In general insurance the current market size is approximately Rs. 120 billion.

The overall market size is

estimated at Rs. 250 billion by 2008.

2.2.7 DEVELOPMENT INITIATIVES

The Authority has already taken the following initiatives in order to further develop the market and
improve the density of insurance penetration:
Encourage the presence of an adequate number of insurers to provide competition and choice to
customers;
Prescribe rural and social sector norms in order to achieve adequate social security and health
protection;
Ask the insurance companies to devise new covers and products addressed to specific sectors in the
economically weak population;
Recommend, at the time of grant of registration to the new companies, and in suitable cases, the
establishments of branches and offices in places where activities are on a low key;
Encourage awareness campaigns to improve insurance literacy levels by conducting workshops,
distributing literature etc
Enter into a Memorandum of Understanding (MOU) with the Indian Institute of Management,
Bangalore, for carrying on research work in the case of insurance (Centre for Insurance Research
and Education);
Notify the Third Party Administrator (TPA) regulations, for providing efficient customer services as
well as ensure greater penetration of health insurance in the country;
Initiate, in light of September 11 events, and with the participation of the national re-insurer, the
setting up of a terrorism pool to provide such a facility to the insurance consumers.
Ask the insurance companies to retain the bulk of the premium within the country and exhaust local
market capacity before reinsuring abroad.
Introduce for the first time the institution of insurance broker which is expected to improve market
penetration by enabling, designing and marketing of customised policies based on global best
practices and experience. It will also enhance the efficiency in the conduct of insurance business with
the scaling down of transaction costs.

2.2.8 NEW DEVELOPMENT PERSPECTIVES

The pro-active role taken by the Authority in the establishment of a vibrant insurance market in the
country should result in the main following development perspectives:
Cooperative societies should be recognised and allowed to play an active role in the insurance
business;
A large, still untapped, market is foreseen for the following products: health insurance, credit
insurance, crop and cattle insurance;

8
 A larger activity should be witnessed in the reinsurance market, particularly for catastrophe, terrorism
and war risk covers;
New insurance companies are expected to apply for registration in the near future, further expanding
the outreach of insurance products in the far nooks and corners of the country;
Contrary to previous belief, rural insurance is profitable. The overall market is estimated today at Rs.
250 billion by 2008.
Companies need to better promote insurance before selling their products. The right mix of
distribution channels should aid in exploiting the market potential;
The social mandates have in no way restricted the growth of industry or its financial strength The new
players are convinced of the vast potential in the rural hinterland and have initiated steps to bring
necessary networks to achieve their targets;
Banks and other organisations are expected to further develop as corporate agencies of insurance
companies and associate themselves in the selling of insurance policies under the banc assurance
model;
The Authority is also examining the prospects of expanding the re-insurance market by encouraging
the setting up of one or more re-insurance companies in the private sector.

2.3 OBLIGATIONS OF INSURERS TOWARDS RURAL AND SOCIAL SECTORS

(IRDA REGULATIONS OCTOBER 2002)

2.3.1 BACKGROUND

In exercise of the powers conferred by the Insurance Act, 1938, and in consultation with the Insurance
Advisory Committee, IRDA adopted in 2002 the following regulations aiming to extend the insurance
coverage to the rural and social sectors.

It has to be noted:
That these regulations only apply to insurance companies which started their activities after the
commencement of the Insurance Regulatory and Development Authority Act, 1999, meaning: all
private sector insurance companies (public insurance companies should however, improve each year
their performances in the same sectors);
That, however not concerned by these regulations, the public sector insurance companies are the
only ones to benefit from some public subsidies while extending their own activities to the same rural
and social sectors.

2.3.2 DEFINITIONS

The following definitions1 apply to the two sectors aimed by the present regulations:

1
Source: IRDA

9
 Rural sector shall mean any place as per the latest census which meets the following criteria:
A population of less than five thousand;
A density of population of less than four hundred per square kilometre, and
More than twenty five per cent of the male working population is engaged in agricultural pursuits.
The categories of workers failing under agricultural pursuits are as under:
Cultivators;
Agricultural labourers;
Workers in livestock, forestry, fishing, hunting and plantations, orchard and allied activities.

Social sector includes unorganised sector, informal sector, economically vulnerable or backward
classes and other categories of persons, both in rural and urban areas:
Unorganised sector includes self-employed workers such as agricultural labourers, bidi workers, brick
workers, carpenters, cobblers, construction workers, handicraft artisans, handloom workers, lady
tailors, leather and tannery workers, street vendors, primary milk producers, rickshaw pullers, salt
growers, sericulture workers, sugarcane cutters, washerwomen, working women in hills, or such other
categories
Informal sector includes small scale, self-employed workers typically at a low level of organisation
and technology, with the primary objective of generating employment and income, with
heterogeneous activities, with the work mostly labour intensive, having often unwritten and informal
employer-employee relationship;
Economically vulnerable or backward classes mean persons who live below the poverty line;
Other categories of persons include persons with disabilities and who may not be gainfully employed,
as well as persons to tend to persons with disability;

2.3.3 OBLIGATIONS

The Insurance companies falling into the scope of the IRDA regulations, will have to comply to the
following obligations:
Figure N0 1: Obligations of insurers towards the rural and social sectors2

For life insurers : For life insurers :

16 % of total policies Cover 20.000 persons
within 5 years within 5 years

Rural Social
Sector Sector

For non-life insurers : For non-life insurers :

2 5 % of total gross premium Cover 20.000 persons
Source: IRDA income within 3 years within 5 years
10
2.3.4 DETAILED TARGET PLANS

Progressive targets to be reached by the insurance companies have been defined as follows3:

Rural sector:
In respect of a life insurer:
Seven percent in the first financial year;
Nine percent in the second financial year;
Twelve percent in the third financial year;
Fourteen percent in the fourth financial year;
Sixteen percent in the fifth financial year.
Of total policies written direct during that year.
In respect of a non-life insurer:
Two percent in the first financial year;
Three percent in the second financial year;
Five percent in the third financial year;
Of total gross premium income written direct during that year.
Social sector:
For both life and non-life insurers:
Five thousand lives in the first financial year;
Seven thousand five hundred lives in the second financial year;
Ten thousand lives in the third financial year;
Fifteen thousand lives in the fourth financial year;
Twenty thousand lives in the fifth financial year.

3
Source: IRDA

11