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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.

Coverage of Insurance in Rural India

Coverage of Insurance in Rural India


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

Coverage of Insurance in Rural India

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

Coverage of Insurance in Rural India

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 cooperative 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.

Coverage of Insurance in Rural India

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 2001-02 0.8 26.8 54.7 25 2005-06 1.6 41.3 63.3 14.7 Destitutes 20.9 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 who will sit down with you and go over the details. Thats why we have more than one

Coverage of Insurance in Rural India

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.

Coverage of Insurance in Rural India

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

Coverage of Insurance in Rural India

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 one eye 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.

Coverage of Insurance in Rural India

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.

Coverage of Insurance in Rural India

2.

Property Insurance:
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.

I. Agricultural pumpset:

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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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 212yrs 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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Coverage of Insurance in Rural India

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 310yrs. 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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Coverage of Insurance in Rural India

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 1day4yrs, 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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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 3 rd 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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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 nonpreventable 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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Coverage of Insurance in Rural India

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:

Agripum p 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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Coverage of Insurance in Rural India

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 many different 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 supplyside 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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Coverage of Insurance in Rural India

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 plan for 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 publicprivate partnership of micro health insurance, designing products specifically for rural areas, ways to collect premium at low cost and settle claims at low cost, microfinancing 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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Coverage of Insurance in Rural India

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 premium contributed per person was Rs 5 per month with Rs 2.5 subsidy from the government

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Coverage of Insurance in Rural India

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 preoperative 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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Coverage of Insurance in Rural India

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 to pay 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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Coverage of Insurance in Rural India

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 local panchayats 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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Coverage of Insurance in Rural India

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

30

Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

5. Tata AIG Exceeds Rural Insurance Target (our Banking Bueareo) on 2-052002. 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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Coverage of Insurance in Rural India

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

33

Coverage of Insurance in Rural India

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 fullfledged 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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Coverage of Insurance in Rural India

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 bias towards 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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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 in rural 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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Coverage of Insurance in Rural India

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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Coverage of Insurance in Rural India

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.

39

Coverage of Insurance in Rural India

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 urbancentric. 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."

40

Coverage of Insurance in Rural India

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:

41

Coverage of Insurance in Rural India

Indians & in particular, rural people have high saving habit. This may be due to uncertainties & perils they are exposed to in the rural areas. Hitherto, they had only a few investment avenues like post office saving or bank deposits, & insurance could be made as alternate investment opportunity with the benefit of life cover. Falling Interest Rates: Insurance has become an alternative investment product. With the fall in the interest rates, insurance products can be made investment avenues, which give good returns with insurance protection. Threats: Uneven Distribution of Population: Indian population is not evenly distributed. The percentage of villages with population below 200 is 20%, & the percentage of villages with population between 200-500 is 40%. The total village exceeds 6 lakhs in numbers. The uneven population distribution could be a hurdle for the insurers to reach out the ultimate customer. On the other hand, insurance as a product is unique in itself. Unlike other products, insurance selling is effective through personal selling, which involves high costs. The agents may not find it worthwhile to interact & procure business, when prospective customers are scattered. It will take a long time for the alternative channels of distribution to reap results in our country especially in the rural areas. Low Literacy Levels & Insurance Awareness: Statistics suggest that literacy rate is as low as 65 % & much has to be done in this area. Low literacy stands out as another major threat for insurers because communicating the benefits & mechanism of insurance products to the illiterate or semi literate masses may not be easy. Rural Employment Condition: The major employment source for rural populace exists only in agriculture & allied activities. These professions need much muscle work, which affects the

42

Coverage of Insurance in Rural India

longevity of a person. The earning power of person is a crucial point for life insurance underwriting & insurers cannot ignore this fact. Low Earnings: As much as 30% of the Indian population lives below the poverty line. Majority of them are landless agricultural laborers & wage earners. So it is quite essential to design low rate products that are affordable by these people. For them to be able to meet their basic needsfood, clothing & shelter is the primary object & purchasing insurance is not a top priority. Nevertheless, they too have insurance needs, & selling insurance to them would be a major challenge. The quantum of insurance is another aspect to be looked into while designing the products. On the other hand, insurance as a means of tax saving device wont help due to their low levels of income & also because agriculture income being their major source of income. Hence covering this large segment would be a daunting yet challenging task. Traditional Saving Habits: If we give a close look at the saving habit of the rural population, we find that they prefer to invest in real assets than in intangible assets like bank accounts, insurance, post-office schemes etc. the most favorable avenues for them are purchase of land both agricultural & non agricultural, gold & silver etc. Health Conditions: With the efforts of government & non-governmental organizations there is some improvement in the health conditions of Indian population, especially in the urban areas. But much has to be done in the rural areas. Many of the villages still do not have minimum basic amenities like proper sanitation, drinking water facilities, good hygienic environment, and health facilities etc, which have direct & indirect impact on their health conditions. Risk of contracting deadly diseases is also very high. Though they have higher need for health insurance, their affordability is a major question. One can only wait & watch as to how insurers would conduct themselves in this regard.

