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Irdai suggests setting up model insured villages to aid insurance penetration

The concept of model insurance villages may be implemented in a minimum of 500 villages in different districts of the country in the first year and increased to a minimum of 1,000 villages in subsequent two years.Premium
The concept of model insurance villages may be implemented in a minimum of 500 villages in different districts of the country in the first year and increased to a minimum of 1,000 villages in subsequent two years.

  • The insurance regulator has invited comments from stakeholders by 17 May on a discussion paper regarding the implementation of model insured villages across India

NEW DELHI : The Insurance Regulatory and Development Authority of India (Irdai) has suggested setting up model insured villages across the country to increase insurance penetration in rural areas with special focus on agriculture and allied activities.

"The concept may be implemented in a minimum of 500 villages in different districts of the country in the first year and increased to a minimum of 1,000 villages in subsequent two years," according to the discussion paper on which the insurance regulator has invited comments from stakeholders by 17 May.

"India is predominantly rural with more than 65% of the population residing in rural areas. Most rural people are hardly aware of insurance as a concept nor have they experienced the benefits of insurance. In rural areas, agriculture and allied activities are the main occupations and the prime source of livelihood. The target segment of rural insurance consists largely of low-income households or individuals who have little savings and limited financial capacity," according to the draft proposal.

Concept of model insured village

To demonstrate the concept and efficacy of insurance as a risk management tool, and to make farmers and rural population aware of the benefits of insurance, special focused efforts are needed. According to the draft proposal, insurance for rural people should cover the entire population in villages and their property, farms/crops, farm machinery, vehicles, different village-level services, manufacturing enterprises and other specific insurance needs of the particular village through targeted efforts in a few selected villages.

The choice of villages is to be made carefully, considering the various relevant aspects and parameters to implement the concept successfully for a period of three to five years. Various state and central government awards winning villages; villages with a track record of implementing various social welfare and environmentally friendly initiatives; and villages with a record of community-based participative welfare efforts, among others, which are also ready to participate and support the successful implementation of the concept may be preferred for implementation.

Challenges in spreading insurance to rural areas

Some of the main existing issues and challenges for advancing the growth of rural insurance business are:

# Lack of awareness about the concept of insurance and its benefits among the rural population

# Limited choice of insurance products with various flexible features

# Absence of people-friendly and transparent claim settlement mechanisms

# Weak network of insurance companies and intermediary presence in rural areas

# Low/slow pace of modern technology adoption in the rural insurance segment

# Underdeveloped market with constraints in offering affordable covers and proper servicing

# Lack of industry-wide well-coordinated efforts to serve the rural insurance segment

Overcoming challenges

Awareness and publicity

The draft proposal says a focused publicity campaign needs to be carried out for a reasonable period of time showcasing the benefits of insurance, rural insurance products and its features, among other things. The campaign in vernacular should be done through print, electronic, social media and through other traditional and innovative ways of reaching out to people, especially rural and semi-urban population throughout the country.

The support and involvement of the central government is to be explored, considering that this initiative would be beneficial to society and the country at large. It is also in line with the initiative and vision of the Centre's "Atma Nirbhar Bharat Abhiyan".

Insurance product innovation and other enabling steps

Innovative, affordable, technology-based insurance products, in the form of package and/or combo policies that provide a flexible choice of risk protection offering adequate risk coverage in rural and semi-urban areas are necessary to attract the rural population. Considering the low ticket size of premium per policy, and inadequate infrastructure of insurance companies, technology use needs to be encouraged at all levels—from policy distribution, servicing, loss assessment to claims settlement, according to the draft proposal.

The draft has further proposed a sandbox phase, inviting innovative products from insurance companies, insuretech firms, insurance intermediaries, other research institutions/ universities and companies dealing with rural population and agriculture and allied sector (in collaboration with the insurance company) to target the rural population, agriculture and allied sectors.

It said various initiatives of the rural development ministry and informal network of SHG members /women SHG members, banking correspondence Sakhi (BC Sakhis) can be used for insurance product distribution and servicing.

The draft proposal said insurers can set up a dialogue with state governments and ministries that run various development programmes/schemes for farmers, rural and vulnerable sections of society. Insurance companies can integrate insurance with such programmes.

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