Life Insurance Market in India – The Changing Norms

With largest number of life insurance policies in force in the world, Insurance
happens to be a mega opportunity in India. The US$ 41-billion Indian life
insurance industry is considered the fifth largest life insurance market, and is
growing at the rate of 15-20 per cent annually, according to the Life Insurance
Council. Together with banking services, it adds about 7 per cent to the country’s
GDP. Gross premium collection is nearly 2 per cent of GDP and funds available
with LIC for investments are 8 per cent of GDP. Gross domestic savings of India
were estimated at Rs 18,11,585 crore in 2008-09, 32.5 per cent of the gross
domestic product, which is the second highest in the world just after China which
has a savings rate of over 50 per cent ( as per finance minister’s chief economic
advisor, Kaushik Basu). Yet, nearly 75 per cent of Indian population is without life
insurance cover. Till date, only 25% of the total insurable population of India is
covered under various life insurance schemes, the penetration rates of health and
other non-life insurances in India is also well below the international level. India is
far behind the world averages and ranks 78th in terms of insurance density and 54
th in terms of insurance penetration. The world averages are US $ 469.6 in terms of
insurance density and 8.06% in terms of insurance penetration. Against this,
insurance density was US$ 19.70 and insurance penetration was 3.17% in India for
the year 2003. One obvious reason behind such low penetration is the lack of
aggressive distribution of insurance products and lack of competition in this sector
till recent years. Tracing the developments in the Indian insurance sector reveals
the 360 degree turn witnessed over a period of almost two centuries.

Historical Perspective

The history of life insurance in India dates back to 1818 when it was conceived as
a means to provide for English Widows. Interestingly in those days a higher
premium was charged for Indian lives than the non-Indian lives as Indian lives
were considered more riskier for coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the
first company to charge same premium for both Indian and non-Indian lives. The
Oriental Assurance Company was established in 1880. The General insurance
business in India, on the other hand, can trace its roots to the Triton (Tital)
Insurance Company Limited, the first general insurance company established in the
year 1850 in Calcutta by the British. Till the end of nineteenth century insurance
business was almost entirely in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance
Companies Act of 1912 and the provident fund Act of 1912. Several frauds during
20's and 30's sullied insurance business in India. By 1938 there were 176 insurance
companies. The first comprehensive legislation was introduced with the Insurance
Act of 1938 that provided strict State Control over insurance business. The
insurance business grew at a faster pace after independence. Indian companies
strengthened their hold on this business but despite the growth that was witnessed,
insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers
and provident societies under one nationalised monopoly corporation and Life
Insurance Corporation (LIC) was born. Nationalisation was justified on the
grounds that it would create much needed funds for rapid industrialization. This
was in conformity with the Government's chosen path of State lead planning and
development.

The (non-life) insurance business continued to thrive with the private sector till
1972. Their operations were restricted to organised trade and industry in large
cities. The general insurance industry was nationalised in 1972. With this, nearly
107 insurers were amalgamated and grouped into four companies- National
Insurance Company, New India Assurance Company, Oriental Insurance Company
and United India Insurance Company. These were subsidiaries of the General
Insurance Company (GIC).

Important milestones in the general insurance business in India are:

1907: The Indian Mercantile Insurance Ltd. set up- the first company to transact all
classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of India,

frames a code of conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.

1972: The general insurance business in India nationalised through The General
Insurance Business (Nationalisation) Act, 1972 with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies- the National
Insurance Company Limited, the New India Assurance Company Limited, the
Oriental Insurance Company Ltd. and the United India Insurance Company Ltd.
GIC incorporated as a company.

Important milestones in the life insurance business in India:

1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with
the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalised. LIC formed by an Act of Parliament- LIC
Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.

The main objective of LIC was to make insurance cover available to a large
number of people, particularly to the lower segments of the society. Thus LIC
launched several group insurance and social security schemes to enhance its reach
in the rural areas. But typically the life insurance business remained confined to the
higher strata of the society.