43

Coverage of Insurance in Rural India

Peoples Psychology: The majority of the Indian, especially rural population, believe in God & are superstitious to some extent. They tend to either retain the risk or avoid the risk, instead of managing or hedging the risk. This tendency should also be considered as a potential threat in selling insurance. Credibility: The research studies conducted by FICCI in association with ING insurance reveal that, one of the major factors influencing the marketing of insurance in rural areas is the credibility of the insurers. In the past, there were cases of financial frauds, which affected the faith of rural population adversely. Confidence building exercises need to be carried out, & government & the IRDA need to join hands with the insurers in this regard.

Role of Government:
Across the globe, government has been playing a major & important role in the social welfare of their citizens. In India, the central government along with state governments has been active on this front. But on the whole, it is lagging behind, when compared with other developed countries. The workers group can be divided into 2 categories viz, organized sector & unorganized sector. The organized sector is relatively a small portion of total working group. The unorganized sector that constitutes a major section in population includes cultivators, agricultural labors & workers who work in the unorganized manufacturing & service industries & it includes the self-employed. Poverty alleviation activities: Around 30% of our population is living below poverty line. Ironically, the risk exposure of this population is higher due to the kinds of perils they are exposed to & due to the absence of adequate protection compared to the population with higher income. Most of the people would not be able to afford insurance premiums to cover the perils they are exposed to. Taking these factors & facts into consideration the Social Security Fund with a corpus of Rs.100 cr was set up in the union budget of 1988-89. This fund was setup exclusively for funding the group schemes for weaker

44

Coverage of Insurance in Rural India

sections. The main aim was to provide them economic security. In order to meet the aim the central government along with public sector insurance companies started schemes that are briefed below. Group Insurance Scheme for the landless agricultural labors (LALGI) Group Insurance Scheme for the beneficiaries of integrated rural development programme. (IRDP) Group Insurance Schemes for certain sections of the society where 50% of the premiums are financed out of the social security fund. Rural Group Insurance Scheme 1995.

Schemes Introduced in Association with LIC of India:


Janashri Bima Yojana: This scheme was floated to provide insurance cover to rural & urban poor population below & marginally above the poverty line. The age group covered is from 18-59 yrs. For this, a person needs to be a member of approved vocation group. Out of the premium of Rs.200, half is borne by the member & the balance is adjusted from Social Security Fund. Krishi Shramik Samajik Suraksha Yojana (2001): This scheme was started to provide life insurance protection periodical lump sum survival benefit & pension to agricultural workers. Survival benefits will accrue at the end of 10 yrs upto the age of 60 yrs. The scheme also includes pension payment after the beneficiary attends 60 yrs of age. Shiksha Sahayog Yojana: It is a scholarship scheme to benefit the children of the members of Janashree Bima Yojana. The child in 9th or 10th standard, whose parents are covered under JBY, is provided scholarship. An amount of Rs.300 per quarter is paid as scholarship for a maximum period of 4yrs & only for 2 children. No premium is charged.

