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Insurance Article

Rural General Insurance Sector in India

October 15 2015

Rural population is calculated as the difference between total population and urban population. While overall GDP growth (2014) was commendable at 7.4%, nearly 68% of India's population still resides in rural areas and needs to feel its positive impact.

For most rural Indians, access to clean drinking water, children's marriage and shelter is higher on their list of priorities than a phenomenon called 'insurance'. Most remain unconvinced of insurance benefits. Unsurprisingly, penetration rates remain low.

Rural Sector

The rural sector is considered as any place with a population of not more than 5000, with a population density of not more than 400 per square kilometer, and where more than 25% of the male working population is engaged in agriculture, i.e. cultivators, laborers, workers in livestock, forestry, fishing, hunting and plantations activities, etc.

Insurer's Responsibilities

Under IRDAI Regulations, every insurer transacting non-life insurance business, 'shall underwrite business in the rural sector' of at least 2% of total gross premium in the first financial year, at least 3% in the second financial year and 5% in the third and further financial years. The obligations include 'insurance for crops'


Insurance is based on trust. Once that is established, its benefits can be better explained.Insurance penetration is low in the rural sector. To increase the penetration, product customization is essential. Rural population needs to understand the benefits and trust the insurance provider. For the rural customer, with limited funds available, safety of the invested funds is naturally of paramount importance.


Researchers have suggested the following brief roadmap with milestones to win over potential rural audiences.

i) Awareness (through local people and NGOs)

ii) Education & Motivation (through NGOs and charity trusts)

iii) Distribution (through postal agents, doctors, co-operative societies, NGOs, unemployed youth

iv) Post-selling Services & Assistance (primarily through local bodies)

Customized Solutions

Insurance companies need to ensure comprehensive solutions tailor-made for the rural sector, which cover not just health (for instance, the entire family in one policy) and accident. Vocations are also dependent on the weather and if innovative policies cover losses incurred in natural calamities apart from vagaries of the weather, the confidence of the rural community in the concept of insurance as a whole will be enhanced considerably.

While most insurance schemes need long-term 'education' and gentle persuasion, the Government could consider making crop insurance, in particular, compulsory. A more radical view is that perhaps the Government itself could consider paying the premium for small farmers and hold accountable all Government and non-Government officials involved in the process of crop insurance.

Whatever the route adopted, it stands to reason that both public and private players need to work together and show initiative if the problem of low penetration in rural general insurance is to be tackled at the earliest.

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