Thus in 1993, Malhotra Committee- headed by former Finance Secretary and

RBI Governor R.N. Malhotra- was formed to evaluate the Indian insurance
industry and recommend its future direction.The Malhotra committee was set up
with the objective of complementing the reforms initiated in the financial sector.
The reforms were aimed at creating a more efficient and competitive financial
system suitable for the requirements of the economy keeping in mind the structural
changes currently underway and recognising that insurance is an important part of
the overall financial system where it was necessary to address the need for similar
reforms. In 1994, the committee submitted the report and some of the key
recommendations included:

i) Structure
Government stake in the insurance Companies to be brought down to 50%.
Government should take over the holdings of GIC and its subsidiaries so that these
subsidiaries can act as independent corporations. All the insurance companies
should be given greater freedom to operate.

ii) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to
enter the sector. No Company should deal in both Life and General Insurance
through a single entity. Foreign companies may be allowed to enter the industry in
collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural market. Only one
State Level Life Insurance Company should be allowed to operate in each state.

iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set
up. Controller of Insurance- a part of the Finance Ministry- should be made
independent

iv) Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced
from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any
company (there current holdings to be brought down to this level over a period of
time)

v) Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance
companies must be encouraged to set up unit linked pension plans.
Computerisation of operations and updating of technology to be carried out in the
insurance industry.

The committee emphasised that in order to improve the customer services and
increase the coverage of insurance policies, industry should be opened up to
competition. But at the same time, the committee felt the need to exercise caution
as any failure on the part of new players could ruin the public confidence in the
industry. Hence, it was decided to allow competition in a limited way by
stipulating the minimum capital requirement of Rs.100 crores.

The committee also suggested that :

(a) The LIC should be selective in the recruitment of LIC agents. Train these
people after the identification of training needs.
(b) The committee suggested that the Federation of Insurance Institute, Mumbai
should start new courses and diploma courses for intermediaries of the insurance
sector.
(c) The LIC should use an MBA specialized in Marketing (a similar suggestion for
the GIC subsidiaries).
Mukherjee Committee

Immediately after the publication of the Malhotra Committee Report, a new

committee (called the Mukherjee Committee) was set up to make concrete plans
for the requirements of the newly formed insurance companies. Recommendations
of the Mukherjee Committee were never made public. But, from the information
that filtered out it became clear that the committee recommended the inclusion of
certain ratios in insurance company balance sheets to ensure transparency in
accounting. But the Finance Minister objected. He argued (probably on the advice
of some of the potential entrants) that it could affect the prospects of a developing
insurance company.

The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to act as
independent companies with economic motives. For this purpose, it had proposed
setting up an independent regulatory body.

Insurance Regulatory Act (1999)

After the report of the Malhotra Committee came out, changes in the insurance
industry appeared imminent. Unfortunately, instability in Central Government,
changes in insurance regulation could not pass through the parliament.
The dramatic climax came in 1999. On March 16, 1999, the Indian Cabinet
approved an Insurance Regulatory Authority (IRA) Bill that was designed to
liberalize the insurance sector. The bill was awaiting ratification by the Indian
Parliament. However, the BJP Government fell in April 1999. The deregulation
was put on hold once again. An election was held in late 1999. A new BJP-led
government came to power. On December 7, 1999, the new government passed the
Insurance Regulatory and Development Authority (IRDA) Act. This Act repealed
the monopoly conferred to the Life Insurance Corporation in 1956 and to the
General Insurance Corporation in 1972. The authority created by the Act is now
called IRDA. It has ten members. New licenses are being given to private
companies (see below). IRDA has separated out life, non-life and reinsurance
insurance businesses. Therefore, a company has to have separate licenses for each
line of business. Each license has its own capital requirements (around USD24
million for life or non-life and USD48 million for reinsurance).
Some Details of the IRDA Bill
On July 14, 2000, the Chairman of the IRDA, Mr. N. Rangachari set forth a set of
regulations in an extraordinary issue of the Indian Gazette that details of the
regulation.

Regulations

The first covers the Insurance Advisory Committee that sets out the rules and
regulation.

The second stipulates that the "Appointed Actuary" has to be a Fellow of the
Actuarial Society of India. Given that there has been a dearth of actuaries in India
with the qualification of a Fellow of the Actuarial Society of India, this becomes a
requirement of tall order. As a result, some companies have not been able to attract
a qualified Appointed Actuary (Dasgupta, 2001). The IRDA is also in the process
of replacing the Actuarial Society of India by a newly formed institution to be
called the Chartered Institute of Indian Actuaries (modeled after the Institute of
Actuaries of London). Curiously, for life insurers the Appointed Actuary has to be
an internal company employee, but he or she may be an external consultant if the
company happens to be a non-life insurance company.