45

Coverage of Insurance in Rural India

Schemes Introduced in Association with Public Sector General Insurance Companies. Jan Arogya Bima Yojana: This scheme provides low cost & economical medical insurance to poorer sections of the society in the country. The age group of the population covered is between 5-70 yrs. The sum assured is Rs.5000/-. Raj Rajeshwari Mahilakalyan Yojana: This scheme was started to provide economic security to the women population in our country. Experience shows that the sum covered is very low in these schemes & the claim amount may not be sufficient for the funeral expenses of the deceased. A lot of bureaucracy/red-tapism & involvement of middlemen is also a major negative factor in this regard. Indias economy has been an agrarian economy & it stands 4 th in the world in terms of output & income generated from agriculture activities. Agriculture contributes 25% of GDP. A major portion of population is dependent on agriculture & allied activities. Indian agriculture is labor intensive unlike in developed countries, where more scientific methods are adopted & modern tools are used in agriculture & farming activities. Agriculture has been providing employment to major portion of our population. Indian agriculture is highly dependent on the monsoons & crops are exposed to several risks. Traditionally, the risks are borne to a large extent by the farmers themselves & to some extent by government. Crop insurance was almost negligible in early years. Hence, the importance of agriculture insurance need not be overemphasized. Crop insurance was taken up as group schemes for farmers availing loans from the banks. The direct advantage from this was that the premium was low i.e. between 1-2%.

46

Coverage of Insurance in Rural India

In this direction, the National Agriculture Insurance Scheme (NAIS) was introduced in the year 2000 which replaced the existing comprehensive crop insurance scheme (operating since 1985). NAIS was primarily aimed at covering all food crops, oil seeds & an annual commercial/horticultural crop in respect of which the past yields data is available for adequate numbers of years. The Agricultural Insurance Corporation of India Ltd is a new initiative in this direction the public sector general insurance companies & NABARD promoted this company, & it was registered under the companies act, 1956. This body was setup with the objective of intensifying the agriculture insurance in our country. The new corporation will take care f insuring farms, agricultural properties, cattle, poultry etc. The estimated size of the agricultural insurance business is around Rs. 1000cr & is expected to grow over Rs. 10000 cr in the years to come. Of late, government has been in acting legislations, which made insurance compulsory. They are :- Public Liability Act, Motor Vehicle Act & Workmens Compensation Act etc. Suitable legislations may also be brought out in the areas of personal lines of insurance, which would help in improving the economic security of the people. To begin with, health & pension sector could be considered. Role of IRDA: The role of Insurance Regulatory Development Authority (IRDA) is prominent in the development of the insurance sector in our country. IRDA has covered as a strong regulator in our country. Greater independence & more powers could be the obvious reasons for this. In order to avoid the possible negligence by the insurers towards rural markets (particularly the new players), IRDA formulated the obligations of insurers to rural social sectors. And it was found that all the insurers both life & general, complied on these counts, & that their performances were much above the required levels. Looking at the performances the pertinent question would be on the need to revise such benchmarks.

47

Coverage of Insurance in Rural India

Another area where initiatives are to be taken by both IRDA & insurers is the health sector. There is scope for much work in this domain. Role of Insurers: Insurers have a major role to develop insurance business. They should orient themselves towards market development to increase the penetration levels. As discussed earlier, the penetration level has increased to 3.56% from 2.52% in the last couple of years. There has been overall growth in the insurance market. The entry of new players has not resulted in the division of the existing market, but the market itself is on the growth path. However, there is much scope & room for developing insurance particularly in the rural context & work in this direction has just begun. The insurers should focus on the following areas:

Development of alternate channels of distribution: The insurers should work towards development of alternate channels for distribution in insurance in order to increase the existing levels of penetration. Bancassurance is one such distribution, which is yet to be adopted in a complete manner. The experience in the countries where it is working in a full-fledged manner is extra ordinary. It has emerged as a cost effective tool for distribution of insurance products. In India, where the number of villages is above 6 lacs, selling insurance could be a challenging job. With the spread of bank branches in majority of the villages, tie-ups with them should help increase in penetration. Tie-ups with NGOs/SHGs The non-governmental organizations & the Self Help Groups could play a major role in increasing the penetration levels. These are informal groups, which provide avenue for insurance selling through the mechanism of group insurance schemes. Group insurance provides greater reach with low operation costs & fewer rates. Product Development & Innovations:

48

Coverage of Insurance in Rural India

In insurance market, product development & innovation exercises are a continuous process. New products should be developed keeping in view the rural market conditions viz-low average income, seasonal income etc. Reduction in Operating Costs: Costs reduction cannot be ignored especially when it becomes part of premium to be charged. Business process outsourcing, third party administrators, & bancassurance can be considered in this direction. This effort would lead to low rates, which will have more acceptability in rural markets. Need Based Selling: Some products, which are popular in the urban areas, may not be suitable to the rural areas, as they might not cater to their needs. Hence, insurers should adopt need based selling.

