Financial Daily from THE HINDU group of publications
Wednesday, Nov 27, 2002
Money & Banking
Marketing - Rural Marketing
Challenges of taking life insurance to small towns
THE potential for a quantum jump in the penetration level of life insurance in India lies in small towns and villages. Life insurance is truly a social profit and it symbolises socialism at its best. Both the rich and poor pay the same premium and provide a mutual form of cover to each other.
For millions of people who do not earn regular income and for families that depend on the irregular wages or income of a sole breadwinner, life insurance is a potent way to provide economic protection and family welfare.
Growth rate of life insurance has been high in rural India compared to the cities. There is a high degree of awareness of life insurance in small towns and villages as a medium to build long-term saving.
People view life insurance policy as a secure, risk-free investment. Endowment policies that combine life cover with saving are the popular insurance product.
People save regularly to build a corpus for their daughter's wedding, son's education, for buying a piece of land, or just for a rainy day. Last year, 3.7 million policies were issued in rural regions of which endowment policies accounted for 93 per cent.
A woman agriculture labourer working at a cotton field in Kurnool district of Andhra Pradesh. Cotton farmers of our country have gone through a bad patch the last few years. Insurance majors are focusing more on rural or agricultural insurance.
Among the key challenges in reaching potential insurance clients in small towns in India, the foremost is building knowledgeable and competent distribution channels. Given the established role played by the individual agency force in selling insurance products, and its particular relevance in small towns, it is essential to fortify this channel with a set of new inputs.
The knowledge level and skill of agents require to be substantially upgraded, given the fact that insurance industry is now competitive and the new products that are being launched require a reasonable degree of understanding of how the financial system works.
There is a rapid change witnessed in the market in the complexion of insurance products, with the end of the era of high, assured return insurance policies.
Insurance products that are relevant to people at different life stages and products that enable an individual to get the best value for the objectives he or she has in mind are now available in the market.
The sales personnel need new skills and attitudes to explain the concept and benefits of insurance without merely emphasising on the financial return generated by the policy.
Another important requirement is to encourage the growth of alternate distribution channels.
Experience in several developing countries shows that as the financial markets mature, multiple channels of financial services emerge that serve customers more efficiently. We are at a crucial stage of financial sector reforms where the market is just ripe to usher new channels that can serve customers efficiently and at a lower cost.
The impressive technological progress in the country, especially in the telecommunication field, is paving way for financial services to be available at the customer's doorsteps and at several convenient points of sale.
To give a simple example, it is now possible to pay insurance premium from any small town in the country through electronic transfer at a low cost.
Soon all customers will be able to transfer insurance payment through any ATM terminal anywhere in the country.
Insurance policies that were long considered as illiquid investments are becoming easy vehicles to raise loans or other facilities to meet emergency cash requirements.
These are very relevant developments for small towns where the true growth potential lies.
Consumers will begin to taste the benefits of competition in the insurance field. Insurance penetration is a matter of pricing, access and affordability.
In all these fronts, the Indian insurance industry is at the threshold of witnessing a major revolution that would benefit consumers immensely, thereby taking the insurance penetration level to newer heights.
The author is Managing Director & CEO, SBI Life Insurance Co Ltd.
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