market. An attempt for better plan for rural market can also
be developed or some significant changes can be bought in
rural insurance sector.
First we discuss the roadmap how we are exploring market for
IDBI here. The objective of the study is decided and it
followed up by research. A proper research design is farmed
for it and research methodology is followed up. The research
methodology followed here is survey method. The survey is
conducted by the help of questionnaire; this survey is
conducted in villages nearby to Patna and in Hindi language.
5
Later the questionnaire is updated in English to carry out the
analysis part. The analysis will include key findings about
insurance in rural sector and answers to objectives targeted.
The distribution costs, product designing to the needs of the
rural people, the viability of opening offices in rural areas
are preventing major life insurance companies to opt out of
this market. In this thesis an effort is made to study the
rural life insurance market and try to identify the major
factors inhibiting the insurance companies leading to ignore
this market. The techniques that are being adopted by the top
5 insurance companies in the rural market , the limitations of
their techniques and specific recommendations of marketing
techniques for wide spread insurance coverage etc are
discussed. The study is based on the analysis of the data
collected from at least 200 individual policy holders having
insurance policies in one or more number of insurance
companies and also from two hundred agents.
Rural India is where the next ‘big’ opportunity is. Indian
rural market constitutes approximately 72% of total Indian
population even as of date. The diverse customers spread
through 638,635 villages across the states and union
territories of India present a great untapped opportunity.
More than half of the Indian population residing in these
areas has seasonal income while the other part of the
population draws irregular income.
Majority of rural population is involved in farming sector
either directly or indirectly (farming, marginal farming, and
marginal land labourers etc.) and the balance of the large
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population comprises of skilled labourers; artisans which
includes carpenters, masons etc.; and small scale shop owners
Looking at the spending pattern in Rural India, there is an
immense scope for financial services, including insurance
services.
Financial services providers like banks, mutual funds, Life &
Non-Life insurers, card distributors, chit funds are
aggressively looking at rural India for high growth rates.
Several research reports state that by 2020 India is poised to
have largest youth population in the world and as we all know,
much of it will be from the rural hinterland of India.
At present major players in the Indian insurance market are
Life Insurance Corporation of India, Bajaj Allianz, ICICI
Prudential, IDBI federal life insurance HDFC Standard, SBI
Life under life insurance segments and New India, National
7
Insurance, Oriental, United India, ICICI Lombard under non-
life insurance segments etc.
In the year 2000 when the insurance regulator came into being
and the sector was opened up for private sector participation,
the insurance penetration (total premium as a percentage of
GDP) in India was just 2.1 per cent and the coverage was
largely concentrated among the well-off. The Authority, which
has been vested with developmental responsibilities apart from
its regulatory functions, therefore sought to not only expands
coverage but also to correct the imbalances in
availability/distribution of insurance across geographic
locations and economic classes
An attempt is made to find the lacuna in the existing
marketing techniques adopted by different life insurance
companies and suggestions based on the data collected and
analysis are provided to develop tailor made techniques
suiting the rural poor.
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Introduction
Apraaptasya praapanam yoga; Praaptsya rakhanam kshema”
Thus says Shankara in his commentary on Bhagavadgita (Geetha
Bhashyam). Yoga means getting the things one has not got and
Kshema means protection of things one has got. The sum and
substance of the two are the essence of insurance. Life
insurance is a social security tool. This is more pronounced
in rural areas that promote and sustain the life links of the
economy. The various programs of the government promoting
agriculture and tiny industries, the scientific agricultural
practices, the agrarian reforms, the empowerment of village
panchayats and such other activities have created reasonable
disposable incomes in the hands of the rural folk. At the same
time we find the rural economy dependent on vagaries of
monsoons. The existence of Below Poverty Line (BPL) families,
the stark illiteracy, and the low levels of awareness are the
major stumbling blocks to protect themselves against risks.
The life insurance penetration in rural areas as percentage of
Gross Domestic Product (GDP) is around 2.8% as at 2005 and
9
again the so called penetration is catering to the needs of
rural rich.
India’s insurance industry, private and public, has its roots
in the 19th century. The British government set up state-run
social protection schemes for its colonial officials, many of
which evolved into today’s schemes. The first private
insurance company was the Oriental Life Insurance Company,
which started in Calcutta in 1818. Under British rule, many
insurers operated in India. In 1938, the British passed the
Insurance Act, comprehensive insurance legislation, which
remains the cornerstone of the insurance industry today.
Regulated insurers are divided into two categories: life and
general insurance. Life insurance includes products like
endowments policies and retirement annuities. General
insurance covers all other types of insurance. In 1956, the
Indian government nationalized the life insurance industry.
The reasons given at the time were high levels of fraud in the
industry and a desire to spread insurance more widely, as
Nehru noted at time in parliament, “we require life insurance
to spread rapidly all over the country and to bring a measure
of security to our people.” The government combined 154
insurance providers and formed the Life Insurance Corporation
(LIC) of India. General insurance remained in private hands
until 1973 when it too was nationalized. Prior to
nationalization, 68 Indian and 45 non-Indian entities sold
insurance. All of these were absorbed into one giant
corporation, the General Insurance Corporation (GIC) with its
four subsidiaries: Oriental Insurance Company Limited, New
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India Assurance Company Limited, National Insurance Company
Limited, United India Insurance Company Limited. Despite
Nehru’s desires, in the decades following nationalization,
insurance products were designed primarily for those with
regular income streams, i.e., those in formal employment.
These were overwhelmingly men in urban areas. The poor,
working mostly in agriculture, were largely overlooked by
these new companies. When the ideological winds of change blew
in the early the early 1990s, the Indian government set about
liberalizing its insurance markets. It set up a commission of
enquiry under the chairmanship of R N Malhotra. The central
outcome of the commission was the establishment of the
Insurance Regulatory and Development Authority (IRDA) that in
turn laid the framework for the entry of private (including
foreign) insurance companies.
Under the provisions of sections 32–B and 32–C of the
Insurance Act, 1938, insurance companies are obliged to
provide such percentages of business as may be specified by
the IRDA, for persons in the rural sector or social sector,
workers in the unorganised or informal sector, for
economically vulnerable or backward classes of the society and
other categories of persons, as may be specified by the IRDA.
The IRDA has, in pursuance of the provisions of the above two
sections of the Insurance Act, issued the (Obligations of
Insurers to Rural or Social Sectors) Regulations, 2000, which
lays down that every insurer transacting general insurance
business, shall underwrite business in the rural sector, to
the extent of at least 2% of total gross premium in the first
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financial year, at least 3% of gross premium in the second
financial year and 5% of the gross premium in the third and
further financial years. The obligations include insurance for
crops. The Rural sector has been defined as any place which,
as per the last census, has a population of not more than
5000, density of population of not more than 400 per square
kilometre, and at least 75% of the male working population
engaged in agriculture. The Government of India has launched
various programmes for the benefit of small farmers, marginal
farmers, agricultural labourers, etc. Since 1980, all these
programmes have been integrated into Integrated Rural
Development Programme (IRDP) which is funded by the Central
and State governments on 50:50 basis. The objective of the
programme is to provide, to the target group of rural
families, a package of assistance comprising of income
generating assets, working capital, etc. through subsidy,
institutional credit, etc. Special insurance schemes are
framed to protect the beneficiaries of IRDP projects. Under
these policies, the rates of premium are lower and claims
procedure is simplified. Whenever, the word ‘scheme’ is used
hereafter, it refers to these special policies. Insurers will
evolve appropriate strategies and plans to meet these
obligations.