Health Insurance: Health insurance is a segment, which is neglected by both public insurers & private insurers. Statistics suggest that only 3% of our population has voluntary health insurance cover. The rural population is more in need of health insurance, because of its inaccessibility to high medical costs & due to non-availability of proper health infrastructure facilities. The health insurance segment needs greater attention keeping these facts in view. Pension & Annuity Market: Statistics reveal that only 11% of our population has the privilege of the pension. A major segment is left without old age income. This market needs to be exploited to the full extent. And nobody can afford to ignore the rural segment. Products with in built life cover & old age income should be developed.

Conclusion:

49

Coverage of Insurance in Rural India

At the end of the day, it is the opportunities & not compulsions, which would drive the old & the new players to rural India. There is a mutual cause served, as the rural folk, particularly the low-income population, get their risks hedged, and the insurers can earn & retain bigger shares. The outcome would be a steady & secured economic growth. Role of Public Sector Undertakings to Improve the Insurance Business in Rural The rural insurance business of 4 public sector general insurance companies is expected to be transferred to the proposed Agricultural Insurance Corporation of India. Sources said that this would include all the crop insurance business operated by the General Insurance Corporation of India. The premiums for crop insurance is subsidized by the Union & State Government. Similarly the state government on the proportionate basis also meets the claim payments. The subsidies on the crop premium payments are however in the process of being phased out & are likely to be linked to the minimum support price & the claims ratios prevailing in the sector. This would not lead to steep escalation in the premiums. Instead the component paid by the farmers would increase over a period of time. The premiums on crop insurance range anywhere between 1.75% & 3.5% of the sum insured & also on the region. Insurance premiums are likely to be high in regions where the risks of natural calamities are high. But the sources added that a mechanism of cross subsidization would be worked out eventually. This is expected since the fundamental purpose of the Agricultural Insurance Corporation is to enlarge the insurance coverage in the country. An agricultural insurance coverage is barely 10%. Accordingly as the volumes in the business increase, income from the investment would help to keep the premium low. But if crop insurance has a history of high claims ratios, other farm insurance sectors like livestock & farm equipment have low claims ratios. This tends to make rural

50

Coverage of Insurance in Rural India

business fairly attractive. Consequently if the livestock business is expanded, then it would help keeping the premium low in other high claim sectors like crop insurance. However, the 4 insurance companies already do some livestock business & also insure agricultural equipment in the rural areas as part of their social sector obligations. Infact companies like United India Insurance Company Ltd have proposed expanding this business in view of the low ratios & consequently the high retention income. The major problem though is that the volumes in this business are very low. The entry of NABARD into the Agricultural Insurance Corporation would address the issue & allow for expansion in the coverage of the sector from the current low levels. NABARD is expected to be the largest stakeholder in the venture. The 4 general insurance companies & the Life Insurance Corporation would remain as minority stakeholder in the company. The 4 general insurance companies would however be allowed to compete in the livestock business with the proposed Agricultural Insurance Corporation.

Agriculture Insurance Company of India Ltd


BUSINESS STATISTICS OF 12 SEASONS FROM RABI 1999-2000 TO KHARIF 2005 Note: Sum Insured & Premium are in Rs.lacs Northern Zone: North Zone Farmers covered Area (in Hec) Sum Insured Premium Subsidy Total Claims Claims Paid Claims Payable Farmers Haryana Himachal Pradesh 211522 147240 277179 14297 559 11 133 133 00 16799 99740 6245 170 26 492 492 00 65341 J&K 8430 10610 519 10 01 00 00 00 00 Uttranchal 26376 28762 2249 36 05 38 38 00 6456 Total 393568 416290 23309 775 43 663 663 00 88596

51

Coverage of Insurance in Rural India

Benefited 250000 200000 150000 100000 50000 0 farmers covered farmers benefited

Har

H.P.

