coverage of insurance in rural india

7/30/2019 Coverage of Insurance in Rural India

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Coverage of Insurance in Rural India

OBJECTIVES:

The present project has been prepared with the following objectives.

To understand the importance of insurance in rural areas.

To study the needs of villagers & farmers.

To know the involvement of the private insurances in the rural areas.

To know the types of insurance policies in rural areas.

To know regarding the latest new schemes.

To understand fully regarding the premium, subsidy & claims in regard with

insurance policies.

To come across the opportunities & threats present in rural areas.

To understand the role of public sector undertakings to improve the insurance

business in rural areas.

To have full knowledge regarding the quick settle of claims in case of death/loss

in uncertain situations.

To know the steps taken by government to save the rural areas people from

committing suicides.

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An Introductory view on Rural Scenario & Rural Insurance

Rural India

Before commencing the project on coverage of insurance in rural India, it is

necessary to put the highlight on rural sector, social sector & the lives of rural people

in India because the people, living in villages are totally ignorant of Insurance. They

are unaware of various insurance policies.

The Rural Sector: The rural sector is any place, which has 1. A population not

exceeding 5000. 2. A density of population of not more than 400 per square kilometer

& 3. At least 75% of the male working population is engaged in agriculture.

The Social Sector: The social sector includes unorganized sector, informal sector,

economically vulnerable or backward classes (i.e. persons below the poverty line) &

other categories with disability not gain fully employed & also guardians who need

insurance to protect spastic persons/persons with disability both in rural & urban

areas.

The unorganized sector includes self employed workers such as agricultural labors,

bidi workers, brick-kiln workers, carpenters, cobblers, construction workers,

fisherman, hamals, handicraft artisians, handloom & khadi workers, women tailors,

leather & tannery workers, papad makers, power loom workers physically disabled &

self employed persons, primary milk producers, rickshaw pullers, safai karamcharis,

salt collectors, sericulturists, sugarcane cutters, tendu leaf cutters, toddy tappers

vegetable vendors, washerwomen, working women in hills or such other categories.

India is a land of villages. It is a land of farm. It will be not an exaggeration to say that

the soul of India lives in villages & the village is a backbone of our country. There are

about 7 lakh villages in our country.

In comparison of urban machinery life, rural life is very simple & natural. The people,

living in villages are mostly poor & uneducated. Even after the 60 yrs of

independence, they have not progressed or tested the fruit of life progress. Due to

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ignorancy, they are not aware of other benefits provided by government from time to

time. Hence they live poor & their lives are miserable. Due to being uneducated, the

rich people & moneylenders are sucking their blood. They fall deep in ditch of

poverty day by day. Hence villages in India are totally backward financially as well as

socially.

After the independence the government has tried to improve the rural people lives

through his plans & policies, but all in vein. They are not still uplifted due to poverty,

ignorancy & lack of education. There are series of suicides committed by debit-hit

farmers all over India as they are harassed by moneylenders & are not helped by the

government. The recent news shows that 3000 farmers have killed themselves only in

Maharashtra state during the last 10 yrs for which government should be blamed & is

responsible for their suicides due to withdrawal of bank guarantee in 1996.

The link between farmers suicides in the state & the liquidation process of the

Maharashtra State Co-operative Agricultural & Multipurpose Rural Development

(MASCARD) has caught the centres attention. The newspapers had high lightened

how politicians efforts to wrest control of MASCARD & the subsequent withdrawal

of its National Bank for Agriculture & Rural Development (NABARD) guarantee had

spell down for small farmers.

With nowhere else to go farmers turned to moneylenders, & finally to suicide. At a

public meeting in Marathwada over the weekend, Union Agriculture Minister Sharad

Pawar said that the government planned to revive MASCARD. In fact sources said,

the central government is taking the issue forward.

The move has found support from chief minister Vilasrao Deshmukh. It would be

happy to go along with the central decision. Earlier, we were unable to revive

MASCARD due to cash crunch. The revival will help to end farmers suicide because

MASCARD will provide long-term loans that are vital to farmers.

This is sweet music to the ears of the 20 lakh farming families that used to depend on

MASCARD for credit. In fact farmers suicides began in 1997, a year after the state

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government withdrew its guarantee covering the NABARD functioning of

MASCARD.

But it may be too early to celebrate because the government is always speaking in 2

voices. In contrast to Pawars & Deshmukhs stand, state finance minister Jayant Patil

told the newspapers the state was not looking to reverse the 1996 decision (to

withdraw the NABARD guarantee).

It was the withdrawal of guaranteeand the subsequent stoppage of NABARD

findingthat had laid to the collapse of MASCARD. The government explained its

action by saying that MASCARD was collecting dues properly from defaulting

farmers.

The politicians may go hoarse blaming moneylenders for the farmers suicides, but the

fact is that our rulers have done little to understand the problem. The state is unaware

of even the exact number of moneylenders & express his helplessness at controlling

the exorbitant interest rates they charge.

The interest moneylenders charge ranges from 30-50% & there is no effective

government control over this. The state recognizes the business of private money

lending under the moneylenders act 1947. But officials admit that the system is

completely failed. The act has not been amended & bureaucrats point out that it is

woefully inadequate to handle the present crisis. Most moneylenders are unlicensed &

authorities blame this for their failure to keep a check on them.

According to the act, moneylenders must get licenses at the district level for operating

within a specified area. No one wants to register, because then they are bound by the

law & have to limit their interest rates. It admitted by Sunil Porwal, secretary of co-

operative department, who issues private money lending licenses. In the past few

months 400 cases against moneylenders have been registered. In many cases police

failed to get evidence as borrowers are not given any documentary proof by the

lenders.

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The problem is serious in Vidharba since only 8-10% of farmers get credit from

financial institutions. It is little wonder that a large number of suicides are reported

from this region. Loans are taken at high interest rates & farmers often fail to repay

them. They are caught in debt trap & they are ultimately commit suicide.

Farmers organizations in Vidarba allege a nexus between moneylenders & the police.

There have been several instances of cops pressuring farmers behest of moneylenders.

Gajanan Wankhede, a farmer in Savargoan in Yavatmal district, committed suicide in

a police station at Wadki a few months back when he was pressurized by the police to

repay his loans.

It was a keen desire of Mahatma Gandhi to uplift the villages & to make them ideal.

He was always dreaming to make the villages as a green land on the lap of nature,

where every one finds his peace, happiness, equality, progress, co-operation,

sympathy etc. But it remained as his dream only & it could not be as a real.

Profile of Rural Consumer

Number of House Holds in millions

Class Very Rich Consuming Class Climbers Aspirants Destitutes2001-02 0.8 26.8 54.7 25 20.9

2005-06 1.6 41.3 63.3 14.7 12.2

Rural Values and Customer Satisfaction (Rural Mutual Insurance Company)

Were proud of the fact that the way we do business hasnt changed much since those

early days. Back then, a promise and a handshake meant something. In todays world,

with a growing reliance on advanced communication technology, that kind of

personal service is becoming increasingly rare.

At Rural Mutual Insurance, we utilize all the latest technology, but we still feel were

at our best when were face-to-face with our customers and we take great pride in the

personal, local service we provide. We believe that establishing a comprehensive

policy that protects who you are and the life youve made requires more than the

latest interactive software; it takes real people with experience and commitment whowill sit down with you and go over the details. Thats why we have more than one-

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hundred-fifty rural agents statewide, living and working in the same communities you

do.

Today at Rural Mutual Insurance, we understand that the distinction between

Wisconsins rural and urban environments has blurred. Accordingly, we have

expanded our service capabilities and developed innovative products to meet the

needs of Wisconsinites from all walks of life. Whether you require auto, home, farm

or businesss insurance, your rural agent can provide you with a policy to protect the

things that matter most.

Were proud of our rural Wisconsin heritage and our growth to meet the needs of so

many in our state. But were prouder still that weve never outgrown our rural values.

Rural is also committed to the privacy and confidentiality of our clients.