The Life Insurance Corporation of India identified the need of
rural life insurance and the very first objectives of the LIC
of India is to ―spread life insurance much more widely and in
particular to the rural areas and to the socially and
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economically backward classes with a view to reaching all
insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost‖. (Central
office, LIC of India: Corporate Policies published in1984)
In spite of the above laudable objective, the concept of
marketing entered in to life insurance industry very lately
and the rural focus is still nascent.
Challenges in rural market
Consumers are scattered and spread over a vast area.
Exposure to print media is very low.
Variations to dialect and life styles abound.
Message comprehension poor.
Non-conventional media more expensive and cumbersome.
Awareness and distribution channels not available
particularly for insurance.
The general insurance industry in India, prior to
nationalization concentrated its efforts in the urban
organized sector to the relative neglect of the vast
population in the rural areas. After nationalization, the
approach of the general insurance industry towards the rural
market has changed considerably. The insurers have broken
their old shell of big cities and large business houses. They
have made sincere efforts in reaching their service to the
remotest village and satisfying insurance need of the rural
population which are very different from the traditional urban
market. Many need based covers have been designed, especially
13
for the rural market, keeping in view the needs of economic
activity in rural areas. By opening offices in smaller towns
and appointing Development officers and agents, specially
catering to rural areas, we 57 have also tried to make the
services available as near to the clients as possible. Through
our innovative publicity and advertising efforts in local
languages through media which are easily accessible to the
rural population, we have also attempted to reach the message
of insurance to the rural population.
Shirodkar, S.M says, ―Insurance industry in other parts of the
world has also been somewhat slow in adopting marketing
concepts and it is natural that our country is not an
exception to this general trend .......... It is now becoming
increasingly evident that a new stage of societal orientation
is being ushered in. Insurance industry must take due
cognizance of this shift in emphasis and recognize the truth
of 'the old order changeth, yielding place to new'. An
increasing marketing orientation will alone usher in long term
success based on consumer satisfaction and loyalty. Some signs
of this change are visible in the shape of LIC's new pension
plans (Jeevan Dhara and Jeevan Akshay) as well as its entering
in to the mutual fund and housing finance fields to satisfy
customer needs in these areas. The decentralizations of
servicing functions and authority to the first line (branch)
offices and use of microprocessors to improve customer service
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are other steps taken towards this end‖. ―New Horizons in
Planning: Path to Progress‖ published by the LIC of India
(1990) says as follows
Till then the market has been broadly divided into urban and
rural. Till then the market has been broadly divided into
urban and rural. However it was felt that this broad
classification did not give sufficient knowledge as regards
the extent of market exploitation and potential availability.
It was felt a detailed planning; segment wise on the following
pattern will lead to better results. Basic segments on the
basis of occupations (to be recorded in proposal papers)
1. Segment I: Professional and managerial group (professional,
technical, executive and managerial workers)
2. Segment II: Regular income group (clerical and sales
workers).
3. Segment III: Self-employed group (farmers, fisher men,
cultivators and other related workers).
4. Agricultural labourers.
Thus segmental planning with rural focus started after the OIC
(Organization Improvement Cell) set up of decentralization of
the LIC of India in early 80s. ―Corporate Policies‖ published
by LIC Central Office (1994) elaborates the objectives and
goals of its marketing policy as follows: Objectives:
15
As a national organization LIC should provide optimal
financial security through life insurance, as extensively as
possible, to diverse populations in urban and rural areas:
with different occupations and sources of income and
economic value; and
in high, middle and low income levels and more especially
those whose income is not regular and the economically
weaker sections; having in mind
The changing socio-economic environment of the
country;
The organization's prime concern with customer
satisfaction;
The need to provide cover at the minimum
possible price;
The need for mobilizing an increasing volume of
savings; and
The economic viability of operations to ensure
stability and growth of LIC.
For achieving the above- stated objectives, the goals are
spelt out as follows:
Bringing about a marketing approach in the various tiers
of the organizational hierarchy.
Better penetration into rural areas and market segments –
urban& rural -hitherto not adequately explored.
Offering adequate range of products suitable for
different segments of people.
Improving customer satisfaction.
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Developing a dynamic field organization.
Improving cost effectiveness.
The techniques adopted are:
Planning and performance budgeting.
Product development.
Product mix.
Competent and productive agency organization.
Adequate training of the sales force.
Reward system to agents.
Incentives to the development officers.
Introduction of group schemes.
Consumer education.
PR & Publicity.
Philip Kotler has dealt the subject of marketing with reference
to life insurance industry in USA which is worth relevant and
significant. He says thus:
―Marketing entered into the consciousness of different
industries at different times --- Marketing spread most
rapidly in consumer packaged goods companies, consumer durable
companies, and industrial equipment companies in that order –
Bankers initially showed great resistance to marketing but in
the end embraced it enthusiastically.
“Marketing has begun to attract interest in the insurance industry and the
stock brokerage industry although marketing is still poorly understood in
these industries”.
17
Mc Kinsey & Company, a global Management consulting firm
published its report on Indian life insurance in 2007 and it
says, ―By 2012 about 10.3 million household with income
greater than Rs 2 lakh will control more than 22 per cent of
rural consumption. Further more rural India will not be one
market. Pockets of attractive rural market will emerge in
certain parts of India. Players will need to understand their
needs, design products to match them and create distribution
models to reach a highly fragmented consumer base cost
effectively‖. It further says, ―Though private sector players
are dwarfed by LIC's presence some private insurers have
reached a meaningful scale. Significantly, these players are
entering second and third tier towns and even rural areas.
D.K. Mehrotra, MD of LIC in his address to Indian Merchants
Chamber, Mumbai says that a noticeable aspect of the Indian
market is its rural blend. The Indian population is largely
rural and a welcome feature in terms of prospects is that the
affluence in our country is on the increase in rural India. It
is encouraging to see life insurance companies getting
proactive in rural markets. With the momentum building up,
most of them are lining up new micro products that exclusively
cater to rural clientele. Given the pace of business,
estimates suggest that rural sales are likely to account for
over 22-25% of the total sales revenue over the next few
months.
Belying the general perception that it is expensive to do
business in rural areas and that insurers just stick to
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mandatory numbers as per rules, it is cheering news for rural
India that many private life insurers are putting in place
exclusive marketing initiatives to take on rural business as a
vibrant business proposition. And why not, rural is profitable
business! Market surveys have indicated that the rural savings
to income ratio is around 30%, which is higher than the urban
population. Given the vast potential for insurance products in
rural India, different techniques are likely to emerge.
Segmentation of the rural market, new approaches to leverage
extensive rural banking services or savings oriented insurance
products to provide flexibility in premium payment could be
techniques to tap the vast rural potential. Rural India is
going rapid transformation and various markets are awakening
to the realization of the potential that exists in the rural
and semi urban areas. The distinction between urban, semi
urban and rural areas is getting blurred. It is no longer
correct to presume that whatever is not urban is rural.