J&K

utt

Haryana stands 1st in farmers covered, area & sum insured but stands 2nd in subsidies, total claims, claims paid & farmers benefited. Himachal Pradesh stands 2nd in farmers covered & sum insured but ranks 1st in subsidy, total claims, claims paid & farmers benefited. Uttranchal stands 3rd in all categories. J & K stands 4th in farmers covered, area, sum insured, premium & subsidy but its total claims, claims paid & farmers benefited is nil. Claims payable is nil for all the 4 states. Central Zone: Central Zone Farmers covered Area (in Hec) Sum Insured Premium Subsidy Total Claims Claims Paid Claims Payable Farmers Chattisgarh Jharkhand 3478784 954500 7590836 196066 5079 413 16992 16800 191 961303 532447 36743 908 71 1356 1302 54 72804 M.P. 9614333 25309682 723734 23358 1462 44309 44309 00 2360831 U.P. 5908807 8944719 513868 9870 1492 20009 19645 364 1369486 Total 19956424 42377684 1470411 39215 3438 82666 82056 609 4764424

52

Coverage of Insurance in Rural India

Benefited
10000000 8000000 6000000 farmers covered 4000000 2000000 0 Chattisgar Jharkhand M.P. U.P. farmers benefited

Madhya Pradesh stood 1st in all categories & U.P. 2nd, Chattisgarh stood at 3rd & Jharkhand is 4th in all categories. Western Zone Western Zone Farmers covered Area (in Hec) Sum Insured Premium Subsidy Total Claims Claims Paid Claims Payable Farmers Benefited Goa 5214 8478 201 04 01 02 02 00 697 Gujrat 6627012 1620149 9 1166719 51810 3680 167124 167124 00 3433864 0 Maharashtra Rajasthan 15146529 3671190 15996273 896926 32719 3670 76470 73865 2605 4543901 9031660 349894 10252 235 37149 15528 21621 1039661 Total 25449945 41237910 2413740 94785 7586 280745 256519 24226 9022899

53

Coverage of Insurance in Rural India

16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0

farmers covered farmers benefited

goa

guj

maha

rajas

Maharashtra is 1st in farmers covered & farmers benefited while it is 2 nd in another categories. But Gujarat stands 2nd in farmers covered & farmers benefited & 1st in all other categories. Claims payable in Gujarat is nil but it is high in Maharashtra. It is seemed that Maharashtra Government is not keen interested in solving claims of farmers resulting high figures of claims payable. Rajasthan stand 3rd in all categories. But number of claims paid is very less. So ratio of claims payable is high. Hence Rajasthan government should take more focus on clearing the claims. Goa being small state stands 4th but all claims are clear. Hence claim payable is nil. Eastern Zone: Eastern Zone Farmers covered Area(in Hec) Sum Insured Premium Subsidy Total Claims Claims Paid Claims Assam 56180 43850 4626 109 21 121 52 69 Bihar 1174669 1298367 0 127830 2961 516 28980 26177 2803 Meghalaya 9174 11150 790 52 16 29 11 18 Orrisa Sikkim W.Bengal 3594619 1868879 224916 5816 1278 7334 7334 00 Total 10887194 9437260 881385 22270 4413 75346 72456 2890

6051375 1177 6214255 756 523109 13331 2581 38881 38881 00 114 01 01 01 01 00

54

Coverage of Insurance in Rural India

Payable Farmers benefited

8119

450594

1169

1353615 86

448630

2262213

7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 Assam Bihar Meghalay Orissa Sikkim W.Bengal farmers covered farmers benefited

Orrisa stands top in all categories. West Bengal is 2nd in farmers covered, area, sum insured, premium & subsidy but it ranks 3rd in claims & farmers benefited. Bihar stands 3rd in 1st 5 categories & 2nd in claims & farmers benefited i.e. farmers in Bihar have claimed more & benefited more in compare with Orrisa. Assam has 4th rank except claims payable. It stands 2nd in claims payable. Meghalaya stands 5th in all categories except claims payable in which it ranked 3rd as claim payable to Orissa, Sikkim & W. Bengal is nil. Sikkim being small state stands last in Eastern Zone in all categories. Southern Zone Southern Zone Farmers covered Area (In Hec) Sum Andhra Pradesh 1190176 0 1813170 3 1562524 Karna taka 571470 5 922133 8 603225 Kerala Pondi 20786 4 17569 3 22928 Tamil Tripura 4859 3052 497 A&N Total cherry Nadu 13819 586347 21922 2580 100181 2 89207 Islands 772 18430126 1198 89 28556718 2281050

55

Coverage of Insurance in Rural India

Insured Premium Subsidy Total Claims Claims Paid Claims Payable Farmers Benefited