Third, the Appointed Actuary would be responsible for reporting to the IRDA a
detailed account of the company.

Fourth, insurance agents should have at least a high school diploma along with
training of 100 hours from a recognized institution. More than a dozen institutions
have been recognized by the IRDA for training insurance agents (the list appears
online at http://www.irdaonline.org/press.asp).

Fifth, the IRDA has set up strict guidelines on asset and liability management of
the insurance companies along with solvency margin requirements. Initial margins
are set high (compared with developed countries). The margins vary with the lines
of business (for example, fire insurance has a lower margin than aviation
insurance).
Sixth, the disclosure requirements have been kept rather vague. This has been
done despite the recommendations to the contrary by the Mukherjee Committee
recommendations.

Seventh, all the insurers are forced to provide some coverage for the rural sector.
(1) In respect of a life insurer, (a) five percent in the first financial year; (b) seven
percent in the second financial year; (c) ten percent in the third financial year; (d)
twelve percent in the fourth financial year; (e) fifteen percent in the fifth year (of
total policies written direct in that year).
(2) In respect of a general insurer, (a) two percent in the first financial year; (b)
three percent in the second financial year; (c) five percent thereafter (of total gross
premium income written direct in that year).

New Entry
Immediately after the passage of the Act, a number of companies announced that
they would seek foreign partnership. In mid-2000, the following companies made
public statements that they already were in the process of setting up insurance
business with foreign partnerships (see Table). However, not all the partnerships
panned out in the end (see below).
INDIAN COMPANIES WITH FOREIGN PARTNERSHIP
Indian Partner International Partner
Alpic Finance Allianz Holding, Germany
Tata American Int. Group, US
CK Birla Group Zurich Insurance, Switzerland
ICICI Prudential, UK
Sundaram Finance Winterthur Insurance, Switzerland
Hindustan Times Commercial Union, UK
Ranbaxy Cigna, US
HDFC Standard Life, UK
Bombay Dyeing General Accident, UK
DCM Shriram Royal Sun Alliance, UK
Dabur Group Allstate, US
Kotak Mahindra Chubb, US
Godrej J Rothschild, UK
Sanmar Group Gio, Australia
Cholamandalam Guardian Royal Exchange, UK
SK Modi Group Legal & General, Australia
20th Century Finance Canada Life
M A Chidambaram Met Life
Vysya Bank ING
Source: U.S. Department of State FY 2001 Country Commercial Guide: India

Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7
billion have poured into the Indian market and 21 private companies have been
granted licenses. Innovative products, smart marketing, and aggressive distribution
have enabled fledgling private insurance companies to sign up Indian customers
faster than anyone expected. Indians, who had always seen life insurance as a tax
saving device, are now suddenly turning to the private sector and snapping up the
new innovative products on offer. The life insurance industry in India grew by an
impressive 36%, with premium income from new business at Rs. 253.43 billion
during the fiscal year 2004-2005, braving stiff competition from private insurers.
The market share of the state behemoth, LIC, has clocked 21.87% growth in
business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05.
(Source: Report on “ Indian Insurance Industry: New Avenues for Growth 2012”).
But this was still not enough to arrest the fall in its market share, as private players
grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in
2003-04. Though the total volume of LIC's business increased in the last fiscal year
(2004-2005) compared to the previous one, its market share came down from
87.04 to 78.07%. The 14 private insurers increased their market share from about
13% to about 22% in a year's time. The figures for the first two months of the
fiscal year 2005-06 also speak of the growing share of the private insurers. The
share of LIC for this period has further come down to 75 percent, while the private
players have grabbed over 24 percent. On a closer retrospection it was found that
the reason for such fall in market share of LIC is non-aggressive distribution.
Although LIC has been in existence since 1956, it had not until the year 2000
thought of distribution of products through channels other than agency channel.