However despite such an open market, around 68% of the rural
economy still lies untapped due to lack of perceived
opportunities by the investors'. Indian insurance market issuddenly agog with activity. Several universally renowned players
have entered into tie up with Indian companies for a fruitful
alliance. This has led to the emergence of a vibrant market with
the hitherto monopolistic public sector players joining the race
with renewed fervour. Whether all this is going to be
translated into a victory for the customer is the million
dollar question, especially in low thrust areas like rural
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insurance, pension product etc. The new insurers variously
need the government to:
Liberalize distribution.
Lift foreign ownership restrictions.
Provide access to the attractive parts of the pensions
market.
Issue longer dated securities.
Deregulate non-life tariffs.
A dissertation on comparative and competitive analysis of
private life insurance companies in India since their entry‖
says that LIC is an undoubted leader in the field of average
number of policies per year in the last five years. It is seen
that private insurance companies are gaining momentum and are
trying to defeat LIC in case of new insurances. Main reason
behind LIC for having such a large number of policies is the
trust of the common man. LIC being a government agency has got
a faith of Indian mass. People are not yet prepared to give
their savings in the hands of private players.
World Insurance Report, 2008 by Capgemini, while dealing with
Indian life insurance, observes that despite recent growth,
there is still tremendous untapped potential in the Indian
insurance sector. India accounts for 16% of the world
population, but accounted for only 1.68% of the world life
insurance market in 2006. India is also far behind world
averages in terms of insurance penetration, and insurance
density. A mere 20% of the insurable population aged 20 to 60
years is currently covered by life insurance.
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Dr Vinayagara Murthy, in his research article, ―Indian
Insurance: Modern Marketing Approach‖, says,‖ Marketing
strategies for insurance in the emerging scenario could be
understood in terms of the following
Steps:
R>>>>>>STP>>>>>MM>>I>>>>C.
Here, R = Market Research STP = Segmentation, targeting and
positioning. MM = Marketing Mix I = Implementation C = Control
Having done market research and finalizing on segmentation,
targeting and positioning the strategy would focus on the
marketing mix. While determining the implementation
methodology, the four characteristics viz., intangibility,
inseparability, perishability and variability give rise to
certain unique requirements that deserve careful attention
while formulating the marketing strategy for insurance. After
implementation, the insurers should concentrate on the
effective control that would enhance their business. The
agents, by using various strategies sell the product by
convincing the customers. Moreover, they push policies with
highest premium to pocket a higher commission. The
consultative approach to selling is the modern approach, which
helps customers to buy. The four step process includes:
1. Need discovery,
2. Selection of product‘
3. Need satisfaction presentation, and
4. Servicing the sale
This approach to selling requires understanding of concepts
and principles borrowed from the fields of psychology,
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communications, and sociology and needs a lot of personal
commitments and self-discipline from the seller.
―Low penetration of insurance in India, as elsewhere, has
varied explanations, economic and sociological. One basic
factor that puts a brake on growth is low propensity to
consume: low propensity for life insurance, not necessarily
because of considerations of affordability nor because of
inadequate range of insurance products and services. The major
determining factor is lack of awareness of life insurance per
se. And this phenomenon is not confined to rural and semi-
rural segments of society: it pervades urban populace as well.
Surprising isn‘t it, but true.
In Oracle White Paper on insurance, Chuk Johnston says, ‗the
question for today‘s insurance carriers and providers is this:
how adaptable are your IT systems and what impact can adaptive
systems have on your business? Having adaptive systems can
help you to identify and remove constraints that impede your
ability to prepare for and respond to an ever-changing market.
By using adaptive systems that provide a solid foundation
along with process flexibility, data elasticity, and
information access, you can open the dam that is holding back
the potential of your business, and seize new opportunities‘.
The feedback obtained from existing bank assurance customers
showed that 13% of the customers did not know the details of
the policy they have purchased and its future usage or
benefits, 19% customers felt they have not got sufficient
cover for insurance needs of their family, 96% of customers
rated LIC as the best financially stable insurance company and
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17% of customers felt private insurers can better service the
claims than PSU insurers but rest 83% considered PSU insurers
as better in claim paying ability and systems.
The report published by Celent says that India‘s life
insurance market is booming and the market has grown at a
healthy CAGR of 24% over the past 5 years. Most of this growth
is from the urban areas. The increase in competition is
forcing insurance providers to look beyond urban centres and
take their trade to the more challenging rural hinterlands of
the country, where only 3% of the population of more than 720
million people have any form of life insurance coverage.
Understanding rural life insurance and assumptions: The discussion on rural marketing and life insurance rural
marketing led to the idea that rural life insurance marketing
encompasses the whole gamut of activities which include the
following:
There is availability of much untapped rural potential
with regard to life insurance.
Lack of proven marketing techniques and lack of will for
penetration from the private players.
Inadequate market research of the needs of rural
customers with regard to life insurance.
Inadequate use of new techniques for tapping the rural
market.
Viewing rural coverage more of regulatory obligation than
social obligation by the private players.
One size fits all strategy in designing products.
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The following points emerged from the review of literature
with regard to techniques for the spread of insurance coverage
in rural areas.
The identification of rural needs and necessities.
Designing the products suiting to the needs.
Devising innovative methods to price the insurance
products suiting the needs.
Positioning the product around the rural horizon.
Selection of opinion makers as advisers and also buyers
of insurance products to infuse trust towards the
companies.
Creating the innovative distribution channels and
strengthening the existing channels.
Advertising products understandable to rural folk.
Aiming at inclusive growth.
More business orientation and not a charity. And also
fulfilling a social obligation.
Scientific management and collection mechanism with rural
focus.
The following points emerged from the review of
literature: The rural market is fast growing and rural customers are
market savvy as do the urbanites.
The awareness levels of rural people with regard to life
insurance are less.
The needs and necessities of rural people have certain
special features.
24
The purchase decisions are broadly decided on special
parameters.
The commitment of the individual insurance companies towards
social objectives can enhance the rural life insurance
coverage.
Insurance companies are using yesterday‘s techniques to
today‘s markets.
Insurance penetration in the rural areas is very low. The
private players have no definite and exclusive marketing
techniques for this sector. The large untapped potential in
rural hinterlands is known to all insurers but their marketing
techniques are prosaic. Every author talks of devising
innovative marketing techniques but there is less research as
to what techniques fit in to spectrum at micro level. Based on
this research gap and literature review, the problem of
designing meaningful marketing techniques gains importance.
The research problem therefore is identified as identifying
and determining the specific marketing techniques for wider
insurance coverage. Therefore this study gains relevance for
analysing the existing rural life insurance market, the
existing marketing techniques and suggest suitable methods for
a wider insurance coverage as a total social protection.
Further the review has focused on important issues such as:
Lack of adequate life insurance awareness.
Lack of proven marketing techniques by the private
players.
Low spread of Insurance message.
Heterogeneity of rural landscape.
The gap between the potential available and tapped.
25
The research gap in terms of rural expectations and rural
coverage.
Rural and Social Sector ObligationsThere are two central regulations that have shaped
microinsurance in India. The first is a set of regulations
published in 2002 entitled the “Obligations of Insurers to
Rural Social Sectors.” This is essentially a quota system. It
compels insurers to sell a percentage of their policies to de
facto low-income clients. It was imposed directly on insurers
that entered after the market was liberalised. The old public
insurance monopolies have no specified quotas, but have to
ensure that the amount of business done with the specified
sectors was not “less than what has been recorded by them for
the accounting year ended 31st March, 2002.”