Need & potential of Rural Insurance:

The insurance sector has been mostly confined to cities. However, in the rural areas

where human life & income generating rural assets need more protection, there is

tremendous scope for developing insurance business. The rural sector so far has been

grossly neglected since last 50 yrs from the privileges of insurance cover, through a

silent economic revolution can be seen know in the villages.

With the opening of insurance sector to the private sector & foreign companies, the

time has come when the government should pay serious attention to covering the rural

areas. While it is true that access to insurance cover depends on the literacy/awareness

levels & assured income, well-planned & organized efforts by committed private

sector companies can yield rich dividends from the rural areas. This is because:

A large number of rural districts have witnessed significant growth & prosperity.

Access to reliable & authentic data & information has improved considerably,

which can enable quick & correct decision-making.

There are specific functionaries & agencies in the rural areas, which can help,

explore & exploit insurance business in the untapped rural market.

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The Rural Scenario (their needs & wants)

To understand the prospects for insurance companies in rural India, it is very

important to understand the requirements of India's villagers. Therefore, we need to

study their daily lives, their peculiar needs and their occupational structures.

Our villagers are farmers, craftsmen, milkmen, weavers, casual labourers,

construction workers and shopkeepers and so on. More often than not, they are into

more than profession they have side-businesses or auxiliary sources of income - the

man in the family might work in the field while his wife may rear poultry at home.

Let us take a peep into the life of one of them say, a typical farmer. Though many

of his brethren in other parts of India will have access to an assured and regular source

of water, he will be totally at the mercy of the monsoons. His source of livelihood (i.e.

farming) will be totally at the mercy of the elements. What would happen if there

were to be floods or drought? What would he do if there were to be pestilence? And

what about a crop failure or a crash in prices? For a marginal farmer subsisting on a

small piece of land, the consequences of these factors would be catastrophic. How

would the farmer repay his loans? With the WTO regulations all set to be enforced,

what would be the fate of a small farmer left to the mercy of global market forces?

The situation is compounded by the absence of civic amenities and proper guidance

by the concerned authorities.

There exists, thus, a great deal of uncertainty in his profession. This translates to an

immense amount of risk. The loss is always majorly financial. And this is present in

every profession that we can think of. Think about what a cattle rearer would do if

there were to be an epidemic or death or theft of the animals

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Rural Insurance in India:

The GIC & the 4 subsidiaries i.e. National Insurance Company Limited, the New

India Assurance Company Limited, the Oriental Insurance Company Limited, &

United India Insurance Company Limited, here by known as National New India,

Oriental & United India have taken the responsibilities of insuring the rural masses

against the growing risk in the areas of personnel, property, livestock & packages.

Their brief description will highlight how far the general insurance industry has been

successful to harness the existing opportunities in rural areas.

1. Personal Insurance:

The personal insurance company to rural people is granted in the form of Janata

Personal AccidentIndividual & Group & Gramin Personal AccidentIndividual &

Group.

I. Janata Personal Accident (individual):

Persons between age group of 10-65 yrs are covered under janata personal

accident (individual) policy where by rupees 15000 is paid at the death or

permanent total disablement due to accident rupees 7500 is paid at the loss of oneeye or one limb due to accident.

Sterilization risks & claims arising out of racing on wheels, big game hunting,

mountaineering whilst engaged in winter sports skiing or ice hockey are also

covered. The premium is rupees 12 per annum. The nominee should submit death

certificate, original policy & claim form at the death of the assured due to

accident.

II. Janata Personal Accident (group):

Persona between the age groups of 10-65 yrs is entitled for janata personal

accident (group). The benefits are Rs. 15000 at the time of the death or

permanent disablement due to accident. At the loss of one eye or one limb in an

accident is paid Rs. 7500. The premium is Rs. 12 per annum.

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The Janata Personal Accident Insurance has increased from Rs. 129.00 lacs in

1982 to Rs. 440.24 lacs in the form of direct insurance premium. During the

period of 5 yrs, it became just double. In the form of number of persons covered;

it has increased from 20.16 lacs in 1982 to 42.26 lacs in 1987. It shows that the

non-traditional policies can be more popular if efforts are made systematically to

increase the business. The growth rate has been not satisfactory as the premium

income increased at faster rate in the beginning the growth rate was 44.8% in

1983 but there was also decline by 9.5% in 1986. The persons covered have

declined in 1986 by 6.8%.

III. Gramin Personal Accident (Individual):

This policy is applicable to persons between the age group of 10-65 yrs living in

rural areas. The benefits are Rs.6000 at death or permanent disablement due to

accident or Rs. 3000 at the loss of 2 eyes or 2 limbs or 1eye & 1 limb due to

accident. Sterilization risks 7 claims arising out of racing on wheels, big geme

hunting, mountaineering engaged in winter spots, skiing or ice hockey, the

premium amount is Rs. 6 p.a. The nominee is required to submit death certificate,

original policy & claim form at the death claims & medical certificate & bills in

other cases.

IV. Gramin Personal Accident (Group):

This policy is issued to large number of persons insured under one policy. The

benefits are the same as discussed earlier in the Gramin Personal Accident

(Individual). Basic premium for 1yr is Rs. 500 for 100 persons in 2 installments.

The discount is available if the numbers of persons have been higher.

The premium income under Gramin Personal Accident policy increased from Rs.

6.47 lacs in 1982 to Rs. 40.96 lacs in 1987. The persons covered have also

increased from 1.3 lacs to 7.62 lacs in the respected yrs. The number of persons

covered increased by more than four times. The premium income has increased

by the same fold. The traditional policies during this period have increased by not

more than twofold. It reveals that the non-traditional policies are becoming more

popular in India.

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2. Property Insurance:

I. Agricultural pumpset:

Agricultural pumpset insurance policy indemnifies the insured against unforeseen

&sudden physical damage to the pumpset caused by or solely due to mechanical/electrical breakdown, fire & lightning, theft & burglary. The minimum premium is

Rs. 50 for electric pumpset & Rs. 70 for diesel pumpset. Long-term discount is

also available at the rate of 15% if taken for 2yrs & 25% if taken for 3yrs. Group

discount is also applicable if a number of pumpset are insured together. Annual

premium depends on horsepower types of pumpset & deductible franchise. The

deductible franchise will be first borne by the insured, out of each & every

machinery breakdown claim where more than 1 item is lost or damage in one &

the same occurrence. The insured shall not be called upon to bear more than the

highest deductible franchise applicable to any one such item.

II. Animal Driven Carts Insurance:

The animal driven carts insurance cover risks against death or permanent total

disablement of the animals driven the cart. Gramin accident cover for driver while

driving the cart at no extra premium. Damage to the cart/Tonga & its accessories

by accident, external means like fire, lightning, flood, cyclone & other allied perils

while in transist by road, rail & inland waterways. Third party liability upto

Rs.5000 per accident & maximum Rs.10000 for all accidents in a policy year.

Insured will bear first Rs. 100 of each cart & Rs. 200/- of each tonga claim. The

age group of animals covered is 3-12yrs for bullocks, male buffaloes, 2-6yrs for

horses & mules, 1-5yrs for donkey & 5-15yrs for camels. The sum assured will be

the market value of cart or tonga & animal. Premium rate is 2% of the insured

value. The insured value is decided on the basis of the market value after

deducting reasonable amount of depreciation for the number of years for which

the cart has been in use. If diseases cover required, the premium applicable in

respect of the animal covered will be charged. The scope of cover is loss or

damage to the animal driven cart, death or permanent disablement of animal,

liability to third parties & passengers & personal accident cover to person driving

the cart.

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III. Hut Insurance:

Hut insurance policy indemnifies the insured against all accidental losses or

damages due to fire, earthquake, inundation, storm, tempest, impact damage, riot,

strike, malicious damage & air craft damage subject to the exclusion of war, in

invasion, act of foreign enemy hostilities, usurped power. The maximum sum

insured is Rs. 6000/-. Maximum 200 huts situated in on contiguous area. In case

the number of huts is more than 50 in contiguous area the insurer will accept the

risk after inspection. The premium rate is Rs.3/- per mille per annum. 50% of the

premium is shared by government. In practice, government pays the premium in

full in advance & recovers 50% of the premium from hut owner. Insurer shall pay

compensation on the basis of a certificate issued by the Tehsildar regarding

occurrence of the fire loss where compensation is less than Rs. 10000/- however,

where the amount of loss involved is more than Rs. 10000/- or number of huts is

more than 5 the Tehsildar shall report the occurrence to the company immediately

who will depute their officer for inspection & assessment of the loss. The payment

of compensation is made with in a month of the occurrence.

