Rural insurance: Need and potential

A. R. Patel INSURANCE has thus far been mostly city-oriented. But things are happening in the rural areas where human life and income-generating rural assets need protection, and there is tremendous scope for developing insurance business. This shows up the gross ne glect of the rural areas vis-a-vis insurance cover, though since the late-1960s, a silent economic revolution has been on in the villages. Now that the insurance sector is open to the private sector and foreign companies, 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 and assured income, well-planned and organised efforts by committed private sector companies can yield rich dividends from the rural areas. This is because: (1) A large number of rural districts have witnessed significant growth and prosperity; (2) Access to reliable and authentic data and information has improved considerably, which can enable quick and correct decision-making; (3) There are specific functionaries and agencies in the rural areas which can help explore and exploit insurance business in the untapped rural market. The number of families living below the poverty line has considerably declined in Punjab (11.7 per cent), Goa (14.9 per cent), Andhra Pradesh (22.2 per cent), Himachal Pradesh (23.4 per cent), Gujarat (24.2 per cent), Haryana (25.0 per cent), J&K (25.2 p er cent), Kerala (25.4 per cent) and Rajasthan (27.4 per cent) -- much below the national average of 35.97 per cent in 1993. Rural banking as catalyst While public investment in agriculture has declined to 16.2 per cent, the rural banking system has been encouraging farm development through provision of credit facilities for production of crops including horticulture, plantation, forestry; purchase of farm equipment; livestock and fish farming; irrigation facilities and installation of diesel engines, and so on. Bank credit is also provided for establishing village/cottage industries, stocking/supplying farm inputs and cattle-feed, and business and trade purposes. From 1969-70 to 19992000, up to Rs 3.1 crore has been provided to the farm sector. With enhanced incomes, and further supplemented by bank credit, the rural population is acquiring consumer durables, constructing houses, purchasing vehicles, computers, and so on. All these assets need to be protected from damage/loss, natural or manmade. Thus, the rural areas offer enormous opportunities for committed private insurance companies in both life and non-life insurance schemes. This will, in turn, help create more that would have direct impact on rural development and the country's economic growth, in general. In fact, insurance in the farm sector should benefit from the advances of science and technology as well.

LIC in the last decade has evolved a number of products which, however, do not suit the needs of the rural areas. Similarly, the four GIC subsidiaries have also been providing insurance cover for specific kinds of assets owned by rural households through bank credit. But more has really put in the required marketing effort in the villages. The claim lodgement and settlement procedure is time-consuming and cumbersome. Cattle insurance under the government-sponsored Integrated Rural Development Programme and crop insurance (till now covering banks' loanees) have not met with the expected results. Valuable data and information on rural areas has been available on the rural areas through the publications/surveys of the Central Statistical Organisation, National Sample Surveys, National Council of Applied Economic Research, and so on. From 1989, the National Bank for Agriculture and Rural Development has been formulating Potential Linked Credit Plan, and the Lead Bank has been the Annual District Credit Plan that give considerable insights into the Government's plans for farm and rural sector devel opment. Besides, the village profile available with each of the branches of nationalised/public sector banks contain exhaustive data on the population, cultivating households, categories of farmers, classification of workers, livestock, cropping pattern, farm eq uipment and machinery and so on. There are more than 1,75,000 rural credit outlets in addition to the offices of the District Rural Development Agency, the District Industries Centre, the District Development Manager of nationalised banks and Lead District Manager of the Lead Bank. All these institutions and agencies can offer considerable information to insurance companies. Firms interested in developing rural insurance can: *Identify insurance products best suited to rural elite/rich as well and rural households. *Evolve area- and client-specific products. *Design a method and system for fixing and collecting premium, and claim settlement procedure to ensure customer-friendly services. Educated unemployed youths of the villages can be trained and become valuable assets for the companies. While insurance companies are eager to build their business in the urban areas, there is a hitherto untapped potential for business in the rural areas which can be exploited. The Centre and the State governments must encourage private and foreign insurance companies to enter the rural areas, and provide protection to rural assets from damage and loss due to natural and man-made calamities. For this purpose, reasonable and nee d-based concessions/reliefs in taxations and subsidies, required infrastructural facilities and administrative support must be extended, at least for ten years. The government may consider appointing an Expert Committee on Rural Insurance to work out the modalities for private and foreign companies interested in entering the rural areas. ural insurance: Need and potential' (Business Line, June 23) has highlighted that the Government should pay serious attention to the rural areas. In fact, Life Insurance Corporation of India (LIC) stipulates that a considerable percentage of its busine ss should be from rural areas. And it has some social security schemes covering the rural and urban poor, landless labour, and so on.

Yet it was not possible for it to penetrate into the interiors to tap the rural business. Two main reasons were the cost involved in servicing, and the policies not meeting the credit requirements of the farmers. They were accustomed to old methods of bo rrowing, chitties, etc. Crop insurance was also a failure because of misuse and false claims. And agents as well as insurers are not interested in policies of small sums assured and premiums. So, the Insurance Regulating Authority should insist that the business of every insure r should have a particular percentage of rural business and of small policies. The insurers -- LIC as well as the new entrants -- could introduce cost-effective collection methods by involving post offices. They should introduce innovative schemes such as `Crop linked life insurance', with proper credit facilities, easy claim settl ement methods.

Rural Insurance
Indias life insurance firms have exceeded expectations in terms of growing their business in rural India, both among the rural wealthy and the not-so-wealthy, and most firms in the business are actually ahead of targets laid down by the sectors regulator, Insurance Regulatory and Development Authority, or Irda. The companies claim that apart from helping them grow sales in locations outside the near-saturated urban markets, this strategy also helps them maintain their profitability at existing levelswhich means that rural policies are as profitable as urban ones. Rural and social insurance is a very good business opportunity. With urban areas having high insurance penetration, the next growth driver will be rural population,

Need for Micro-Insurance Risks Faced by the Poor 11.01 Micro-insurance is a key element in the financial services package for people at the bottom of the pyramid. The poor face more risks than the well-off, but more importantly they are more vulnerable to the same risk. Usually, the poor face two types of risks idiosyncratic (specific to the household) and covariate (common, eg., drought, epidemic, etc.). To combat these risks, the poor do pro-active risk management grain storage, savings, asset accumulation (specially bullocks), loans from friends and relatives, etc. However, the prevalent forms of risk management (in kind savings, self-insurance, mutual insurance) which were appropriate earlier are no longer adequate. 11.02 Poverty is not just a state of deprivation but has latent vulnerability. Microinsurance should, therefore, provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster. There is an overwhelming demand for social protection among the poor. Microinsurance in conjunction with micro savings and micro credit could, therefore, go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion. Defining Micro-Insurance 11.03 The draft paper prepared by the Consultative Group to Assist the Poor (CGAP) working group on micro-insurance defines micro-insurance as the protection of low income households against specific perils in exchange for premium payments proportionate to the likelihood and cost of the risk involved. The paper deliberates on the key roles to be played by all stakeholders insurers, regulator and the Government. The working group also agrees that the cost of such cover should be affordable.