Rural areas are all locations outside of officially classified
urban areas. Life insurers must sell 7% of total policies by
number (not value) in the first year, with increasing amount
of up to 16% in Year 5. With general insurance, 2% of gross
premium income must come from rural areas in the first year,
3% in Year 2, and 5% thereafter.
The regulations for the rural sector do not specify the income
levels of clients directly. They specify that the clients must
come from rural areas. With the great majority of poverty in
India located in rural areas, the effect of such a stipulation
is to ensure that poor clients are sold policies.
At present, the rural quotas are relatively low, so it is
possible for many insurers to meet their rural sector targets
26
by selling high value policies to wealthier residents of rural
areas, but the quota rises each year. The targets for life
insurance are likely to be easier to hit than for general
insurance. Consider, for example, how many insurance policies
covering huts need to be sold to equal 5% of the premium of a
$100,000 house in Bangalore.
This regulation has generated massive pressure on insurers to
sell microinsurance. Without selling microinsurance, they
cannot sell their more profitable products. To date the IRDA
has fined a number of insurers for failing to meet their
targets. Continued non-compliance to the rural and social
obligations could result in suspension of license to operate.
The social sector includes low-income groups consisting of
unorganised workers and economically vulnerable or backward
classes in urban and rural areas, for example Dalit’s or
untouchables. Insurers must cover a specified number of new
lives each year from these groups, from 5000 policies in Year
1, up to 20,000 policies in Year 5.
It is difficult to assess the costs and benefits of the
regulation without further research. On the one hand, the
regulation has created a frenzy of interest by regulated
insurers to enter into microinsurance. The regulation has also
been the motor for important innovation. To date, much of the
innovation in other countries has derived from donors,
academics or MFIs working on the issue. In India, in their
drive to meet their rural and social sector targets, regulated
insurers are developing innovative new products and delivery
27
channels. They bring their considerable resources to this
task.
The impact of the quota is of course not all positive. There
have been unverified reports that some insurers are dumping
poorly serviced products on clients solely to meet their
targets. As soon as they have met their targets, some have
immediately stopped selling microinsurance.
This practice is difficult to regulate, as it is harder to
police the quality of insurance sold and serviced to the poor
than its quantity. It would certainly be socially unfortunate
if the regulation resulted in a mass of poorly serviced
products sold at a loss, to enable insurers to concentrate on
their more profitable products. This situation would not
result in meaningful sustainable financial deepening, but more
akin to charity, forced on insurers to allow them to do
business in India.
28
Objective of study
I. To understand the potential of the rural insurance
sector
II. To develop a plan for exploring new market or less
explored market.
III. To study the market penetration in rural sector by
IDBI.
IV. To analyse the competition in rural insurance market
i.e. IDBI VS other leading insurance companies.
V. To develop a plan for increasing customer base in
existing rural insurance market.
VI. To develop new insurance plan according to their
needs and requirements.
VII. To improve the presence of IDBI in rural insurance
sector.
Insurance sector in India is very much explained by urban
population. However companies are now showing inclination
towards rural India also. Many companies have launched their
rural project.
29
Our objective aims to study the rural insurance in every
possible aspect. Questions are raised for every issues and a
survey is conducted to find solution of every query.
Questionnaire is generated to arrive at conclusion of our
objectives.
We will try to study the whole insurance sector also whether
they really show interest in rural market or they have entered
in rural market just for completion purpose.
We would also find the answers effectiveness of advertisement
and other promotional activities of life insurance companies.
Description of concept usedAs rural security is vital for the growth of the economy, the
most serious problem confronting the rural security is
inadequate life insurance coverage and inadequate coverage of
all their liabilities. Inclusive growth demands inclusive
insurance coverage for a tension free life. Creating assets
without the provision of an insurance umbrella prove to be a
30
futile exercise in the long run. Lack of market research with
regard to specific life insurance needs and lack of societal
marketing have inhibited the growth of life insurance
penetration in the rural areas. The present study aims at
studying the rural life insurance market in all angles – rural
aspirations and expectations, the insurance awareness, present
marketing techniques, the deficiencies in the light of low
levels of rural penetration and offering some suggestions for
improvement in profitability of the companies coupled with
wider rural coverage.
The present research is intended to study the rural life
insurance market and the rural centric marketing techniques
and the expectations of the rural customers which are
specified in objectives. The research design selected is,
therefore, exploratory or formulative research and the major
emphasis is on the discovery of ideas and insights. A critical
pre requisite to this study is to know the marketing
strategies which is the domain of the top management and may
not be revealed officially. Since the researcher himself is a
person from the life insurance industry for nearly 3 decades
and having worked in 2 major life insurers and having seen the
techniques from inside the offices, the personal observation
over the years at work situation is brought in for the study.
The reliance on the observation is only to the extent of
ensuring the objectivity of the data gathered and is not
central to the study. The known details are explained and
deficiencies are identified to suggest suitable suggestions at
the end of the thesis. Still, since the marketing techniques
31
are dynamic and ever changing and are the domain of the top
management, the research design is aimed at to see what is
there than to predict, to interpret what is distinct and
visible rather than to visualize and finally suggest viable
marketing techniques for wider rural coverage.
The objectives of the study are made use of to formulate
hypothesis and primary data is utilized to check the
hypotheses. The works of other writers on insurance also
provided insights for formulating hypotheses.
Hypotheses for study: Based on the objectives of the study and the points emerged
from the survey of literature, the following hypotheses are
made for testing:
For studying the awareness levels of rural people with regard to life insurance and
their perception of private companies with regard to safety aspects:
Majority of the customers believe that SBI Life Insurance
Company is a government company.
The rural policy holders perceive that investment in
private life insurance companies is safe.
IRDA is considered as a guaranteeing authority of
investments in the minds of rural people‘.
For studying the expectations of the rural customers with regard to type of products
and frequency of payment of premiums:
Direct sale strategy with cheaper premiums is preferred
in rural areas.
32
People in rural areas prefer insurance coverage on
liabilities.
People in rural areas prefer pension plans.
The daily pygmy collection of premium is inversely
proportional to yearly income‘.
For studying the rural centric marketing management techniques adopted by the life
insurance companies and also the deficiencies vis-à-vis expectations of the
customers.
The existing rural policies of different companies are
need based.
Life insurance agents are influenced by extra rewards for
promoting rural policies‘.
Life Insurance companies are really interested in rural
businesses.
Satisfaction of customer influences repeat businesses.
Group insurance is preferred than the individual business
by the agents for rural people‘.
Life insurance awareness has an effect on the business
volumes of companies‘.
The caste/ religion of the agent have effect on sale of
insurance policies.