A scheme to provide fire insurance cover for huts & belongings of land less

laborers, small farmers, artisians & other poor families in rural areas which was

introduced from 01-05-1988 which was in operation in 406 districts of the country

as on 31-031989. The scheme provides compensation not exceeding Rs.1000 for a

hut & Rs. 500/- for belongings there in the entire premium cost is being borne by

the central government. Continuous efforts are on to propagate the benefits of the

scheme among the poor families in rural areas. About 11000 claims amounting to

Rs 1.24 crores have been settled upto end of March 1989. National Insurance

settled 18455 hut insurance claims, New India settled 455 claims, amounting to

Rs. 6.85 lakhs; Rs.52.01 lakhs settled by Oriental & Rs. 252.56 lakhs by United

India during 1994-95.

IV. Gobar Gas Insurance:

The gobar gas insurance is applicable to all khadi & village industries

workers/artisans, IRDP beneficiaries, schedule castes, schedule tribes & such

other identifiable groups. The risks covered are fire, lightening, explosion, riot,

strike malicious damage, impact by rail/ road vehicles or animals, aircraft & other

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aerial/devices, storm, cyclone, typhoon, tempest, hurricane, tornado, flood, land

slide, earthquake & shock. The sum assured is inclusive of digester, gasholder &

cost of construction depending on type & cubic capacity. Master policy agreement

is preferable in respect of this insurance in view of the concessional rate of

premium & to reduce overall administrative expenses. The rate of premium is Rs.

01 per mille for widest cover subject to minimum premium of Rs. 15.

V. New Well Insurance:

The new well insurance is applicable to dug wells or bore wells, which are being

newly installed. It does not apply to existing well. The cover is given to financing

banks or individuals. The sum insured shall be limited to a maximum of Rs. 12000

per well. The 75% of sum insured is settled for complete failure & 50% is paid for

partial failure. 500 imperial gallons of water per hour pumped intermittently for 6

hrs by 2-3 horsepower submersible pump & yield measured in contained of

known capacity of atleast 200 litres. If yield is between 300-500 gallons, the well

shall be derived partially failed & compensation will be paid at 50 % of sum

insured. Natural calamities like flood, earthquake, riot & strike are excluded from

this insurance.

3. Cattle & Livestock:

The cattle & livestock insurance was demanded since independent. No worth

mentioning progress was made till 1972 when the general insurance was

nationalized. Recently some progress has been made & figure of the progress is

available since 1982. Cattle & livestock insurance have included cattle, sheep &

goat, horse/pony/mule, pig, camel, duck, rabbit, elephant & dog.

I. Cattle Insurance Scheme:

The cattle insurance policy under market agreement covers milch cows &

buffaloes, calves/heifers, stud bulls, bullocks & castrated male buffaloes. This

policy provides indemnity in event of death of insured cattle due to accident

inclusive of fire/lightening, flood, cyclone, famine, surgical operation, strike, riot,

civil commotion, and diseases.

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The age group of animals to be covered is 2-10 yrs for milch cows, 3-12 yrs for

milch buffaloes, 3-8 yrs for stud bulls, 3-12 yrs for bullocks. The market value of

the cattle will be the amount of sum insured that varies from breed to breed, from

area to area & from time to time. In the case of permanent total disablement,

insurers, liability is limited to 75% of sum insured. The premium rates are

governed by market agreement varying from 2.75% - 4%. The premium rate is 3%

for milch cattle. The premium for cattle owned by individuals/ institutions & bank

financed cattle, which do not provide regular & efficient veterinary attention is

4%. Cattle owned by well organized government, co-operative/private

dairies/apex bodies providing regular & efficient veterinary attention are charged

premium at the rate of 4% if there are less than 50 animals, 3.95% of number of

animals insured is 50-250 & 3.9% if number of animals insured is over 250.

Cattle insurance schemes are available under IRDP project for cattle subsidized

under SPDA/MFAL/DPAP/IRDP/TADP, Antyodaya projects. Milch cows, milch

buffaloes & stud bulls of indigenous or cross-bred variety between age group of 2-

12yrs are insurable for the sum assured agreed upon provided it does not exceed

market value. The permanent total disability shall be covered at extra premium of

0.85%. The premium rate is 2.25% of sum insured p.a. to be subsidized by the

project authorities & financing bank. The risks covered are as mentioned in

market agreement plan.

II. Sheep & Goat Insurance:

Sheep & goat insurance provides indemnity in the event of death of insured

animals due to diseases or accident contracted during the period of risk in age

group of 4months to 7yrs of sheep. Rams used for breeding & aged more than

75% of its market value. Goats are covered between age group of 6months to 5yrs

the sum assured will be restricted to 80% of market value as certified by

veterinary surgeon or 100% bank advance whichever is higher. The premium rates

are 8% of sum assured in case of sheep & 10% in case of goat of indigenous breed

for private insureds. This premium is 10% for exotic breed. The premium for

bank financed & IRDP project is 2.75% in both the cases of sheep & goat. The

policy shall provide indemnity against death of sheep & goat due to accident

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including fire, lightning, flood, cyclone, famine, strike, riot & civil commotion or

diseases contracted or occurring during the period of insurance.

III. Horse/Pony/Mule Insurance:

The policy for horse/pony/mule insurance draught horses, half draught horses,

ponys, mules against death due to accident &/or specified diseases contracted

during the period of insurance & subject to usual terms, conditions & exclusions

of the policy. The age groups for such animals to be insured are 2-8yrs.

Indigenous, cross-bred & exotic are insured. The sum assured is 100% market

value or bank loan, which is higher. The non-scheme animals are charged

premium at the rate of 4% of sum assured where as the scheme animals are

charged at 2.75% p.a.

IV. Pig Insurance:

This policy covers death risk due to accident or diseases. The minimum number of

animals covered is 10. Severe fever diseases are excluded. The age group

insurable is 1month to 5yrs. All indigenous cross-bred & exotic pigs are insured.

The maximum sum insured for pig is Rs.500/-. The premium rate is 6% per

annum but pigs under SFDA/IRDP scheme are charged at 3.5% p.a. The sum

assured will be linked to 100% of market value for organized breeding farms

whereas in other cases it is 80% of market value.

V. Camel Insurance:

Camel insurance policy is applicable to all male & female camels in India

including camels subsidized by SFDA/DPAP/MFAL between age group of 3-

10yrs. The sum assured will be 80% of market value or bank financed. The

maximum sum insured is RS.3000/- in case of bank finance SFDA/DPAP/MFAL.

In case of PTD claim, 75% of sum assured is payable. The premium rate is 4%

p.a. for non IRDP scheme camels & 2.25% for IRDP scheme camels. Surra

disease is excluded. The minimum premium is Rs.25 p.a. per animal. The policy

provides indemnity only for death due to accident inclusive of flood, cyclone,

famine or disease inclusive of Rinderpest, Black quarter, Hemorrhagic

Septicemia/Anthrax contracted or occurring during the period of policy or strike,

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riot & civil common risks. The exclusions are common exclusions & specific

exclusions.

VI. Rabbit Insurance:

This policy is applicable to all breeds of rabbits in India, in the age group of 1day-

4yrs, but death of rabbits due to diseases till day complete the age of 30days is not

covered. The risks covered are death of rabbits due to accident &/or disease

contracted during the period of insurance. The exclusions have common

exclusions as described in camel insurance & specific exclusions of transport by

air & sea, permanent & partial disablement of any nature pasteurellosis, culling,

cannibalism, & intentional slaughter, undergrowth. The insured is compensated

only 70% of the sum assured, the rate of premium is 7% of sum assured.

