Riding on the coat-tails of mushrooming microcredit, insurance products that will allow India’s rural poor to protect their incomes are “poised for a take-off,” according to a report from United Nations Development Programme’s regional centre in Colombo.
The study, conducted in Tamil Nadu, Orissa and Rajasthan, projects a total market of between Rs6,200 crore and Rs8,400 crore in life insurance, health insurance and other needs such as crop and livestock protection for those earning less than $2 (Rs80) a day.
It also concludes the sector’s growth among the poor has been impeded, beyond a lack of products, by the failure of insurers to reach rural areas and understand needs. Similarly, the poor are suspicious of insurance firms and lack understanding of their role.
The government should also exempt micro-insurance from payment of service tax to make products cheaper and encourage penetration of insurance services in low-income rural and social sectors, the report has suggested.
“The service tax of 10.2% on premiums adds to the price of insurance. To help keep premiums low for rural poor, government could consider waiver of service tax on micro-insurance products for a limited period,” it added.
Still, “there has been a change in mindset,” says the study’s lead author Arunadha K. Rajivan. “People don’t necessarily want to be fatalistic all the time. They want to be able to take charge and do something about managing their risks better.” However, many remain “just one bad episode away” from personal economic disaster; insurance can play an important role in poverty reduction, she added.
India’s 950 million uninsured represent a “missing market” of $2 billion, according to the study. India accounts for less than 1% of the $3.4 trillion global insurance industry. Insurance penetration, which is used to track risk awareness, remains less than half the global average of 7.5% here, according to a May 2006 report from global insurance giant Swiss Re.
Microinsurance products aimed at the poor reach 5.2 million Indians, which represents only 2% of the target population. However, the study projects that at least half of those earning less than $2 a day—between 150 and 200 million households—would purchase life insurance at annual premium of Rs100. One in three rural households is expected to opt for health insurance at average annual premium of Rs363 per household, according to the study.
But the few products offered so far have had trouble penetrating the market thanks to a poor understanding of the needs of the rural customer, said Rajivan.
For example, when the companies sell a policy to cover livestock, they want a certificate from a veterinarian even though the nearest one might be far away, she said. Whereas insurance policies are offered on an annual basis, owners of milch animals might have to swap them every seven or eight months, meaning an annual policy would be a waste for them.
“There is a whole band of the population ready—and able—to pay for commercial insurance services,” said Rajivan. “This is not charity.”
However, a stumbling block continues to be a lack of education. We need to make sure the development of the market precedes the products,” said Mathew Titus, executive director of Sa-Dhan, an association of India’s microfinance institutions. “The focus should be on enabling an equitable market.”
PTI contributed to this story.