Company ProfileAbout IDBI Federal Life Insurance
33
IDBI Federal Life Insurance Co Ltd is a joint-venture of IDBI
Bank, India’s premier development and commercial bank, Federal
Bank, one of India’s leading private sector banks and Ageas, a
multinational insurance giant based out of Europe. In this
venture, IDBI Bank owns 48% equity while Federal Bank and
Ageas own 26% equity each. Having started in March 2008, in
just five months of inception, IDBI Federal became one of the
fastest growing new insurance companies to garner Rs 100 Cr in
premiums. The company offers its services through a vast
nationwide network of 2137 partner bank branches of IDBI Bank
and Federal Bank in addition to a sizeable network of advisors
and partners. As on 28th February 2013, the company has issued
over 8.65 lakh policies with a sum assured of over Rs. 26,591
Cr. They have been awarded the PMAA Awards (2009) for best
Dealer/Sales force Activity, EFFIE Award (2011) for effective
advertising, and conferred with the status of ‘Master Brand
2012-13’ by the CMO Council USA and CMO Asia.
About the sponsors of IDBI Federal Life Insurance Co
Ltd
IDBI Bank Ltd. continues to be, since its inception, India’s
premier industrial development bank. It came into being as on
July 01, 1964 (under the Companies Act, 1956) to support
India’s industrial backbone. Today, it is amongst India’s
foremost commercial banks, with a wide range of innovative
products and services, serving retail and corporate customers
34
in all corners of the country from 1077 branches and 1702
ATMs.
Federal Bank is one of India’s leading private sector banks,
with a dominant presence in the state of Kerala. It has a
strong network of over 1060 branches and 1158 ATMs spread
across India. The bank provides over four million retail
customers with a wide variety of financial products. Federal
Bank is one of the first large Indian banks to have an
entirely automated and interconnected branch network.
Ageas is an international insurance group with a heritage
spanning more than 180 years. Ranked among the top 20
insurance companies in Europe, Ageas has chosen to concentrate
its business activities in Europe and Asia, which together
make up the largest share of the global insurance market.
These are grouped around four segments: Belgium, United
Kingdom, Continental Europe and Asia.
Product Range
INCOMESURANCE
Incomesurance not only gives you unmatched transparency and
flexibility but there are lots of other features which are
inbuilt in the product like convenient premium payment
options, Tax benefits and double advantage of Endowment and
Money Back plan.
35
Incomesurance combines Endowment and Money Back benefits into
one plan. You can get periodic payments as in Money Back or
get a lump sum at maturity as in Endowment. You can make it
into an Endowment plan or Money Back plan, as you wish.
WEALTHSURANCE
The Wealthsurance Foundation Plan enables you to save and
build wealth to meet your financial goals. However, unlike
other investment alternatives, it also enables you to achieve
your wealth goals even in the event of unexpected death,
accidents, disablement or serious illness.
The Wealthsurance Foundation Plan can ensure that your plans
for wealth creation are achieved by protecting that plan with
insurance benefits.
With Wealthsurance Foundation Plan, you can:
Save into the Plan as much money as you want whether at
one time, at regular intervals or as per your
convenience.
Build your wealth by choosing the investments your
savings go into and change them from time to time as you
wish.
Get adequate life insurance cover with a unique built-in
terminal illness benefit, so that the financial security
of your loved ones is assured and your plans are always
realized.
36
RETIRESURANCE
The IDBI Federal Retiresurance Pension Plan is a Unit Linked
Insurance Plan that helps you accumulate your funds for your
retirement. The plan is tailor-made for the ever changing
investment environment, with built-in flexibilities to manage
your investment mix. On retirement, you can use the maturity
proceeds to buy an annuity so that you have a monthly pay
check for life, even after you stop earning your regular
income.
HOMESURANCE
The Homesurance Protection Plan is a reducing term plan, which
provides insurance cover equal to the outstanding balance of
your home loan. In the unfortunate event of death of the home
loan borrower, the insurance cover enables repayment of the
home loan liability.
A home loan is usually a large liability and if the breadwinner
who would repay the loan were not to be there, it could become
a serious burden to the family. The Homesurance Protection Plan
protects against this liability.
BONDSURANCE
Bondsurance is a single premium plan which allows you to make
a one-time investment and get a guaranteed amount on maturity.
37
You can choose a maturity period of 5 or 10 years for your
investment. At the end of the chosen period, you will receive
a guaranteed maturity amount.
Besides the guaranteed maturity amount, Bondsurance also provides a life insurance cover. In case of death before the maturity date, a Death Benefit which is also guaranteed will bepaid. Thus you can get life insurance cover, while earning an assured return on your investment.
Research Methodology Materials and methods which are used in conducting the studyare presented under the following headings:
Research location. Sampling design. Collection of data. Analysis of data.
Research location: Life Insurance marketing in rural areas is spread throughoutthe country extending more than the six lakh villages. Thesocial security and life insurance needs are felt in all thesevillages. All these villages fall under the category of eitherpure rural or semi urban. Two such districts of Bihar, namely,Hajipur (pure rural) and Patna rural district (rural and semiurban characteristics) are selected for the study. The surveyfor doing this research was conducted in these 2 districts of
38
Bihar viz, Hajipur rural and Patna rural districts. Theoffices of all private insurance companies are located inPatna and hence Patna rural district is selected. Forselecting the other district, the following criteria areconsidered:
Exposure to all private players. Contribution of primary sector,
The rationale for selecting Hajipur and Patna (rural) beingtheir proximity to the capital city, Patna where the branchesof all private life insurance companies are present and thecustomers are exposed to all private players in one way orother. The population of Patna is nearly 24 lakhs and population ofHajipur is 7 lakhs including rural population. However therural population is not known.
Sampling design: For collecting the responses from the customers, clustersampling technique followed by simple random sampling isadopted to ensure the representation of the data for the wholepopulation. Cluster sampling means random selection ofsampling units consisting of population elements. Then fromeach selecting unit, a sample of population elements is drawnby either simple random selection or stratified randomselection.
A survey for questionnaire is conducted in these two villages.Their response is entered by surveyor as many of respondentswere not able to understand English.
The category to which they belongs
1. Landless agricultural labourers. 2. Farmers who own lands. 3. Salaried professionals such as teachers, doctors, nurses,
anganwadi workers and such other people. 4. Artisans, petty shop owners, hoteliers, cobblers,
potters, bidi workers, weavers etc.
39
5.People engaged in service sector like agents (post andinsurance), pigmy collectors, vegetable dealers,suppliers and distributors of products.
Data collection
Primary data:The primary data is collected through questionnaires. The questionnaires contain both open ended and close ended questions that are simple and easy to understand. The questionnaires administered to customers have close ended questions which include dichotomous (Yes or No answers) and multiple choice questions to the tune of 5 (selecting from 5 given alternative answers). Open ended questions are asked where diverse information is required giving scope for the customers to air their views
Questions aimed at eliciting life insurance awareness levels like whether they know the existence of private players, whether investing in private companies is safe as per their perception, whether they recognize SBI Life Insurance Company as a government owned company, knowledge of IRDA, what prompted them to take policy ( agent pressure/ savings/ to meet future expenses/ to meet contingencies) etc.
Questions aimed at eliciting information with regard to satisfaction/ dissatisfaction levels like whether they received policy bonds and premium notices on time, whether claims are settled on time, whether they have gone for repeat sales etc.
Questions aimed at eliciting the life insurance product knowledge like – whether they are aware of rural insurance. Are they aware of IDBI Federal insurance company and are they aware of Microinsurance.