VII. Elephant Insurance:

This policy indemnifies the owner for death due to accident or disease contracted

or occurring during the period of insurance subject to certain exclusions

stipulated. The insurable age group is 1-60yrs. The policies applicable to the

elephants including those owned by temple, circus companies & individuals. The

sum assured is 80% of market value. The value of sum assured does not exceed

Rs. 50000. The premium rate is 5% p.a. The common exclusions clause as

mentioned under cattle market agreement is also applicable in this case. Specific

exclusions are surgical operations, disability, breeding & calving & certain

specific diseases such as tuberculosis, foot & mouth diseases etc.

VIII. Dog Insurance:

This policy insures the risks against death due to accident &/or diseases contracted

during the period of insurance subject to usual theory & conditions. The insurable

age group is 8weeks to 8yrs. Dogs of indigenous cross-bred & exotic breeds are

insured under this policy. The minimum value of any breed should not be less

than Rs. 200 & maximum value of any dog should not exceed Rs.2000 each dog.

The premium rate is 5% p.a. In the event of death of insured dog, any amount

received or receivable by insured from 3rd parties & the value of salvage recovered

if any would be deducted from the claim amount.

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IX. Livestock Insurance Master Policy:

An open policy is issued without specifying the sum insured. This will be stamped

document stating the type of cover grantee, perils covered, condition exclusions

etc. When the branch of the bank grants loans, the animals purchased will be

covered under the insurance scheme. The insurance cover will commence from

the time the animals are purchased by the beneficiaries & will be valid for 1yr.

The insurance company supplies the declaration forms to banks branches. As &

when animals are financed, the branch will send to the insurance company the

declaration given details of the borrowers financed along with the certificate of

veterinary doctor. Under the live stock insurance scheme livestock as milch cows,

buffaloes, calves, stud bulls & bullocks castrated bulls & male buffaloes whether

indigenous cross-bred or exotic, sheep, goats & pigs are insured. This policy

covers death of livestock due to any accident inclusive of fire, lightning, flood,

inundation, storm, hurricane, earthquake, cyclone tornado, tempest, famine

snakebite etc, diseases inclusive of foot & mouth diseases, surgical operation

strike, riot & civil commotion.

4. Poultry Insurance:

The general insurance companies have taken another big step to insurance poultry,

duck & other birds.

I. Poultry Insurance:

This policy covers poultry farms consisting of 100 or more pure & hybrid chicks,

hens & cocks. All birds in a farm should be covered. The policy covers death of

birds due to accident or diseases contracted or occurring during the period of

insurance subject to certain exclusions. Birds are covered from 1-72 weeks. The

cover is for epidemics diseases i.e. ranikhet diseases, fowl pox & gamhoro. The

sum assured is as per poultry market agreement. The sum inured is as per

valuation table. The premium rate is Rs. 1.20 per bird where SFDA & other

subsides is applied, the premium is Rs. 0.90 per bird. Extra premium will be

charged in case of addition of fresh birds. Each proposal is rated according to

flock strength, mortality & management of farm. The compulsory inspection of

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the risks by companys veterinary surgeon before assumption of risk, besides

periodical routine inspection at intervals.

II. Poultry Insurance Master Policy (IRDP):

This policy as cattle master policy issued to benefit the benefactors of IRDP.

III. Duck Insurance:

The duck insurance policy provides indemnity against death of ducks due to

accident including fire, lightning, flood, cyclone, famine, strike, riot, civil

commotion or diseases contracted or occurring during the period of insurance

subject to specific exclusions. This policy is applicable to all types of migratory &

non-migratory birds in India, ducks farms consisting of minimum 100 ducks for

non IRDP & 50 ducks for IRDP & other subsidized schemes. The insurable age is

1-52 weeks the premium is Rs. 1 per bird & Rs.0.9 per bird for IRDP & other

scheme birds. Common exclusions are as mentioned under cattle market

agreement. Specific exclusions are improper management cannibalism, sunstroke

virus, and transit diseases such as Coli Aspirgillosis.

5. Insurance of Species:

General insurance industry has started insuring other species such as Brackish

water prawn, inland fish, silkworms & honey bees.

I. Brackish Water Prawn Insurance:

This policy cover risks against total loss of prawn, nursed seeds in hatcheries

owned by state government; FFDAS, State fisheries Corporation, MPEDA or such

other organizations. It is issued to provide insurance cover to those engaged in

Brackish Water Prawn faming against total loss of seedlings/prawns of all species

raised in brackish water after being transferred to the farm. It also provides cover

to financial institutions to protect their interests & recover loans advanced for such

brackish water prawn farming in the event of loss. The policy covers either the

input cost or fixed value of the produce. The period of the cover is from the stage

prawn seeds being sown in the hatcheries for rearing till the post larvae/removed

from the hatcheries. The period of cover for farms is from the stage of transferring

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or post larvae to the brackish water till actual harvesting. The premium rate is 4%

of mean value declared for insurance for each crop period. The insurance covers

total loss or destruction of prawns due to accident & disease such as summer kill,

pollution, poisoning, riot & strikes, malicious acts of 3rd parties, earthquakes,

explosion, storms, tempest, cyclone, typhoon, flood, volcanic eruption & other

comulsions of nature. Willful destruction losses due to natural mortality, over

crowding, loss due to negligence & error, theft, dacoity, war invasion etc.

II. Fish Insurance Policy:

This policy indemnifies the insured against total loss due to accident or disease of

fry/fingerlings/fish in ponds/lakes & other still fresh water. This policy covers

death or loss of fish due to disease of any kind, epidemic, poisoning, malicious act

by 3rd parties, pollution, summer kill, riot & strike explosion, fire, air craft damage

& serial devices, impact by any vehicle, storm, tempest, flood. The exclusions or

loss due to improper management & rough handling, loss due to neglect &

carelessness, loss due to malicious act, willful injury, error or omission, partial

loss of any kind, losses due to dangerous insects etc. 80% of fish as per valuation

is indemnified. The premium rate is 2.5 % p.a. on a average value of fish.

III. Silk Worms Insurance:

This policy is applicable to mulberry silk worms only of Univoltine, Bivoltine or

Multivoltine breed. The disease free layings purchased from licensed seed

prepareers/Graineurs or government Grainages are covered. Silk worms from egg

stage to cocoon stage are insured. This policy covered death of silkworm due to

accident of diseases contracted during the period of insurance subject to the usual

terms & conditions. The cover is in respect of total loss only. The malicious

willful act of insures his family member/person/worker; theft, clandestine sale,

missing of the worms & non supply of adequate quality, suitable quality of

mulberry leaves. The valuation is done by sericulture officer. The insured will

send a monthly declaration statement to the insurer based upon which premium is

collected or adjusted. The premium is 5% p.a. of the sum assured on the market

value of cocoon at the 5th stage.

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IV. Honey Bee Insurance:

This policy indemnifies the insured against all accidental losses or damages to the

Hive &/or bee colony subject to the exclusion of loss of production, malicious or

willful act or neglect or improper management; theft clandestine sale or missing of

worms, war invasion, act of foreign enemy, hostilities, civil war, rebellion,

revolution, insurrection, mutiny, military or usurped power or any consequences

thereof or attempt there at; accident loss, destruction, damage or legal liability

directly or indirectly, caused by or contributed to by or arising from nuclear weaks

material. The rate or premium is 3% of total insured value. Risk of theft can be

covered on payment of additional premium of 2%.

The farm subsidiary companies have underwritten small volume of business under

pond fish insurance, silkworm insurance, agriculture insurance & animal driven

cart insurance.

6. Package Insurance:

The GIC & its 4 subsidiaries have evolved insurance policy known as package

insurance with a view to offer complete, all-round protection to the weaker

sections of societies in respect of their dwelling premises & belongings from

various hazards. They are composite package & farmers package.