43461 6629 98383 69280 29103 2050470

19664 1486 97863 94203 3660 268782 2

482 125 1292 1292 00 37591

51 08 143 142 01 3400

1853 228 9945 9882 64 199729

13 02 11 11 00 970

02 01 01 01 00 56

65526 23959 207638 174811 32828 4980038

12000000 10000000 8000000 6000000 4000000 2000000 0 A.P. Kar Ker Pon T.N. Tri A&N farmers covered farmers benefited

Andhra Pradesh stands 1st in first 6 categories. But the claims paid are less resulting more claims payable & less in farmers benefited in comparison with Karnataka. Karnataka stands 2nd in first 6 categories but claims paid are more than Andhra Pradesh, which results less claims payable & more in farmers benefited in comparison with Andhra Pradesh. Hence, Andhra Pradesh government should be more careful in clearing claims for the interests of farmers benefits so that claims payable should be nil. Tamil Nadu & Kerala stands 3rd & 4th in all series. Tripura & A & N islands are very small states. So figures are very less in all series & stands 6th & 7th ranks. Claim payable is nil for both the states.

56

Coverage of Insurance in Rural India

My Own Experience in a Small Village (Aangoan):


As I have to prepare a project on Coverage of Insurance in Rural India I along with my colleagues, requested college authorities to have a visit to small village. Our request was complied with & we went to Aangoan a small village located near Bhiwandi in Maharashtra by bus on 05-03-2006. Small assignment coverage of insurance was given to us. So we visited some 18-20 houses & met the members of those houses to have an informal chat on insurance. In that village we found only one bank named Union Bank of India in which almost all the villagers were having their deposits & savings. It seems their only source of saving available in the village. As we went into the houses of their villagers, we found that their standard of living was very simple & systematic. What I found there that most people were living in the houses where there was no electricity. But still they were satisfied with themselves in such atmosphere. As the assignment was given to us we asked them some simple questions on insurance like: What do you know about insurance? Have you ever heard the word insurance? Are you or any of your family member in the house are insured? How many members are there? What is the source of your earnings? What is your monthly income?

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Coverage of Insurance in Rural India

Are you having any account in the bank? As soon as we were asking the questions, the villagers were firstly astonished & were not able to give any reply of our questions. They were deeply thinking on our questions. Afterwards we explained them the basic idea or purpose behind insurance. We told them some insurance policies, beneficial for villagers such as fire, marine & other risks insurance policy in Rural India. As it was noontime, hence mostly ladies were available in their houses. On the enquiry we came to know that there earnings were so less that they were not able to save anything for their future. Their conditions were miserable & pitiable. They were striving hard to manage their day-to-day life. The average income was found roughly around 2500-3000. As the most house wives were illiterate, they were totally ignorant regarding insurance. Hence, they were interacting with us as they could not understand & were unable to follow the insurance policy. So it was our hard task to make them understand. Although in some houses we found some members of their families at an educated level. Very few people, who were the sole earners for their families, were insured. But the level of insurance coverage was very low i.e. around 5-6%. As we visited all kinds of families living in the village i.e. rich, medium & poor, we noticed that only few rich people whose income above 8000 & who were sole family earners, were having insurance policies. There main business was that they were engaged in farming. Particulars of Survey: 1. Name of the village: 2. Location: 3. Date of Survey: 4. Number of houses covered: Aangoan Near Bhiwandi in Thane District. 03-05-2006. 18-20.

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Coverage of Insurance in Rural India

5. Time spent on survey: 6. % Of coverage of Life Insurance: 7. % Of coverage of General Insurance: 8. Average earning of family: 9. Average Family Members: 10. Main business for their bread & butter: 11. Bank Located: 12. Population in the village:

4-5 hrs. 6-8%. 4-5% 2500-3000. 5-6. Farming. Union Bank of India About 30,000.

It was my very pleasant & charming experience as I had seen the rural life for the 1 st time. The rural people were very simple. They were very innocent. They do not know any sought of tricks like urban people. There were no noises of transport vehicles. There was totally calmness & I was really fascinated with their simplicity, courtesy & kind behavior. It was my unforgettable experience.