The primary data is collected from respondents of two village. This Experience Survey from the people having experience with the problem under study is felt necessary
40
since the objective of the research is to obtain insight in to the new ideas relating to the research problem. The questions are both open ended (seven) and close ended (fourteen). Questions are also asked with regard to their suggestions for spreading the message of life insurance in rural areas. The questions are designed to elicit the following information: The questions aimed at eliciting information whether in
their view the different life insurance companies have plans to suit the needs of rural people, whether there isa necessity to design cost effective policies, whether the life insurance companies, in their opinion, are really interested in social security etc.
The questions aimed at eliciting information as to the real difficulties in selling the rural policies, what type of policies they suggest for rural folk, suggestionsfor popularizing insurance plans in rural areas etc.
The questions aimed at eliciting information whether the customers, in their view, believe that the investment in private companies are safe, whether the investment decisions are swayed by caste and religious considerations, whether opinion makers have any say in investment decisions etc.
The questions aimed at eliciting information whether theyexpect more incentives/ commissions for popularizing insurance in rural areas.
Secondary Data:The secondary data is collected through the annual reports of LICof India and other life insurance companies, the journals of IRDA, the internal magazine of LIC, viz., Yogakshema, the publications of Information & Broad Casting dept, viz, Yojana, India Year Books, the web sites of LIC of India and other privatecompanies, the lead bank reports of the selected districts under study etc. The brochures, pamphlets and advertisement material are collected from across the branches of different life insurance companies.
Tools of analysis of data:
Primary Data Analysis
41
To test the reliability of the questionnaire meant for the customers, the questionnaire was initially administered to 30 policy holders each for Patna and Hajpur respondents as a pilot study. On analysing the answers of the customers, suitable changes are effected to the main questionnaire and administered to 200 respondents from Patna and Hajipur rural areas.
Secondary data analysis
The secondary data collected is analysed by tabulation, histograms, pie charts, line diagrams and graphs.
42
AnalysisTotal numbers of respondents for survey were 90 and the analysis will be made with the response these 90 respondents.
What is your age group?o 15-25 17o 26-35 22o 36-45 28o 46+ 23
Table 1.1
o 15-2519%
o 26-3524%o 36-45
31%
o 46+26%
Age Group
Analysis showed 26% respondents were over age of 46+ 24% of respondents were between age of 26-35. 31% respondent were between age of 36-45 19% of respondent were in age group of 15-25.
This shows that most of respondent were employed and earning their livelihood by their self
An age group of 15-25 includes people who just joined some work or are student who assists their family in any kind of work. This age group has least inclination towards buying insurance.
43
Analysis on gender
You areo Male 78o Female 12
Table 1.2
o Male87%
o Female13%
Gender
87% of respondents were male. 13% of respondents were female
Most of the working people in village or rural part are male, fewer female were working in village and they mostly run grocery store or small business managed by them.
44
Your income levelo 0-25000 75o 25000-50000 12o 50000-100000 3o 100000-200000 0o more than 200000 0
Table 1.3
o 0-2500083%
o 25000-5000013%
o 50000-1000003%
Income Level
45
Income level suggested that around 83% of people were having income under Rs. 25,000.
Around 14% of respondent has income level of 25,000-50,000
3% of respondent reported income level 50,000-100,000 No respondent reported income over 200000
We can conclude that there less per capita income in villages so insurance with low premium will be more popular in villages.
However the purchasing power of these income groups can’t be doubted
Your professiono Student 12o Govt. service 11o Self employed 23o Business 11o Others 33
Table 1.4
46
o Student13%
o Govt. service12%
o Self employed
26%
o Business12%
o Others37%
Profession
Analysis shows 13% of respondent were student 12% were public servant 12% owed some business 25% of respondent were self employed 37% had vivid way of earning livelihood
The interpretation which can be drawn here is that most of therespondent earned their livelihood by depending on farming, running small business, owned shop etc.
Since most of them were earning livelihood by their self they may need insurance in some part of their life. This analysis confirms the tremendous potential hidden inside rural sector.
Insurance may also be a part of this business.
have you heard of IDBI Federalo Yes 27o No 63
Table 1.5
47
o Yes30%
o No70%
Have u heard of idbi
This question was framed to understand the popularity of IDBI in villages. Survey explained above facts.
30% of respondent said they have heard about IDBI. 70% of respondent said they have not heard of IDBI, and
it was the first they heard this word.
What we can draw from this analysis is IDBI needs to work on its rural project. Less awareness of IDBI Federal in villages is causing others to take market share.
Advertisement in rural sector needs to be worked on in order to gain more popularity.
Penetration of IDBI in rural sector or villages is still less.
48
Do you have insuarance policyo Yes 74o No 16
Table 1.6
o Yes82%
o No18%
Do you have insuarance policy
82% of respondent owned insurance policy in villages however
most of these policies were LIC policy. On inspection everyone
confirmed their trust lies in LIC.
18% of respondent said that they don’t own any insurance. Most
of them who don’t own insurance were those who were not
earning and they were assisting their family in business or
any work. A considerable number among these respondents were
those could not afford to buy anything because of extremely
low income.
However a large number of individuals own insurance which
implies there is good potential for insurance as these
individual may buy more policies.
Also we may conclude “buyer of past can always become your
customer in future”.
49
would you like to buy insurance policyo Yes 57o No 33
Table 1.7
o Yes63%
o No37%
would you like to buy insurance policy
82% of respondent said they own policy and now 63% of
individual confirmed that they would like to buy policy.
50
Now this clearly suggests the potential of insurance
sector in rural market.
37% of respondents who said no to buy insurance were
extremely poor, unhappy customers, non-earning and
illiterate.
Now this 63% of individual are those who are future
buyer, we shouldn’t think they are immediate buyer and
they are not giving any commitment however they must have
some plan before saying yes to buying insurance.
Are you satisfied with the insurance service agent
o Yes 52o No 38
Table 1.8
o Yes58%
o No42%
Are you satisfied with the insurance service
agent
Are you satisfied with your insurance policy
o Yes 62
51
o No 28Table 1.9
o Yes69%
o No31%
Are you satisfied with your insurance policy
58% of respondent said that they were satisfied with
their insurance service agent. The satisfaction level
according to them is the way they were explained about
the details of insurance, ways of paying premium,
benefits of buying insurance, convincing the buyer. Many
other reasons were given but they on individual view. We
omit them.
Individual who were not satisfied with their policies
because of blurred explanations by their agent. They were
not properly briefed about the kind of policies they were
buying and the benefits they were covered under.
52
When asked about the satisfaction level with their
policies around 70% of respondent said they were very
much satisfied with their policy. The reasons of their
satisfaction being the kind of policy under which they
were covered, hassle free way of paying premium, premium
based on their choice and dependent on their income.
Around 30% of respondent said that they were not happy
with their policy they own. They quoted various reasons
for being unsatisfied, frequent of them were payment of
premium, they were not properly informed about their
policies. Some of them did not even know the plan into
which they were.
A better implementation of plans in rural sector may
fetch customers from other insurance company and can also
help in consumer retention. A market study said that
around 30% of business comes from the existing consumer.
Thus a better service provided may help in building brand
and making better penetration in any market.
53
Did any insurance agent ever approached you?
o Yes 82o No 8
Table 1.10
o Yes91%
o No9%
Did any insurance agent ever approached you?