I. Composite Package Insurance:

This insurance has been evolved to protect the weaker sections & tribes. The

properties covered under this scheme are huts, dwelling, cottage industry shades,

and contents including belongings, personal accident & hospitalization. The risk

covered under this policy is fire, lightning, riot & strikes, malicious damage,

aircraft damage flood, cyclone, storm, tempest, typhoon, tornado, hurricane. The

sum assured under coverage is Rs. 2000/- & premium rate is 3% p.a. the contents

are for Rs.1000 at 3% premium. Personal accident covers Rs. 10000 at the

premium of Rs.10/-. Hospitalization for accidents & major diseases are for

Rs.4000/- at the premium of Rs.40/-. Thus, the total premium of Rs.59/- for

covering all the above risks under 1 policy.

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II. Farmers Package Insurance:

This policy has been issued to provide insurance coverage to the farmers for

dwelling hut/houses, agricultural implements, seeds, fertilizers, pesticides against

the risk of fire, lightning, cyclone, earthquake, flood upto Rs.5000/-; cattle

insurance against death due to accident & diseases, permanent total disablement &

breeding & calving risks upto Rs. 4000; agricultural pump sets against fire, theft

& machinery breakdown upto their market price; bullock cart against death

permanent disabilities to animals due to accident upto Rs.2000/-, loss/damage to

cart due to accident upto Rs.1000, 3 rd party liability personal accident to cart

driver & Gramin Personal Accident against death/permanent total disablement

upto Rs. 6000/- under single policy known as Farmers Package Insurance.

The premium is decided as per separate insurance policy.

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National Agricultural Crop Insurance Scheme:

In India crop insurance cover is not very wide spread. We will look into the reasons

for such a condition but before that it is necessary to have an idea of the crop

insurance policy:

Objectives:

To provide insurance coverage & financial support to farmers in the event of

natural calamities, pests & diseases.

To encourage the farmers to adopt progressive farming practices, high value

inputs & higher technology in agriculture.

To help stabilize farm incomes, particularly in disaster years.

Salient features of the scheme:

1. Crops covered:

The crops in the following broad groups in respect of which I) the past yield data

based on crop cutting experiments is available for adequate number of years. II)

Requisite number of CCEs is conducted for estimating the yield during the

proposed season.

Food Crops (Cereals & Pulses)

Oil Seeds

Sugarcane, Cotton & Potato (annual commercial/annual horticultural crops)

Other annual commercial/horticultural crops subject to availability of past yield

data will be covered in a period of 3yrs. However the crops which are covered

next year will have to be specified before the close of preceding year.

2. Farmers to be covered:

All farmers including share croppers, tenant farmers growing notified crops in

notified areas are eligible for coverage.

The scheme covers the following groups of farmers

On a compulsory basis:

All farmers growing notified crops & availing seasonal agricultural operations

loans from financial institutions i.e. loanee farmers.

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On a voluntary basis:

All non-loanee farmers growing notified crops who opt for the scheme.

3. Risk Covered & Exclusions:Comprehensive risk insurance will be provided to cover yield losses due to non-

preventable risks (natural perils) like fire & lightning, storms, cyclones, typhoon,

hurricanes, as also floods, land slides, drafts, pests/diseases etc.

Losses arising out of war & nuclear risks, malicious damage & other preventable

risks shall be excluded.

4. Sum Insured/Limit of Coverage:

The sum insured may extend to the value of threshold yield of the insured crop at

the option of the insured farmers. However a farmer may also insure his crop

beyond the value of threshold yield level upto 150% of average yield of notified

area on payment of premium at commercial rates.

In case of loanee farmers the sum insured would be atleast equal to the amount of

crop loan advanced.

Further the insurance charges shall be additional to the scale of finance for the

purpose of obtaining loan.

In matters of crop loans disbursement procedures, the guidelines of RBI/

NABARD shall be binding.

5. Premium Subsidy:

At 50% subsidy in premium is allowed in respect of small farmers (a cultivator

with a land holding of 2 hectares i.e. 5 acres or less) & marginal farmers (a

cultivator with a land holding of 1 hectare or less) to be shared equally by the

government of India & state government. The premium subsidy will be phased out

on sunset basis within a period of 3-5 yrs subject to review of financial results &

the response of farmers at the end of 1st yr of the implementation of the scheme.

6. Procedure for Approval & Settlement of Claims:

Once the yield data is received from the state government/UT as per the

prescribed cut off dates, claims are worked out & settled by implementing agency.

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The claim cheques along with claim particulars will be released to the individual

nodal banks. The bank in turn, shall credit the accounts of the individual farmers

& display the particulars of beneficiaries on their notice board.

7. Corpus Fund:

To meet the catastrophic losses, a corpus fund shall be created with contributions

from the government & state/UT on a 50:50 basis. A portion of calamity relief

fund (CRF) shall be used for contribution to the corpus fund.

Sector Wise Premium Earned:

Agripump

Cattle & Crop

Poultry

Others

As can be seen from the diagram, the cattle insurance holds a major chunk of the

entire revenues. 83% to be precise. Agri-Pump follows next with 06%. This is to be

expected giving the nature of professions that people have & it actually gives us big

hint of where the priorities of the people lie. Of course, there should be nothing to

stop insurance companies from trying to pursue their own unique policies & targets.

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Rural demand for drought insurance

Many agricultural regions in the developing world are subject to severe droughts,

which can have devastating effects on household incomes and consumption,

especially for the poor. To protect consumption, rural households engage in manydifferent risk management strategies - some mainly risk reducing and some simply

coping devices to protect consumption once income has been lost. The absence of

formal credit and insurance institutions, which offer an efficient alternative by

overcoming regional covariance problems and reducing the cost of risk management,

amounts to a market failure. Past research has paid much more attention to the supply-

side reasons for this market failure than to the demand side question of whether there

exist financial instruments that farmers want and would be willing to pay for. An

attractive feature of the method is that it exploits actual production (input-output) data

and does not deal with the usually unreliable data on household consumption and

leisure activities. The model is applied to a two-year panel of data on households from

five villages in Tamil Nadu (South India). The sample is small, but the data are

special, as one of the two years was a severe drought year. The results indicate that

agricultural households exhibit significant risk-avoidance bahavior, and that even

though they may use a range of risk management strategies, there still remains an

unmet demand for insurance against drought risks. The study did not estimate the

likely costs of supplying drought insurance, but the latent demand in the study region

is strong enough to more than cover the breakeven rate of approximately the pure risk

cost (the probability of drought) plus 5 percent administration costs. The findings

confirm the inadequacies of traditional strategies of coping with droughts in poor rural

areas. Because of the catastrophic and simultaneous effects of droughts on all

households over large areas, there is limited scope for spreading risks effectively at

the local level. Either households must increase their savings significantly (a problem

with low average incomes and an absence of safe and convenient savings

instruments), or more effective risk management aids are needed that can overcome

the co variation problem. Improved financial markets (with both credit and savings

facilities) could be helpful, particularly if they intermediate over a larger and more

diverse economic base than the local economy. Alternatively, formal drought

insurance in the form of a drought (or rainfall) lottery might be feasible, and the

results suggest that it could be sold on a full-cost basis.

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Popularizing Health Insurance In Rural Areas

Around 70 per cent of Indias population, live in villages. Of these, less than 2 per

cent are insured. Though the rural health insurance market is huge, it has so far

remained untapped. Recently, IRDA has constituted a committee to chalk out a planfor spreading health insurance in rural areas. Various Micro-Health insurance

schemes are to be studied. Around 25 such schemes are run in rural India, most of

them attached to Micro-Finance Institutions. Falaknaaz Syed briefs you about the

issues that the IRDA committee will address and some prominent rural health

insurance schemes running in the country

IRDA Appoints Committee to popularize health insurance

With an aim to popularize health insurance in rural areas and address the hurdles

impinging its growth, The Insurance Regulatory Development Authority of India

(IRDA) has recently constituted a 13-member committee to chalk out a roadmap to

spread health insurance in rural India.