The existing insurance player like LIC’s penetration in the market remained quite
low due to following a single mode of distribution i.e. distribution through
individual agents. Even today Individual Agents happen to be the prime
distribution medium followed by insurance companies worldwide. It provides
employment to millions. Infact 90% of the Life Insurance worldwide are sold
through Individual Agents.
 Life Insurance Business Underwritten Through Various Intermediaries

Insurer Individual Corporate Agents Brokers Referral * Direct

Agents Banks Others Business
Private 59.71 16.87 8.92 0.83 7.06 6.61
Sector
LIC 98.37 1.25 0.32 0.06 0.00 0.00
Total 85.67 6.38 3.15 0.31 2.32 2.17
All data are in percentage Source: IRDA annual report 2005-06
*Referral here refers to the referral company whose database is acquired by the insurance company to
get prospects. Referrals are increasing the already spiraling costs of insurers. Therefore IRDA said
referral fee should be paid only on successful conversion. "An insurance company shall pay
remuneration to the referral company for acquiring its database...and in no case shall exceed 25 per cent
of the commission," Insurance Regulatory and Development Authority (IRDA) said in a draft regulation.

The major benefits that are derived due to distribution through Individual agents
are as follows:

• Greater relationship and more face to face contact.

• Consumers are used to the channel.

• Since they are the traditional medium of distribution therefore they have
high experience and greater knowledge of the industry.

• Agents provide various pre-sales and post sales services to the customers.

Due to personal contact, it can provide valuable feedback about the need and
expectation of consumers. Agents usually enjoy personal credibility with
customers. This channel’s awareness and acceptability is maximum among people.
However post liberalization, with the opening up of the insurance sector,
competition mounted up and industry felt the need to be more cost efficient and
increase penetration in the market. The requirement of alternative distribution
channel was felt.

Need for Alternate Distribution System:

• To increase insurance awareness and knowledge among people.

• To increase insurance penetration in the country.

• To improve cost efficiency in insurance distribution.

• Fierce battle in the Indian Insurance Industry post- liberalization.

Allianz Bajaj Life Insurance built a multi-channel distribution network

comprising of agents, corporate agents, and strategic alliances with banks
etc.Signed MOU with Standard Chartered for an exclusive bancassurance
distribution agreement.

Max New York worked making the quality of the agents as its main
differentiating factor.Focussed on the career agent system.The selection
process of career agents comprised of 4 stages- screening, psychometric
tests, career seminars and final interview. Because adequate concept,
product and soft skill training is sine quo non for effective distribution.

Similarly HDFC Standard Life decided to rely on individual consultants and

corporate agents for distributing its products.

• Challenges of distribution through Individual Agents.

Challenges of Distribution through Individual Agents:

1) The primary challenge of this distribution system is high attrition rate. Due
to this the initial investment done on training and educating the agents goes
waste.
 2) Higher cost for insurer and consumer due to high commission rate. Infact by
2002 LIC had around 0.8 million agents, and the company ended up paying
bonuses and commissions twice for every new policy and subsequent
renewal of premiums- to both agents and development officers.

3) Old fashioned channel, not fully updated with technology. This profession is
also not left untouched by Information Technology. Most of the companies
have a dedicated agent’s portal but the number of agents accessing them is
less than satisfactory. One step forward in making the agents more efficient
and professional is to make them more tech-savvy through training and
other means.

4) Lack of coverage. Till the yr 2002 , insurance coverage had been extended
to about 25% of the entire insurable population and the fact is that more
than 75% of the insurable population was untapped. Even today , as per Tata
AIG MD Trevor Bull, only 20% of the insurable population has been
covered.

5) Finally, majority of the agents are dormant. At present, the number of

agents working in life insurance industry is approximately 15Lacs but a
majority of them are dormant which leads to poor activity ratio.

The massive agency force is a pragmatic example of 80-20 rule. What is need of
the hour is not the quantity but the quality. Having some productive and lots of
unproductive lot drags down the morale of the community of agents, leads to
discontent within the profession and the respect for the profession is downgraded.
Over manning has its cost to the company in terms of unrecovered or under
recovered training cost. Also, opportunity cost in terms of a more productive agent
serving in place of a dormant agent can’t be looked over. Over manning also
contributes to mis-selling and rebating.

