Towards Inclusive Insuranace

Winds of change have started to creep in India’s insurance sector with more and more companies revisiting their client and product portfolios to cater to the hitherto untapped rural population. This move towards ‘inclusive insurance’ is not just driven by social compulsion, but by the realisation that there is a huge area of ‘unmet demand’ for insurance products in the country.

India is among the most under-insured countries in the world. The insurance divide only becomes wider as one moves away from the urban areas into the rural hinterland. Here insurance penetration rate is as low as 3 per cent, among the lowest in the world. This is largely because insurance companies have traditionally targeted their products towards a more easily reachable urban audience. All this is set to change. Tremendous competition for a bigger slice of the insurance market and relatively high market saturation in urban areas has led life insurance sector players to start focusing on rural and semi-urban India. Over 700 million people in 600,000 villages constitute the rural population and a huge opportunity for the private life insurance firms.

According to “Selling Life Insurance in Rural India”, a report brought out by the international strategy consulting firm Celent, the country’s under-penetrated rural market holds tremendous growth opportunities for life insurance companies. Revenues are expected to grow as much as four times to Rs 7.8 billion crore by 2015. However, the report very clearly flags a viable and cost-effective distribution channel, innovativeproducts and methods as being the lynchpin of a possible runaway growth curve in rural insurance. Yet another study carried out by UNDP in 2007 across the three states of Tamil Nadu, Orissa and Rajasthan, projected a total market of between Rs 62 billion crore and Rs 84 billion in life insurance, health insurance and other needs such as crop and livestock protection for those earning less than Rs 80 a day.

“Insurance companies today” says Pranav Prashad, Head – Rural and Agriculture Business Group ICICI Lombard, “have now realised that while poor people may be individually not so strong, but collectively their power is immense”. Thus, the role of the insurance companies is to get these people together, to form large enough viable groups to whom policies can be sold. In keeping with the perceptions and the prevailing infrastructure, the products need to be as simple, easily understood and have the ability to provide coverage as near to the point where these people are.

Surveys carried out by insurance companies in rural areas have revealed a number of learnings for the sector players. A major learning reiterated across the surveys is that insurance companies cannot do individual enrolments and have individual members to come into the schemes. The awareness levels and depth of knowledge also varies across the products offered. Awareness of life insurance products, the surveys reveal is very high, since it is seen as a long term savings plan with tangible and definite benefits at the end of the tenure and is also marketed aggressively. The same does not hold true for general insurance products other than for insurance related to tractors, cattle and vehicles. This is also due to the fact that banks which give loans for these insist on insurance policies. Largely general insurance is perceived as an unnecessary expense, with no long term benefits except in the case of claims and policies for general insurance exhibit a tendency to lapse after initial subscription.

The major stumbling blocks faced by insurance companies are, the information divide, which severely hampers their efforts to attract people to the insurance products on offer; the paying capacity; lack of a cost effective distribution channel and finally the bottom lines for the companies involved. The biggest stumbling block by far is a poor understanding of a rural customer. A case in point is the sale of policies to cover livestock. When the companies sell a policy to cover livestock, they want a certificate from a veterinarian even though the nearest one might be miles away. This lack of understanding of ground reality is often the reason for poor penetration of policies.

Insurance companies have now realised that to make inroads into rural areas they will need to depend on aggregators. The role of the aggregator is an important one, since the company needs a point of contact, a person who has already been working with the local populace and has actually established a lot of trust in the communities that he has worked with.

Training of aggregators, most insurance companies agree, is a critical aspect, since insurance is a fairly high involvement product in terms of explaining to people what the coverages are, the requirements that need to be fulfilled while a claim is being filed. All these call for training of the person or aggregators they work with. “What we sell to the customer and what he pays for at the initial stage is just a promise” says Prashad, the critical test of the products he believes “is when the companies have to fulfill the promise at the time of the claim”. So the process in place for fulfilling the claim,  the amount of work that the claimant has to put in, or the lack of it actually defines the success of the policy and the sustainability of the policy over the years.

In order to market themselves to the rural audience, insurance companies too are devising products and policies like they never have before. One such example is of introducing a product at a certain defined premium in a number of regions across the country. At the end of a year, stocktaking of the regions is carried out and depending upon the total claims made in every region, the premiums are either reduced if there have been less claims or increased in the case higher claims. This kind of thinking says D B Phatak, IIT Bombay, “has never been done earlier in the insurance industry”.