Says a member of the committee, The aim of this committee will be to look at public-

private partnership of micro health insurance, designing products specifically for rural

areas, ways to collect premium at low cost and settle claims at low cost, micro-

financing for health, strategies for encouraging large scale enrollment of rural

population for health insurance and address the various hurdles in providing efficient

service delivery.

"IRDA feels that insurance companies now need to focus on health as the business

that comes from the health portfolio from rural areas is negligible. Various schemes

such as Yeshaswini, and Healing Fields will be studied. These schemes are very

different from each other. Their positive aspects will be taken while caution will be

taken to ensure that their shortcomings are not repeated while replicating them on a

larger scale.

If the government wishes to cover the population for lessening debt burden and to

reduce poverty, then the insurance policy should cover common illnesses for which

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people take loans. So, a major issue to be addressed by the panel is what aspects of

health should be insured under the policy and how will it be run?

Healing fields Health Insurance Scheme:

Members pay Rs 285 (just 16 paise per day per person) to cover health insurance (Rs

20,000) for a family of five and Rs 35 for Personal Accident Benefit (Rs 25,000 each

on member and spouse) to HDFC Chubb, the insurance company for the scheme. The

policy is low-cost, which includes pregnancy and covers 43 listed common illnesses

governed by Diagnostic Related Group (DRG) Model. In case of a hospitalization,

up to 25 percent is paid by the patient as co-payment. The stakeholders, insurer, NGO

partner and the hospital together work out a customized process, map and goals, for

the success of the scheme.

Prices are pre-negotiated with the hospital for common illnesses. Since the rural client

in most cases is illiterate and poor, we have a facilitator stationed at each hospital to

help the patient in securing admission in the hospital, getting his medical history,

documentation and claims management. During this process, we collect a lot of data

on the insured both OPD as well as hospitalization, history, treatment procedures etc.

Our processes are in place starting from training the facilitator about the DRG Model

to surveying, to claims settlement. Today, the need of the hour is a

robust, quality service delivery mechanism that is easily approachable and

understandable. A great product with a poor delivery mechanism is as good as not

having a product at all. The claims rate for the scheme is 43 per cent while the

incident rate is just 1.3 per cent.

Shortcomings of the Scheme:At present, the scheme have not been able to scale it as envisaged because there are

too many schemes around and most of the schemes claim they are health insurance at

low cost but when we look deeper they turn out to be Personal Accident Benefit

(PAB) or critical illness schemes.

Yeshaswini Co-operative Health Insurance Scheme:

The Scheme covers the farmer co-operator, his spouse and children. The premiumcontributed per person was Rs 5 per month with Rs 2.5 subsidy from the government

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of Karnataka in the first year. The Yeshaswini beneficiary is entitled to the following

benefits: free outpatient services at a network hospital including consultation fee and

registration fee, investigation at special discounted rates, over 1600 listed surgeries

done free of cost at network hospitals.

The following charges are covered for any of the surgeries included in the policy:

Admission, bed, nursing, anesthesia, OT, surgeons, cost of consumables and

medicines during the surgery and post operative period, surgery-related post and pre-

operative investigations. The surgical cover is 100 per cent cashless. 16 lakh farmers

had enrolled as members in the first year, 35000 members availed of free consultation

at network hospitals, 9039 surgeries were done cashless amounting to Rs 10.53

crores; of these 657 were cardiac surgeries. In the second year, 22 lakh farmers

became members of the Scheme of which 82652 members have availed of free

outpatient consultation. More than 23000 surgeries have been conducted free of cost.

How the Scheme Runs:

A trust was constituted under Chairmanship of the Principal Secretary, Dept of

Cooperation with Additional Registrar, Dr Devi Shetty, and other representatives

from the government and healthcare sector. Package rates were negotiated and fixed

for over 1600 surgeries. Using Yeshaswini Health cards, members can go to any of

the 147 hospitals selected by the trust.

However, hospitalisation not leading to the surgery including common cold and fever

are not covered.

Arogya Raksha Yojana:

Residents of the Anekal Taluk and Kanakapura Taluk of Karnataka from 0 to 70 years

of age are eligible to be insured under the scheme. Members pay the premium to

ICICI Lombard General Insurance Company for the scheme and can avail treatment at

20 hospitals registered under the scheme. The Scheme has just completed 1 st yr with a

surplus of 25 lakh & enrollment for 2nd yr has been started.

The premium for Individual Scheme is Rs 180 per year, as part of the family

scheme, the premium is upto Rs 180 per member per year for two members, Rs 150

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per member per year for three members, and Rs 120 per member per year for four or

more members.

Offers of the scheme:

Arogya Raksha Yojana offers: Free out patient consultation, generic medicines at

special rates from network hospital pharmacies and Biocare pharmacies, diagnostic

tests at discounted rates at network hospitals and approved diagnostic centres,

hospitalization not leading to surgery, surgical treatment for over 1600 types of

surgeries, 100 per cent cashless facility for surgical treatment and medical admissions

up to the covered amount.

Future Plans:

The company is looking to take the scheme to other areas and groups. They have a

project in Amethi in Uttar Pradesh, where they are making 16 primary health centres

(PHCs) to provide free basic medical treatment to the people. This will be followed

by the launch of a micro-insurance scheme at 30-40 PHCs, which will take care of the

cost of the scheme.

Suggestions to boost the Health Insurance:

Health insurance needs to be looked at differently from PAB or life insurance as this

is in an extremely nascent stage. Also IRDA needs to separate health from other

insurances for the simple reason that claims incidences are extremely high and need

health management expertise to manage it. Also, it needs to find a mechanism where

OPD and day surgeries could be included as the rural poor find it expensive to stay in

a hospital for more than a day as they loose wages for the day. Besides, a premium

financing mechanism needs to be evolved so that it becomes easier for the people topay the premiums. Awareness campaigns need to be developed, as not knowing that a

person has a health insurance cover because it has been deducted from the loan taken

from the bank etc is as good as not having insurance. Adding preventive and

promotive activity as part of the programme to be sponsored by either the

government, NGOs and insurance companies will go a long way in promoting

insurance in the rural areas.

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Recent News on Rural Insurance in India:

1. New national health insurance plan on the anvil:

A new national health program is expected to be announced shortly where localpanchayats will be the nodal agencies in marketing health insurance to the Rural

poor.

The government wishes to bring then rural sector under a single health umbrella,

where by the entire population of a village or district is covered. This will be

possible through panchayats

Panchayats will be expected to collect the necessary premium in the form of cess.

Should there be a fund shortage, the government will make good the short form in

the form of a subsidy. It is estimated that the government will make an allocation

of over Rs.6500/- crores in the coming financial yrs towards the new health care

scheme. The program is aimed to provide health care in the under served villages.

The former BJP government had introduced a universal insurance plan at Rs.1 per

day. However the scheme fail to take off in most states for want of workable

machinery for the collection of premium income. There is no company today able

to serve or deliver the program, let alone market the same.

The proposed health care plan will commence in select districts. In addition to

collecting the cess, the centre will also need to create proper public health services

& improve rural hospitals to provide adequate health care.

Over 2000 community healthy centres will be upgraded in keeping with the

standards laid down by the Indian Public Health Standards. It is also understood

that the government proposes to promote multiple insurance models, where in

private insurance players will also play a role. The centre will develop a viable

risk pooling mechanism & create necessary institutional support for public health

care management.

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2. Max NY life begins tapping rural market:

Private insurance player Max New York Life Insurance Company Ltd (MNYL)

has started tapping the rural insurance market. Its 1st initiative commenced in

Punjab.

Their idea is to penetrate into rural Punjab first, before expanding their (rural)

presence in other states told by Mr. Rajesh Sud (Director Agency

Bancassurance) & Direct Sales Distribution. This addition takes the companys

countrywide branch network to 48 offices across 34 cities.

They had been able to sell good value propositions both individual & group life

cover solution. The sum assured range is above Rs. 50000/- & they even had a

Million Dollar Round Table Agent, justifying the companys rural presence.

3. ICICI Lombard in hinterland thrust:

ICICI Lombard has firmed up a Rs. 50 crore investment plan for enhancing its

rural network & has also entered into talks with the West Bengal government for

insuring farmers holding cultivable land in the state through an accidental death

benefit policy.