Adequate concept, product and soft skill training is sine quo non for
professionalizing agency force. IRDA mandates companies to impart 100 hour
training to its agents and today most of the companies have in-house training
facility. But number of agents attending subsequent product trainings at the time of
product launches and other soft skill training sessions gets reduced substantially. It
leads to poor knowledge about company’s whole basket of offerings and agents
selling only a few products instead of doing a true need-based selling to customers.
The concern of the regulator towards growing proportion of linked products in
companies’ total percentage of business can also be attributed to biasedness of
training programs in favor of linked products. Training becomes all the more
important in today’s competitive environment where the agent is not only selling
insurance but the company providing insurance. Adequate and quality initial
training at the time of licensing is like laying a strong foundation for agents
entering the industry and subsequent trainings are like sharpening the agents’ saw
to stay competitive.

Agents are off-roll employees of an insurance company and keeping them

motivated is a big challenge. Companies run loyalty and engagement programs
(like club membership) and sales incentive programs (like short term contests)
providing various monetary and nonmonetary benefits. They serve well to motivate
the agents to perform better, increase interaction of agents with the companies,
promote spirit of healthy competition among the agents and to recognize good
performing agents, provided these programs are easily comprehendible,
transparent and quick in benefit disbursal and grievance redressal and adequate
knowledge about the programs is given to agents.

Insurance selling is a tough job. Agents are facing razor sharp competition from
other alternative distribution channels and with so many insurance players in the
fray, their job has become all the more difficult. Hence various other distribution
channel e.g. corporate agent, bancassurance, NGOs, VEWs and internet were
developed.
 Distribution Chain of Insurance
Companies
Insurance
Company

Individual Corporate NGO &

Bancassurance Internet
Agent Agent VEWs

Customers

The choice of distribution channel depends largely on the customer preferences

which vary by market segment like geography, age, income, life style etc, and
market characteristics change over time.

The Corporate Agent is a concept introduced with a view of taking advantage of

the presence of a large number of firms, corporations, banks, NGOs, cooperative
societies and panchayats who are in contact with people in normal discharge of
their activities and utilize their presence and services for canvassing the sale of
insurance contracts. They are corporate entities (NBFCs) that source policies for
the Insurance Company with whom they have a tie-up. For example the HDFC
Standard Life tied up with corporate agents all over the country, including it’s tie
up with HDFC.It was also in talks with NGOs that were involved with HDFC’s
housing schemes in rural areas.

But the major challenges faced by Corporate Agents are as follows:

• Creating an environment of top level involvement of NBFCs management.

• Resolving possible conflicts of interest between the CA and the insurer.

• Establishing credible service level agreements between the CA and the

insurer.
 • Setting up distribution procedures consistent with the manual systems in
the CA.

• Bringing relevance, motivation and skill development at the operating level

at CAs branches.

• Thus many of the insurance companies started distributing their products

through Bancassurance. The difference between CA and Bancassurance
arrangement is that the former trains its own employees to sell the policies
while in case of Bancassurance arrangement, the employees of the
insurance company (FSCs) source the business. Due to the good quality
administration of the bank and strong service delivery mechanism, and
familiarity with the needs of the target customer, analysts believe that
bancassurance would play a very important role in India, since banks are
also familiar with the needs of the target customer. With complete
integration of insurance and bank products and services thus it was a win-
win situation for both the bank and the insurance company. The benefits
for the banks were:

• Total of 65700 commercial bank branches across India. Thus with wider
network and greater spread the market reach will be greater.

• Good awareness of geographic region—Lower per lead cost. Banks have

good brand awareness within their geographical region which provides for
a lower per lead cost.

• Fee based income in the scenario of tightening interest margins.

• Customer retention– by providing wider range of services.

Whereas the benefits for the Insurance service provider were:

• Channel diversification.

• Increased volume of business and improved geographic reach.

• Benefit from substantial database of the bank.

 • Known customer , hence risk assessment is easier.

• Can develop new financial product by collaborating with the bank.