Suggestions:
Life is obviously risky, specially in rural areas. At its most general level, risk is used to describe the chance or possibility of loss in uncertain situation. Insurance is one of the modes to save from risks. People in rural areas are totally ignorant & unaware of insurance. So steps to be taken to raise the awareness among rural population with regards to insurance schemes & make them aware of various kinds of policies & their implication. In rural areas where human lives need protection, it has been grossly neglected since 50yrs from the privileges of insurance cover. So time has come when government should pay serious attention to covering the rural areas. Both the conventional players, LIC & GIC have been since providing some insurance cover in rural areas. But they are insufficient to meet the exact requirement of the rural. There is an immense need of creating awareness among people. Moreover the rural customers often contend that claim lodgment & settlement procedure is time consuming & cumbersome. Hence it should be simple & quick procedure.

59

Coverage of Insurance in Rural India

Cattle insurance under the government sponsored integrated rural development programme & crop insurance have not met with expected results. Hence efficient methods should be adopted by the government. The centre & state governments must encourage private & foreign insurance companies to enter the rural areas & provide protection to rural assets from damage & loss due to natural & manmade calamities. For this purpose, reasonable & need-based concessions/reliefs in taxation & subsidies required infrastructural facilities & administrative support must be extended for atleast 10yrs. The government must appoint an expert committee on rural insurance to workout the modalities for private & foreign companies interested in entering the rural areas. A comprehensive insurance scheme (CCIS) was launched by the government of India in conjunction with GIC. Its objective was to provide financial compensation to farmers whose crop had failed due to drought or flood. But there are some inherent deficiencies. The CCIS does not include cash crops such as cotton, jute & tobacco within the scheme. Neither it includes apples, bananas or grapes. Hence, these should be also included in the scheme. The livestock such as cattle, sheep, goat, elephant, bullock etc are insured against death by diseases or accident. But does not include theft. So theft also should be included in it as there are many cases of animal theft. Crop based insurance schemes may be introduced so as to cover the whole rural population. Insurance as a policed governed by & linked to private property either movable or immovable. As the rural agricultural labors, vast chunk of rural population do not have any kind of property conceptually they cannot come under the preview

60

Coverage of Insurance in Rural India

of insurance scheme. Therefore, a new concept of insurance may be thought of to cover property less population. Insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. Training is required for rural insurance agents for improving the rural insurance business & vocational courses to be introduced in the area of insurance specially for rural youth.

Conclusion:
The growth in the insurance sector is higher than the GDP growth rate of the country. Now there are as many as 26 insurance companies operating & a few more would add to the list. The insurance premium income has grown from 1.77% to 2.59% of GDP in the last 1yr. The new insurance players did make a good start while the existing ones maintained consistent growth level from 2.52% in the year 2000-2001 to 3.56%in the year 2002-2003. Hence it makes an attempt to explore the current situation in insurance industry, particularly in rural India.

The Future
The rural markets are still virgin territories to a great extent and offer exciting opportunities for insurance companies. The surest path to success is to judge and measure the requirements of the people correctly and offer a scheme that they would be able to afford. The limitations posed by the purchasing power of the subjects have to be taken into consideration. There is also an urgent need to enter into tie-ups or understandings with government agencies to ensure the success of the schemes. The need of the hour is to have innovative policies that have explicit benefits for the people to observe, understand and measure

61

Coverage of Insurance in Rural India

However, all of these have to be supported by appropriate policy measures at the ground level. Also, the entry of foreign companies should ideally lead to enhanced competition and result in better days for the customer. The present level of risk is accentuated by the inadequacies in the system of rural credit prevalent in India. The element of unpredictability the farmers suffer from can be eliminated to a large extent by prudent agri-credit policies that are easy on the farmer. The farmers then, would not only enjoy more comfortable policies but would also be free from the clutches of unscrupulous elements. It would provide them the badly needed buffer or comfort zone to give them more security and assurance in life. Insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. In the near future, when well see more innovations in agriculture in the form of corporatisation or a more professional approach from the farmers side, insurance will definitely be one option that the rural Indian is going to accept.

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Coverage of Insurance in Rural India

Bibliography & References


Primary Data: Visited Life Insurance Corporation of India Ulhasnagar 421003 & contacted Mr. Raj Sharma, Development Officer of the company who co-operated us to give all replies to our questionnaire. Visited Aangoan, a small village near Bhiwandi & made small survey of insurance from the villagers. References: Books: Fundamental of Insurance Insurance Industry (the current scenario) Insurance Vision Bulletins: The Insurance Times Sites: www.licindia.com www.iciciprulife.com www.gicofindia.com R.G. Agarwal P.K. Gupta U. Jawaharlal Rakesh Agarwal

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