This question was asked in survey in order to know the
overall penetration of the insurance sector in rural
market. This will give a clear picture to understand the
efficiency of insurance agents in rural market.
91% of respondent agreed that they were approached by
insurance agent. This shows insurance agent penetrated
the rural market, however this survey is done near to
state capital village and because of presence of almost
all insurance companies agents were able to reach the
rural market. However many villages which are remotely
located the reach of insurance company is questionable.
However no confirm or exact statement can be made in this
question.
54
9% of respondents were not tapped even in this rural
market on this sample size. On bigger note the
penetration of insurance agents may be doubted.
Have you heard of Rural insuranceo Yes 4o No 86
Table 1.11
o Yes4%
o No96%
Have you heard of Rural insurance
Are you aware of Microsurance from IDBI Federal
o Yes 12o No 78
Table 1.12
55
o Yes13%
o No87%
Are you aware of Microsurance from IDBI Federal
This question actually tried to explore the awareness of rural
insurance and rural insurance offered from IDBI Federal.
Microinsurance is a rural insurance offered from IDBI Federal.
Knowing the awareness and popularity of a given product we can
determine the kind of strategy. Our objective is also to know
the awareness of IDBI in rural market. The survey shows
following description.
Around 96% of the respondent said that they never heard
of rural insurance.
4% of respondent confirmed that they have heard of rural
insurance. Since the penetration was low on further drill
it was known that those who knew rural insurance are the
one who owns the rural insurance or was briefed by any
agent. Some of the respondent said they made enquiry in
companies regarding any special facility for villages in
insurance companies.
56
Microsurance
There were several policy holder of IDBI Federal however
they did not know what is the meaning of rural insurance
but they owned rural insurance.
13% of the respondent confirmed that have heard of
Microsurance as they own or they know someone who are
owning this policy. They had little knowledge about what
it is or any details. The low penetration is a positive
sign for developing a new market base in many rural
sectors.
87% of the respondent said that never had heard of
Microsurance so any further drill to this survey was not
required.
Have you ever seen any insurance ads?o Yes 82o No 8
Table 1.13
57
o Yes91%
o No9%
Have you ever seen any insurance ads?
91% of respondent said that they have seen insurance ads by
any medium. This concludes that there is a wide popularity of
insurance sector and every possible way of ad is already used.
This 91% figure is valid for all insurance companies which
include bill boards in cities too. So not much can be
explained of how much it has ad penetration in rural market.
Most of the ads don’t talk about the rural insurance so
probably rural insurance is also need to be advertised for
better penetration.
9% of respondents said they have not seen any insurance ads.
Most of these respondents were illiterate or was too busy with
their work to pay attention.
58
Recommendations
1.Recommendations aiming at generating life
insurance awareness in rural areas The low levels of life insurance awareness are evident
from the analysis of the primary and secondary data. With
a view to educate the customers and raising the awareness
levels, apart from the existing techniques such as mobile
publicity vans and publicity in print and electronic
media, The industry can create a consortium of life
insurance companies with the involvement of IRDA for
educating the rural people on a mass scale. Social
marketing technique is to be used to market the idea of
insurance before the individual life insurance company
steps in to the business. This consortium has to organize
exhibitions, slide shows, short films and such other
activities in the village markets frequently.
2.Recommendations aiming at generating awareness
program of the regulatory body (IRDA)The primary data has revealed that majority of the people
in the rural areas are not aware of the regulatory body,
i.e., IRDA and with the result averse to invest in
private companies perceiving them to be unsafe. It is
therefore recommended to print in all brochures,
pamphlets and policy bonds of all life insurance
59
companies the Grievance Redress Mechanism and highlight
the role of IRDA. This strategy is aimed at creating
trust in the mind sets of the rural customers. The
consortium of life insurance companies can also enlighten
the role of the regulating authority to the rural people.
3. Recommendations for suitable techniques aimed at
customer satisfactionFrom the primary data it is deduced that increased
customer satisfaction lead to repeat sales. Programs
aiming at customer satisfaction are felt more important
by private players to show demonstrative effect that they
mean business.
In order to maximize customer service, the life insurance
companies need to introduce employee appraisal linked
branch service index meters in all branches where each
and every service activity is measured according to scale
by the robust IT department monitoring from the head
office. The Service areas relate to issue of flawless
policy bond, change of address, sending premium notice,
mode correction, registering nominations & assignments,
settling survival benefits before date, loan sanctioning,
fund switching , claim settlement, free look
cancellation, courteous response to queries, disciplinary
actions against mis selling and a host of service related
things. Printing policy bond in regional language and
communicating in regional language avoiding insurance
jargons create right chord to relate the company to the
rural customer.
60
4.Recommendations for techniques aiming at
designing need based productsWe found that there is dearth of products suiting to
rural psyche. Except a few products of a few companies,
the general product design of all companies has no
exclusive rural orientation with a unique selling
proposition. The primary data also suggest that lack of
need based products as one of the reasons for low levels
of rural coverage. In order to design need based
products, insurance companies are advised to survey the
rural market thoroughly to assess the needs. A family
policy covering all members of the family can be launched
in order to cover maximum people at a stroke.
5.Recommendations with regard to recruitment of
rural agents aiming at more rural coverageWith a view to spread the message of life insurance on a
wider scale in each and every village, the life insurance
companies need to prepare branch socio economic profile
of each branch office with all details of caste /
religion/ income/ occupation composition of all villagers
and try to appoint agents from each stratum to tap the
business from each group. The Black Spot villages (where
there is no agent of any company) need to be identified
and agents are to be appointed in such villages. Since
opinion leaders play an important role in purchase
decisions, companies need to enlist the opinion leaders
as their Sales Force.
61
6.Recommendations for wider rural coverage through
low cost pension productsSince the incomes of the lower income groups in rural
areas could not be spared to purchase high premium
policies, the companies need to develop low cost group
insurance pension products on the lines of YS Abhaya
Hastham pension plan launched by AP government and
administered by LIC of India.
7.Recommendations for wider rural coverage by
insuring the liabilitiesThe liabilities of the rural people are not insured and
therefore the dependents of the bereaved families are
inheriting the debt. With an aim to provide social
security, the insurance companies can launch individual
plans, group plans and term plans to cover each and every
loan taken by the poor people. The life insurance
companies should educate the cooperative societies for
getting formal approval by cooperative members for the
mandatory insurance scheme for all loans sanctioned by
them. The commission can be paid to co-operative
societies.
8.Recommendations aiming at a marketing strategy of
daily pigmy collection of premiums for
agricultural labourersHaving analysed the expectations of the low income
agricultural labour group from the primary data, it was
62
discussed that daily wage earners can spare a few rupees
daily but find it difficult to pay a bulk premium at a
time. Insurance companies need to design policies with
daily pigmy collection mechanism and position the
products to agricultural labours.
9.Recommendations aiming at a marketing strategy of
rewarding the repeat purchasers to sustain
eternal relationshipInsurance companies should start giving reward points for
each repeat purchase and for each recycling of maturity
claim which can be redeemed when the last policy results
in to claim by way of maturity or death. This model may
be christened ‘Generations Relationship Rewards Scheme
(GRRS)’. This ensures loyalty on the part of the customer
towards the company at no extra expense. Preparing and
perfecting a unique customer ID for a policy holder with
various policies is a pre requisite for the success of
this model.
