Hyderabad: At the Eighth Insurance Summit organised by the Confederation of Indian Industry (CII) in Hyderabad on 8 and 9 December, there was unanimous concern among the representatives of the insurance industry and government officials that insurance companies are neglecting to adequately cover health insurance and the rural sector in terms of disbursing insurance policies.

This concern was voiced by C S Rao, chairman, Insurance Regulatory and Development Authority (IRDA), who, while acknowledging the significant growth rates the insurance industry has achieved (26 per cent life insurance and 23 per cent non-life insurance) since the opening up of the sector in the last couple of years, regretted that "we are not able to reach the masses in the rural market."

He quoted the recent study by the Foundation of Research, Training and Education in Insurance (FORTE), which found that about in rural areas 73 per cent of the population does not have life insurance and the penetration rate for non-life insurance is only 14 per cent, mainly for motor insurance.

Industry experts warn that urban markets are getting more competitive for insurers and the need of the hour is to aggressively tap the vast and unexplored rural market to take advantage of the rising rural income levels. They say the rural population is an entirely new market due to the conservatism and suspicion of new concepts displayed by the rural populace.

Experts say a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) in association with ING Vysya Insurance said insurance companies need to examine alternative and innovative marketing methods to serve the rural markets. This study also observed that inadequate success in establishing their credibility in rural markets has made life tough for the private insurance players.

Though the public sector companies maintained favourable market and financial positions mostly owing to the strength of national presence and sovereign ownership, the falling interest rate regime and the declining trend of investment yields were posing challenges to them, forcing them to further aggressively exploit the rural markets.

Experts say insurers need to explore alternative channels of distribution in rural areas. The success stories of self-help groups (SHGs) in rural areas and the access of these groups to micro-credit facilities from the banks has started attracting the attention of the insurance players. They have realised that the SHGs can act as catalysts for promoting a variety of services and goods in rural India in return for remuneration. In the recent past, some state governments have put SHGs on a par with mutually aided credit societies, thereby enabling rural women to manage finances of bank-linked commercial credit and grants.

There is also the need to understand the importance of building credibility and trust in a sustained way in the rural market. Given the potential and the absence of trust, rural marketing is considered a great challenge and a greater opportunity for insurance players.

In this backdrop, the insurers are being advised to concentrate on the richer rural pockets where there was an increased awareness of the need for insurance, especially through networks already well created by others for marketing their products such as banks and SHGs. It is also recommended that the insurance players target those regions that are already developed by other market agencies that have their own interests to serve. These include networks developed by HLL, ITC, TTK, regional rural banks, kisan credit card holders, district cooperative credit banks, producers' cooperative societies and non-governmental organisations.

Most speakers agreed that another area that remains largely by insurers is health insurance in India. Citing a World Bank study, they said in India an ordinary citizen spends more than half his total annual expenditures on buying healthcare. Further, over 40 per cent of the hospitalised people borrow money or sell their assets to cover the expenditure and 35 per cent fall below the poverty line.

Rao said: "The voluntary health insurance covers only 1.7 million people, representing 0.2 per cent of the total population. There is much scope and potential for the insurance sector to provide for health insurance in the country." He also desired a bigger role for self-regulatory organisations (SROs) to ensure market discipline and take up the job of development role of the IRDA in due course.