Another important area which the insurance companies are looking at is the creation of infrastructure to provide coverage, like in the case of health policies. A number of companies engaged in selling health insurance products have spent time in setting up and providing a network of hospitals before the actual implementation of the scheme. This process believes Bimalendu Chakrabarti, Chairman and Managing Director, New India Assurance Company Limited, can be taken forward when “insurance companies join hands as far as third party claims are concerned”. The insurance companies need to create infrastructure, because this is what will help sell health insurance in a remote village.

By and large when insurance products are sold in the rural areas, people have little understanding of what they have gone in for and how their claims are likely to be settled in the case of a calamity. The trick believes Chakrabarti lies in “simplifying both the products and the process, the product should be flexible enough to be redesigned, even in the event of a claim.” This is something that insurance companies are fast realising and was reiterated recently by the Finance Minister, P Chidambaram who asked insurance companies selling insurance products to rural customers, to design products which were simple and easily understood and had a simple procedure relating to claim benefits.

This calls for a change in the mindset which prevails in the insurance industry, specially relating to claims. Traditionally, claims have been the irritant in most policies. In the normal course of events, the claims department does not pass a claim without a survey report and associated bills. This convoluted process has been a sore point with most customers. Chakrabarti believes the answer lies in the marriage of “the right technology with the right mindset.” A thinking seconded by Phatak who believes that there will have to be slightly different features in insurance products and claims in different regions and it would be sensible to consider a slightly different product for the urban, semi-urban, rural and the below poverty level region. The new mantra for insurance companies today is that if the product on offer is simple, the claims too should be simple.

However, selling insurance in the rural areas through agencies by paying them a 15 per cent incentive, is neither remunerative either for the insurance company or for the insurance agents. Says M Ramadoss, Chairman and Managing Director, The Oriental Insurance Company Limited, “is is important to have a cost effective distribution channel to be able to distribute small ticket products.” Distribution he feels could be on a mass scale covering entire districts and villages. Such mass activities in the initial stages, will need the involvement of the government, like in the Rashtriya Swasthya Bima Yojana for BPL families. Initiatives too will have to be taken by the government for subsidising the premium in the initial stage so that insurance habits develop in the rural areas.

To increase their distribution in the rural areas, some of the other facilitators used by the insurance companies today include, non-government organisations (NGOs) and self help groups (SHGs). Some companies like The Oriental Insurance Company Limited are looking at tapping into the wide network of post-offices and postmen across the country to help in the collection of premiums. Despite roping these other facilitators, the insurance companies are finding the going tough and are unable to reach a point where the schemes being promoted become viable. Most insurance companies are coming around to the view that insurance will need to ride on some of the existing policies and financial products. Anyone who takes a bank loan should automatically be insured and this process could be extended to anyone who recharges his mobile card, or even purchases a bus-ticket. These add-ons are important to jumpstart the spread of insurance policies.

This is where the role of Information Communication Technologies (ICT) comes to the fore. “All of these can be done” believes Phatak, “provided one has the back-end IT infrastructure in place.” The need of the day is to devise schemes which will ride on multiple activities such as banking, life insurance and general insurance. There are instances where various  organisations are found to be engaged in collection of premiums. They use the General Packet Radio Service (GPRS), a packet oriented mobile data service available to users of Global System for Mobile Communications (GSM) mobile phones in large parts of the remote areas of their operations for their transactions.

However, insurance companies are not at a liberty to take decisions completely. The insurance business in the country is looked after by the Insurance Regulatory Development Authority (IRDA), with its mandate to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. However the IRDA has now permitted NGOs as well as the insurance companies to collect premiums on a daily basis.

“We are now on the right track towards inclusive insurance,” feels Phatak, “as long as the insurance companies simplify the products, the process of claims, and approach the people through distribution channels which are probably innovative and novel.” One of these innovative channels could be the 100,000 Centralised Service Centres (CSCs) for delivering e-governance to 600,000 villages across the country. The Life Insurance Corporation of India (LIC) is already working with the franchising agency which delivers the e-services through CSCs in Kerala. All insurance companies and banks can piggy bank on these, since the CSCs are well distributed geographically and will be connected on a high bandwidth.

Says RCM Reddy, MD, IL&FS CDI, “The logic for launching this programme essentially is two-fold. Today, we have a large number of unemployed rural youth in the country, but with no employable skills even as we have a labour shortage in employment-intensive manufacturing industry,  specially in the garment and leather sectors.”