10. Recommendations for flexible and rural
centric premium collection mechanismsThe alternate premium collection mechanisms, viz, ECS,
Internet payment, Salary Saving Schemes may not work with
un bankable and financially exclusive population.
Insurance companies through consortium of all insurers
collect premiums through mobile vans at the village
markets and through ‘Collecting Banks’.
63
11. Recommendations aiming at increasing the bank
assurance potential in wider rural coverageIn India only 2% of the captive customers of the banks
are given insurance through bank assurance against the
global bench mark of 50 to 60%. Having analyzed the
reasons for low performance it is recommended for the
life insurance companies to have tie up with all regional
and cooperative banks and apart from paying commission to
banks, the insurance companies should float business
competitions to individual bank branch managers and
reward them without which they have no incentive to work
and bank assurance would be another portfolio to the
already existing jobs in the bank. Insurance companies
should also launch easy to understand bank assurance
specific exclusive products for facilitating the bank
managers to push the sales in an easy fashion.
12. Recommendations aiming at creation of Rural
Vertical department at the corporate offices of
the life insurance companiesThe IRDA stipulations of rural coverage are viewed by the
private life insurance companies more as on obligation
than as a commitment towards wider social coverage. To
unleash the rich untapped potential of the rural areas it
is recommended that the insurance companies establish a
Rural Vertical department at the corporate office for
planning, organizing and implementing rural social
objectives without losing sight on profits.
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Entrepreneurship on a massive scale is need of the hour
and the life insurance companies explore the world of
rural markets through a separate set of agents
specialized in rural markets.
13. Recommendations aiming at advanced
professional training to rural agents for meeting
the rising expectations of the rural peopleRural India is a mixture of opposites. We witness raising
affluence of some and at the same time financially
excluded lot of people on the other side. We need
insurance advisors who are ambidextrous enough to cater
to the rural rich and also rural poor. The rural agent
has to equip himself with the subject of wealth creation
as well as social insurance coverage. It is therefore
recommended for all the insurance companies to form a
consortium and establish a National Insurance Academy for
training the agents of rural areas on the lines of NIA,
Pune and for initiating an exclusive training activity
and devise curriculum to rural agents across India. The
trainers of life insurance to the agents at the branch
offices need to be trained in this Academy.
14. Recommendations for robust IT initiatives for
rural life insurance coverage The IT initiatives presently practiced by the life
insurance companies are inadequate to rural life
insurance coverage. Recommendations for robust IT
initiatives for rural life insurance coverage:
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The IT initiatives presently practiced by the life
insurance companies are inadequate to rural life
insurance coverage. This model where the company
representative chat with the villagers and personally
explain the features of the new products. Companies can
issue credit cards to rural policyholders and provision
can be made for paying premiums through credit cards.
Life Insurance companies are recommended to develop data
ware housing for each village of all districts comprising
the income, caste, religion and occupation details and
make use of the data for recruitment of agents from
stratified data, designing need based products ,
positioning of the products and such other marketing
initiatives.
15. Recommendations towards marketing strategy of
multilateral marketing at village level The primary data suggests that villagers expect to get
rewards from canvassing new business to their friends,
kith and kin. Insurance companies need to think out of
box solutions to approach the poor by partnering with
them to have a win- win scenario. The commissions that
are traditionally paid to agent can be paid to the
villagers doing multi.
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Limitations of the study: The results obtained are based on the information
provided by the customers of life insurance products at
the time of survey.
The area covered is representative and not exhaustive due
to time and financial constraints.
As it is not possible to cover the entire population of
customers, a cluster sampling method of population is
adopted to select the clusters and questionnaires are
distributed and responses are collected from Patna and
Hajipur rural district customers. They are selected by
simple random sampling to represent the whole population
of these two rural districts. The procedure is given in
detail at the subsequent section.
The secondary data related to the rural areas of these 2
districts is not exhaustive since no insurance company is
willing to part with strategic business data.
No insurance company has at present district specific
marketing policy and hence the research is confined to
secondary data at macro level and the primary data
collected from customers and agents from the two
districts.
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Scope for Future Improvements
1. NEED TO RAISE FDI IN INSURANCE: Importance of FDI in the insurance sector is well recognized
by the experts and also referred at many forums over the last
years. The sector is highly capital intensive, since its
development period is too long. It requires capital infusion
at regular intervals and particularly in India the need for
capital infusion is highly necessary to reduce fixed cost and
to cover India’s the vast geographic spread. But at present,
the FDI in the insurance sector is restricted to 26% which is
a huge deterrent to growth in the industry.
2.HIGH EXPENSE RATIO/ OPERATING COST: Both expense ratio and operating ratio is very high in the
Indian insurance sector, especially for the private players.
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In FY 09, the private sector life insurance segment had an
expense ratio (operating expenses & commission expenses) of
30.6%. It is observed that the CAGR of operating expenses for
LICI is 13.06 % (03-04 to 9-10) while this is 42.29 % for
other private players. Public sector companies have been in
existence for a couple of decades and hence, have managed to
reduce their expenses over time. However, experts on insurance
field (Seth, 2010) believed that the expenses ratio should be
around 10-15% from long term sustainability & profitability
perspectives. A high expense ratio directly impacts
profitability. Since the insurance industry is still at a
nascent stage, many companies are yet to break down & rising
expenses can further delay this process.
3.NEED TO STRENGTHEN CORE PRODUCT PROPOSITION: Although the life insurance sector has shown rapid growth over
the last few years, low margin single premium products &
potentially volatile ULIPs have accounted for most of the
growth. These products are proven to be easily sold, but
merely focusing on these could weaken the growth and long term
profitability for India’s life insurers.
4.DELAYED BREAK EVEN FOR PRIVATE INSURANCE
COMPANIES:Breakeven point is achieved in the insurance industry when the
new business premium is equal to the renewal premium. However,
as the Indian industry is growing, the volume of new premiums
is much more than the renewal premiums. Globally, life
insurance Company’s breakeven is six to eight years but in
India, it has not achieved & it may take another couple of
years due to recent financial crisis in the world.
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Other reasons for delayed breakeven are the high operating
expenses like management costs, real estate prices, salaries,
distribution expenses and technology expenses which are higher
than what was accounted for in the original business plans of
insurers. Moreover, the capital –intensive nature of the life
insurance segment has extended this process by a couple of
years.
5.PROMOTION OF BANC ASSURANCE: It is further observed from the survey of existing literature
that customers prefer banc assurance channel next to agency
channel. Given the highest penetration of banking products,
banc assurance could be the single most important channel for
insurers to rapidly acquire new customers. However, cross-sell
rates in Indian banking are significantly lower than those in
developed markets. In developed economics like Spain, Italy &
France, between 12 & 24% of a bank’s customer would have
brought insurance through the bank. In India, this number is
estimated to be less than 0.5% for Public sector banks, 1 to 2
% in private sector banks and 2to 4 % for foreign banks (Swiss
Re Sigma, 2004). A lot of actors are responsible for such low
rate of banc assurance namely high variance in selling skills,
low operational flexibility in respect to develop sell
culture, low technological capabilities , lack of process
integration etc.
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