We are in the process of signing up an agreement with the West Bengal

Government for insuring all farmers possessing cultivable land. This would be a

group insurance policy where premium for the package would be around Rs. 12cr,

while farmers would get Rs. 1lac in case of death explained Sandeep Bakshi

Managing Director & CEO, ICICI Lombard.

At ICICI Lombard, they spent around Rs.30cr in 2004-05 for rural network. The

focus is on rural insurance & customer service. The idea is to provide health &

accident insurance to the rural population in India for which they were also

enhancing their network.

The bulk of the fund allocated for developing rural network would go into

creation of touch points in every district. In West Bengal they planned to setup

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around 17 touch points which would act as links between the rural folk & ICICI

Lombard.

The ultimate plan was to setup touch points in every district in India where they

had made considerable inroads in providing rural insurance through state

governments.

A portion of the fund would also go into creating awareness among the villagers

through various means of mass communication & also through the state

machinery like the panchayats.

Officials from the company said that ICICI Lombard would as of now use the

governments network to service the policies & farmers owning lands would be

selected from the land record department. The idea was to collect the total

premium from the west Bengal government & service the claims also through the

state machinery hierarchy.

4. Micro Insurance:

The benefits of opening the insurance sector are visible by way of vast

improvement in insurance penetration & insurance density, & the availability of a

wide variety of products. Government would like to see these benefits percolate to

rural India & to the vulnerable sections of the population. Micro insurance is a

distinct product. Its design & delivery are specialized functions. The insurance

regulatory development authority (IRDA) has published draft regulations for

macro insurance. NGOs, SHGs, co-operatives & MFIs will be invited to

become macro insurance agents. Government will extent full support to the effort

of IRDA to promote macro insurance.

In insurance sector the Finance Minister has stamped the distinct product of

Micro Insurance, which has been specially designed for poor sections of the

society. The Micro Insurance has been drafted & Draft Regulation is being

prepared by IRDA for life as well as non life insurance for the poorer of the

poorest. Health insurance for poorer has also been addressed by the Finance

Minister.

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5. Tata AIG Exceeds Rural Insurance Target (our Banking Bueareo) on 2-05-

2002.

Mumbai: Tata AIG Life Insurance Companys rural programme has accounted

for around 11 per cent of all life policies sold by the company for the year ended

March 2002, as against the stipulated minimum of 5 per cent.

The company has undertaken a pilot programme for rural insurance in Tamil

Nadu, which has also been extended to rural markets in Kerala and Karnataka.

Plans are also under way to cover Andhra Pradesh and the entire region of four

southern states in the months ahead.

Our rural life insurance programme is targeted at all income levels in the rural

sector. The myth that the rural poor are not insurable is being challenged with the

introduction of affordable products specifically designed to meet the needs of the

target market, says Tata AIG Life managing director Ian Watts.

The rural programme of Tata AIG was targeted to create an asset for the rural

poor in the form of hedging their economic loss in the event of an untimely loss of

an earning member.

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Failure of Private Insurance Players in Rural Areas An Analysis

Current Scenario:

In India, insurance is generally considered as a tax saving device instead of its other

implied long term financial benefits. Indian people are prone to investing in properties& gold followed by bank deposits. They selectively invest in shares also, but

percentage is very small i.e. 5-6%. Even to this day, Life Insurance Corporation (LIC)

of India dominates Indian insurance sector. With the entry of private sector players

backed by foreign expertise, Indian insurance market has become more vibrant.

A major milestone during the post liberalization era is the opening of the insurance

business to Indian private sector, breaking up of monopoly of LIC & GIC. The

Insurance Regulatory & Development Authority Act 1999 (IRDA Act) was passed by

the parliament. IRDA consists of a chairman, five whole-time members & four part

time members. As per the IRDA Act, an insurance company is one in which the

majority stake is owned by Indians & is managed by Indians & registered in India.

Thus, the equity structure of newly set up insurance companies will comprise 60%

Indian, 26% foreign partner & 14% NRIs, overseas corporate bodies & FIIs.

The basic idea underlying the opening of the insurance business has been to infuse

competitiveness in insurance sector, which will in turn benefit the public at large.

There is a wealth of historical experience from across the globe that bears out the

correctness of the premise. Countries has witnessed the rapid growth of insurance

services once the field has been thrown open. Given the fact that only a minuscule

minority of the population today has access to insurance services, the potential for

growth is clearly tremendous. On the contrary, private sector globally has shown the

ability to innovate & offer a diverse range of products that matches the requirements

of wide variety of groups. It is more likely that the ushering in of competition in this

sector will not merely expand the coverage, but also customize it in a manner that was

far less evident in the days of the LIC-GIC monopoly.

According to industry observers, the biggest potential lies in the rural insurance

market where the penetration of the insurance players has been low. Often in the rural

areas, insurance is perceived as an additional burden rather than a means to combat

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risk. According to an independent survey conducted by a big private insurer, 12% of

the rural population has an insurance cover. Considering the fact that more than 65%

of the Indian population lives in rural area, the potential is highly attractive. While

most of the insurers may find it unattractive to tap the rural insurance, it should be

understood that the relatively smaller amount of policies would be compensated by a

large number of policies. Rural insurance should be looked upon as a opportunity &

not an obligation. It is important to take advantage of the immense potential that

resides in the rural sector.

With the entry of new players in the sectors, the competition has increased manifold.

Giants like State Bank of India, HDFC, ICICI, Bajaj & Reliance have all forayed into

the market. Recently the Indian car giant Maruti Udyog Limited also announced its

plans to enter into insurance. Though the companies are competing with the

government monopolies, in way or the other, they are also competing with each other

to create a niche for themselves. Presently most of the companies are busy setting up

of their offices & establishing agent network & a market is yet to witnessed a full-

fledged competitive environment. However the entry of big private players &

multinational companies has created ripples in both LIC & GIC. Both of them are

forced to act immediately to sustain the market initially & than to expand to survive.

To compete & survive in this highly competitive environment, insurers are choosing

different strategies. In the insurance sector distribution strength is the key to success.

And the new insurers are finding new ways to reach their prospects.

Life insurance players:

Life Insurance Corporation of India.

SBI Life Insurance Company Ltd.

Bajaj Allianz Life Insurance Company Ltd.

Om Kotak Mahindra Life Insurance Company Ltd.

ICICI Prudential Life Insurance Company Ltd.

HDFC Standard Life Insurance Company Ltd.

Birla Sun Life Insurance Company Ltd.

ING Vysya Life Insurance Company Ltd.

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Tata AIG Life Insurance Company Ltd.

MetLife India Insurance Co. Pvt. Ltd.

AMP Sanmar Assurance Co. Ltd.

Dabur CGU Life Insurance Co. Pvt. Ltd. (AVIVA)

Max New York Life Insurance Company Ltd.

Research Methodology:

For doing the analysis, existing product profile & players were studied through

secondary sources, & for determining the current scenario & location problem &

shortcomings, primary data was collected with the help of questionnaire having

mostly open-ended questions & also interacting with the respondents to get the actual

feel of the pulse. Survey was conducted in Lucknow city as well as its adjoining rural

areas. The total sample size was 200 out of which 80 belonged to urban areas & 120

to rural areas.

Findings:

The stark finding reveals that there is a major difference in the objectives & the

expectations between rural & urban policyholders. Rural population showed high biastowards low premium & maximum risk coverage. Also, they prefer compensation

upto actual amount of loss, which should be provided under any circumstances i.e.

there should be no restriction on the reasons responsible for the loss where as in urban

areas, preferences are been given to the objective of maximizing the compensation &

for that they are ready to pay high premiums.

In rural areas, private players have still not achieved much success & have failed to

catch the pulse of rural India as compared to the public sector players. Also, in rural

areas, private players have not been able to provide successfully the policies preferred

by consumers having agriculture as their means of livelihood.