The bancassurance system also proved to be beneficial for the consumers. Some
of them are:

 Greater convenience by meeting all financial needs under one roof, universal
banking
 Reduced distribution cost will lead to reduced premiums.
 Provide easy accessibility.
 Double Assurance/credibility
 Convenience in payment
 Easy and automatic renewal

But unfortunately most of the banks and the insurance companies did not have any
jointly agreed business plans. Thus the major challenges bancassurance posed are:

• Lack of proper training of Bank Staffs

• Lack of Branch personnel’s involvement.

• Lack of sales culture within the bank.

• Insufficient product promotions.

• Failure in integrating marketing plans of both bank and insurance company.

• Inadequate incentives to the bank personnel involved in the sales of

insurance products.

Hence the insurance companies started focusing on other source of distributions

available. For example the Birla Sun Life Insurance started distributing their
products targeted at rural market through VEWs.VEWs are people from the local
Aditya Birla Group Companies who are involved in social improvement
projects.VEWs act as a liaison point between the villagers and the insurance
advisors. Each VEW will be in charge of a cluster of 10-15 villages and will act as
a first level underwriter and introducer of the insurance products. These villages
should have a population of over 5000 and population density of not more than 400
per sq. km. and at least 75% of the male population should be dependant on
agriculture for the livelihood.

Moreover companies also started distributing their products through the internet.
However for distributing products through internet it is required for the product to
be simple. If a product is complex by nature then the product is best sold by
driving quoted leads to a licensed call centre. In 2001, 12% insurance products
world wide were sold through internet. The number will definitely rise in future.

However not all insurance companies adopt all the above discussed distribution
channel for distributing all their products. The effectiveness of a distribution
channel depends on the reach of the distribution channel and also on the influence
of the distribution channel on the target segment. Moreover before adopting a
distribution channel the insurance service provider also have to look on the support
requirements of the channel. Because Insurance knowledge is complex and
investment has to be made on education, training and establishment of a
distribution channel. It is responsibility of distribution channel to develop expertise
and to provide customer with insurance knowledge. Channel member shouldbe in a
position to advise the prospect as to what is the best choice for him in the given
circumstance. They need to have comprehensive knowledge about the life cycle
stages of an individual. The company also has to ensure that it’s channel members
are not engaged in mis-selling. Unintentionally or intentionally in some cases the
channel members are forced to sell products that are best suited and beneficial to
channel rather than the proposer.Mis-selling is very common in insurance industry.
This occurs when, perhaps, to earn a much higher commission rate. For example
agents do not assess the needs of the customer properly while recommending
products. Sometimes agents or advisors misrepresent facts by promising unrealistic
returns to customers, or even provide incorrect information on product features. As
a result, the customer is unhappy and saddled witha product that does not meet
either his immediate or future needs. Rebating has been an unfortunate practice in
every variety of financial products in India. It is illegal to share the commission
with the clients, but the fine is just Rs 500. The average lapse ratio for the
insurance industry is about 25% which is an indicator of mis-selling.

Thus as much important it is for the insurance companies to select its distribution
channel properly , equally important it is for them to engage in distribution of
insurance products through multiple channel . Because even after so much of
endeavor of the insurance companies , they are serving only the 25% of the
insurable market. 75% of the insurable population is untapped even today. So these
companies have to increase their penetration in order to reach this untapped
market.

Thus we suggest that some concrete endeavor should be taken to spread and
penetrate insurance products in he rural India. The rural market offers tremendous
growth opportunities for insurance companies. The ASSOCHAM found that there
are a total 124 million rural households. Nearly 20% of all farmers in rural India
own a Kissan Credit cards. The 25 million credit cards used till date offer a huge
data base and opportunity for insurance companies. ASSOCHAM suggests that to
understand the prospects for insurance companies in rural India, it is very
important to understand the requirements of India’s villagers, their daily lives, their
peculiar needs and their occupational structures. There are farmers, craftsmen,
milkmen, weavers, casual labourers, construction workers and shopkeepers and so
on. More often than not, they are into more than one profession. Thus we suggest
that insurance and particularly micro insurance is the product that should be
targeted towards this rural India. Hence these products can be marketed towards
them by leveraging the distribution network of the microfinance organizations ,
since they have deep penetration in rural India. Other alternative distribution
network should also be explored to reach this high potential market.

Hence it is not too distant , when even departmental stores,ATMs,Internet kiosks,

and supermarkets would be selling insurance.