“Therefore this programme has been launched with the objective of meeting the twin targets of: meeting the requirement of shortage of skilled manpower for apparel industry in this case; and, assisting the government in terms of its poverty alleviation targets.

Project SEAM seeks to train and place 500,000 rural below poverty line youth in the apparel sector in five years. Conceived as a public-private partnership, it seeks to leverage existing strengths, infrastructure and resources for optimal outcomes, without creating any new buildings or institutions. Trainees for the project are selected from rural BPL families in close consultation with the District Rural Development Agency.

For turnout of high quality candidates, a cadre of trainers is trained in imparting a specialised training module, customised to meet industry needs. The project, supported by the Ministry of Rural Development, has already trained 14,928 people of whom 14,158 have already been employed by the apparel industry.

The innovative course content, developed in a multimedia format, and translated into several local languages, also incorporates a soft skill component to enhance the standards of performance. Training is imparted on state-of-the-art machines currently in use in the industry. As part of the course, the candidates are regularly assessed for skills against standards set by Methods Workshop, South Africa, which is also the certifying agency.

The National Institute of Rural Development (NIRD) of the Ministry of Rural Development is the nodal government agency for monitoring the programme.

For Rita of Meghupati village, Tirupur, life was full of hardships but now it has changed. She now earns Rs 3,000 per month as a specialised worker as against being a domestic help earlier. “My family is in comfort now and I can send my children to school,” says Rita.  A lot of BPL people are now employed after getting the training under the SEAM and are in more comfort than ever.

Several established associations such as Confederation of Indian Textile Industry (CITI), Tirupur Exports Association (TEA) and SPV’s like Gujarat Eco Textile Park Limited, Metro Hi Tech Park, Tarapur Textiles Park Ltd, Baramati Hi Tech Textile Park Ltd have placed confirmed requirement of manpower thereby assuring placement for every single trained BPL youth.

One of the features of this whole programme is the use of innovative multimedia content that ensures better acceptability.  Apart from the use of multimedia content, the training programme also includes soft skills development programme for improving social security measures and boost team building among the trainees.

“This innovative teaching methodology is very important for better absorption of the teaching inputs by the trainees. Accordingly, we have translated over 80 hours of content into various regional languages for the basic sewing machine operator programme,” says Reddy.

It has often been felt that lack of communication skills spoils the interaction process. One of the challenge that the programme sucessfully tackled was getting the people to communicate properly, first within the group and then with other people.

The multimedia courses are delivered by a trained faculty with the help of K-Yan, an innovative teaching aid that eliminates the need for multiple traditional teaching aids such as computers, projectors, etc. The K-Yan aid, developed and patented by IL&FS Education & Technology Services Ltd, is a fully integrated unit— a high-performance computer, projector, CD/DVD writer and audio system, all rolled into one.

“The soft skill development programme has helped me to improve my confidence and I have learnt to work in a team environment,” says Pradeep Kumar, trainee, NITRA training centre, Meerut.

Project SEAM also several in-built risk management processes, like lack of placement opportunities for the trained people. That risk is covered by way of ensuring the active participation of industry in the project through a special partner vehicle company.

The second risk is the inability to scale up this programme to achieve the target to training 500,000 people. “We have deployed a programme management team in important places, with the objective of coordinating with the stakeholders and identifying the needs of industry, the operations in centres and managing such centres,” says Reddy.

The third risk is lack of ownership and lack of transparency. For this an e-portal has been set up where the profile of every trainee, his training details and placement details are captured. A trainee’s performance is closely monitored for over a year after the training.

So far, around 15 training centres have been operationalised. The centres are located in Andhra Pradesh, Bihar, Gujarat, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh. The involvement of the training centre does not end with just providing training to the candidates but involves providing placement assistance.

The distinguishing features of Project SEAM from usual skill development programmes are essentially that it is industry driven, including for course content development, actual management of the programme and placements.

Under it, IL&FS first maps the requirements of the apparel industry, identifies the requirement and then puts in place the course content. Also, it seeks to use the existing infrastructure to impart training, thereby saving on operational costs.

Project SEAM is part of IL&FS CDI’s initiative SPRING (Skills Programme for Inclusive Growth), which endeavours to catalyse, facilitate and manage large-scale, demand-driven skills training and placement programmes. IL&FS Cluster Development Initiative Ltd is a wholly owned subsidiary of IL&FS that was set up with aim of providing commercially sustainable, integrated business and institutional framework and solutions for the development of micro, small and medium enterprise clusters.