In urban areas, the conservative consumers took insurance as a tax saving device as

they have a feeling that they have already or would be able to save enough to

compensate the expected losses, whereas the consumers belonging to new generation

working in corporate sector take insurance policy in real sense.

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In urban areas the persons belonging to middle income group prefer policies of public

sector players & only high-income group preferred private sector players.

The study also reveals that in urban areas, services provided at doorstep & efficient

customer service were the two major reasons, which helped in market penetration by

the private players. Red tapism & cold shoulder attitude of public insurance providers

were largely responsible for the fall in their market share.

But, if we look at the rural sector the major reasons for the failure & shortcomings in

their products & services can be summarized as follows:

Lack of popular or mass appeal in marketing strategy.

High variation between services provided & consumers expectations.

Expensive policies & high premiums.

Product differentiation & innovations are not in conformity with the requirements

of rural population for whom agriculture is a major source of livelihood.

In non life insurance, the consideration of recognizing livestock & crop yield as

assets, is missing.

Professional style of working has failed to generate confidence & goodwill, as

rural population prefers personalized approach & that too in accordance with the

regional culture.

Conclusion:

After analyzing the existing facts & relevant inferences, we can conclude that there is

significant requirement of change in products & services & marketing strategy of

private players of insurance sector.

In my opinion following steps may provide for a significant increase in the market

share of private players.

Policies must be designed in such a manner so as to have low premiums &

payment schedule must watch the earning season of the agriculturists.

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Policies that may have risk coverage upto actual/estimated losses as high assured

sums are not much preferred by rural consumers & also result in high premium

payments.

Risk coverage must be designed in conformity with the incidents experienced inrural areas & in agriculture, which cause losses.

Consideration must be given to specific items of rural areas & agriculture

considered as assets while formulating the insurance policies.

Loans against policies feature must be present & procedure for credit granting

must be kept simple.

Simple policies without any riders must be provided for rural consumers as they

give more weightage to low premiums rather than extra benefits.

Urban vs Rural Market

Indian insurance market can be divided into urban & rural markets. These two

segments are diverse in nature & have distinguished characteristics. The economic

growth of the two has not been the same. A wide disparity exists between the per

capita income & literacy rate, among other things, in these 2 sectors. From insurance

perspective, statistics shows that rural population has lower reach. The agent per 1000

persons is around 0.25, which is far low in comparison to that of the urban market.

Insurers may use this knowledge in designing innovative products, need-based selling

of insurance, better penetration, development of new channels etc.

Most new insurance companies started operating from metros & urban areas. As a

result the urban population got the more attention & let to more penetration in urban

than in rural markets. The urban segment in India is small as compared to the rural

segment. Hence, exploring the rural markets poses to be Herculean task to the

insurers.

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Rural

Urban

Experts are on the opinion that the urban markets are rapidly getting saturated, & the

future growth lies in the rural areas. However, it does not signal that the whole of the

urban insurable population is roofed, but the percentage of the first time buyers would

be on decline. It is the fact that the urban population has greater accessibility & reach

to the insurance products. Also, most of this population are a part of the organized

sector & have insurance cover either directly or indirectly. Their higher education

status has let to better awareness about financial & insurance products. They are more

informed about the market conditions, & demand product innovations to suit their

growing needs.

But the situation with the rural populace is the different. A majority of them are left

uncovered although they are also exposed to risks similar to or even higher than their

urban counterparts. The ratio of rural Indian population is very high & it has growing

insurance needs; therefore, it is a fact that the potential growth of insurance industry

lies in rural market, both for life & general (non life) insurance. A lot of study &

research was & is being carried out in this direction to develop new strategies to

explore the untapped area in the Indian insurance market.

Private insurers reach out to rural customers

The Life Insurance Corporation of India sells about 23 per cent (62 lakh policies) of

its total number of policies in the rural areas, a segment that is integral to its social

security objectives.

Rural insurance, much like priority sector lending in banking, is seen as some kind of

a poison pill by the private sector players in the insurance industry. Insurance

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companies are mandated to sell 7 per cent, 9 per cent, 12 per cent, 14 per cent and 16

per cent of their policies in rural areas in the first, second, third, fourth and fifth

financial years, respectively.

A change in the definition of what constitutes `rural' has given some leeway for

insurance companies to get in the mandatory percentage. In August 2004, Insurance

Regulatory and Development Authority altered the definition, aligning it with the

census definition of `rural'.

The census does not define rural area. It defines only an urban area. And by inference,

what is not urban is a rural area.

The erstwhile IRDA definition of rural areas included all areas with a population of

less than 5,000, with a density of population less than 400 sq km and where at least 75

per cent of the male working population was engaged in agricultural pursuits. The

IRDA had amended the definitions earlier in 2002 to bring down the requirement

stipulating that at least 25 per cent of the population had to be engaged in agricultural

pursuits.

The revised definition has widened the market.

Mr Vivek Khanna, Director, Marketing, Aviva Life Insurance Company, said, "A

couple of thousand villages would now be brought under the fold. The earlier

definition meant that only some remote villages could be tapped. And there is no

ambiguity now."

Ms Anjana Grewal, Vice-President of Marketing at Birla Sun Life Insurance

Company, said, "The revised definition brings a larger part of the population under

`rural' - almost 72 per cent compared to 42 per cent under the earlier definition. What

this would do is make it possible for insurance companies to introduce different

products with higher premiums."

According to analysts, 80 per cent of the rural population earn less than Rs 6,000 a

month and a high premium may not suit them. Designing customised products and

developing infrastructure and distribution systems is the way towards tapping this

segment, they said.

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Ms Shikha Sharma, MD, ICICI Prudential, said, "We have been able to hit the rural

pockets through NGOs and direct marketing."

ICICI Prudential's rural distribution model involves agents, brokers as well as referral

arrangements with NGOs, micro-finance institutions and corporates. There is a

presence in 15 States through partnership arrangements with Uttaranchal Co-operative

Marketing Federation, nLog Communications, ICICI Bank and ITC's e-Choupal . As

of 2003-04, 64,764 policies were sold.

According to Mr Sam Ghosh, Managing Director, Bajaj Allianz Life Insurance

Company, "Rural policies are not an issue for us; we are present in more than 300

towns across the country and our offices and agents find it easy to reach and sell in

rural areas."

Tata AIG has also been working with brokers, corporate agents and NGOs. It offers

products with premium ranging from Rs 120 to Rs 720 per annum with coverage

ranging from Rs 15,000 to Rs 60,000. For 2004-05, 19 per cent of their business came

from rural and social insurance.

Mr Vijay Atre, National Head, Rural Insurance, Tata AIG, said, "We have created

rural community insurance groups. This 120-strong self-help group consists mainly of

women. It has been very successful in Andhra Pradesh. In areas like Latur and

Osmanabad, we work with women's federations where there is the concept of cluster

leaders."

While these tie-ups seem to be achieving the twin objectives of social rehabilitation

and distribution, there is still a long way to go. Most private players admit that the

rural areas can never be their target audience. Insurance will continue to be urban-

centric.

As Mr Atre said, "When one talks about rural insurance, there is confusion about

whether it is a product, a distribution channel or a market. It's about time it is

considered a market."

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Opportunities & Threats in Rural Insurance Market:

Opportunities & threats go hand in hand in every industry & insurance industry is no

exception. Identification of opportunities & threats help in better analysis of the

market. An attempt is made to examine the opportunities & threats related to rural

insurance market & how insurers can get the most out of them.

Opportunities:

Gigantic Population:

India has higher population growth rates. The rural population amongst to nearly

72% of the total population & as discussed earlier, majority of them are left

uncovered. This can be Major Avenue for the players in the insurance market.

Agriculture Insurance:

Agriculture is the major vocation & source of income for the rural India. This

segment has vast potential, which cannot be overlooked.

Growth in Income Level of the Rural Population:

The national income of the country as well as the individual income level is on the

rise. The agriculture & allied sectors are showing steady growth rate. The rural

market contributes upto 55% of the national GDP. It points out to the tremendous

amount of potential available in rural areas.

High Saving Habit:

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Indians & in par

coverage of insurance in rural india

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