Ing Vysya

Rural Insurance – A Big Deal By : Naren N. Joshi Chief Representative ING Insurance International B.V. Date: Venue:

8th October, 2005 Rural Marketing Summit 2005 FICCI, Federation House, New Delhi

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Rural Market: A Snap Shot ¾ 742 million people, largest potential market in the world ¾ Rural is bigger than urban FMCGs Durables

53% 59% Source: NCAER, IMDR 2002

¾ Estimated annual size of the rural market FMCG Durables Agri-inputs (incl tractors) 2 / 4 Wheelers Total

Rs 65,000 crore Rs 5,000 crore Rs 45,000 crore Rs 8,000 crore Rs1,23,000 crore

(1 crore = 10 million)

Source: Francis Kanoi, 2002 2

Rural Market: A Snap Shot ¾ Some impressive facts about the rural sector y In 2003-04, LIC sold 62 lakh policies in rural India (about 50% ) y Of two million BSNL mobile connections, 50 % in small towns/villages y Billing per mobile in small towns in A P is higher than in Hyderabad y The 41 million Kisan Credit Cards (KCC) issued in rural exceed the 40

million credit-plus-debit cards issued in urban. y Of 20 million Rediffmail signups, 60 % are from small towns. Similarly the

1,00,000 who have transacted on Rediff online shopping site, 50 per cent are from small towns

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Changing Rural Aspirations ¾ Changing lifestyle – restraint to release philosophy among youth ¾ Youth and women are the demand generators ¾ Buy value for money, not cheap products (branded consumption in FMCGs accounts for 80% of sale, brands could be national or regional) Source: ORG-MARG

¾ Land and gold (traditional symbols of security) being replaced with modern financial savings instruments 1999-00

Urban

Rural

Investments made Of these, New Investors

6.23 2.53 (40%)

6.18 5.13 (80%)

(million HHs)

Source: NCAER

For marketers this means money liquidity and access to formal funds by rural customers for purchase of high ticket items 4

Rural Markets : Macro Scenario All figures in %

Consumer Class

Income Groups

1994-95

2006-07

Very Rich

Above Rs 215,000

1.6

5.6

Consuming Class

Rs 45001-215,000

2.7

5.8

Climbers

Rs 22,001-45,000

8.3

22.4

Aspirants

Rs 16,001-22,000

26.0

44.6

Destitutes

Rs 16,000 & below

61.4

20.2

100.0

100.0

Total Projections based on 7.2% GDP growth

Source : NCAER

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India- Rural Market Opportunities & Challenges Opportunities • • • • •

The rural market in India constitutes 740+ million people, and is by far the largest potential market in the world Rural annual household income averages Rs.56,630 with high savings rates Changing rural aspirations in consumption patterns and lifestyle unfolds opportunities for rural marketing Literacy levels are rising steadily IT has made significant in-roads

Challenges • •

Lack of understanding of rural customers and data Poor infrastructure

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Rural Insurance Research ƒ

FORTE- A collaboration between FICCI and ING Insurance, has conducted two research studies to understand the realities of the rural insurance market space

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Macro Level Study – conducted through MART “Rural Insurance : Issues, Challenges & Opportunities”

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Micro Level Study – conducted through James Martin & Co “Developing a Rural Distribution Strategy for Insurers”

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Macro Study

Objectives of the Research ƒ

Understand rural customers’ current knowledge, attitudes and practices regarding savings, loans and insurance

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Identify existing factors, if any, prohibiting the purchase of insurance policies

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Profile potential rural customer segments in terms of attitudes, behavior and demographics

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Develop a broad, cost effective distribution strategy

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Macro Study

Key Findings of the Research ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Rural sector offers a huge business opportunity for insurance companies Savings ratio is a healthy 30% of income across all socio economic segments Awareness about Life Insurance is near universal 27% of CWEs already have a life policy 51% of all respondents have expressed intention to purchase a life policy There are a total of 124 million rural households Nearly 20% of all farmers in rural India own a Kissan Credit Cards. The 23 million credit cards issued till date offer a huge data base and opportunity for insurance. 9

Macro Study

Key Findings of the Research (contd.) ƒ

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Delivery infrastructure in the form of District Cooperative Banks, Cooperative Societies, NGO’s and Self Help Groups already exists in most villages. Rural connectivity through IT. E-choupal of ITC and other similar initiatives are available as additional delivery channels of insurance

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An extensive rural agent network for sale of Life insurance products exists

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The agent plays a major role in creating awareness, motivating purchase and rendering other insurance services 10

Macro Study

Key Findings of the Research (contd.) ƒ ƒ ƒ ƒ

78% of respondents prefer various combinations of life insurance like life + accident, life + loan, life + health + accident. Flexibility in Premium payments is important. Security of income and bulk returns, especially for daughter’s marriage and children’s education are major persuasions for taking life policy. While individuals are undecided about purchasing insurance from private players, members of different groups are favorably disposed to purchasing group insurance through a private player vetted by the group… Herd mentality…Safety in numbers.

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Macro Study

Complementary Delivery Systems Name of the institution/ instrument

Accessibility/ coverage of each branch

Rural presence/ penetration

Regional Rural Bank

15-20 villages

5000+ pop size village

Commercial bank (Rural Branch)

5000 account holders spread over (35-40 villages)

5000+ pop size village

Post office

5-6 villages

2000+ pop size village

Cooperative society

10,000 members spread over 2025 villages

5000+ pop size village

*ITC E choupal

5 to 7 villages

Prosperous village

District cooperative bank

7500 accounts

Block head quarter

Kissan Credit Card

20% of total no. of farmers in rural area

Farmer of any village

* E-choupals manned by a “Sanchalak” provided with computer and internet connectivity for procurement of agri produce and giving information on variety of services to villagers.

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Micro Research Study

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Micro Study

Study Phase •

• • •

•

Develop a comprehensive description of available channels and their delivery capabilities in the context of rural insurance potentials Identify and understand the concerns of insurers and their strategies for facing the challenges that rural market presents Develop an Evaluation Framework as a basis for selection, design and operationalisation of distribution channels Primary research in the Muzaffarnagar District of UP for the feasibility of each available channel applying evaluation criteria Develop an activity based cost model to profitably operationalise the feasible channels 14

Micro Study

District Muzaffarnagar - Span of a Block District

1 Per Block

Tehsils

5

Blocks

14

8

Panchayats

112

74

Villages

1031 15

Micro Study Available Channels

Banks Cooperatives Panchayats Agents Post Offices

Distribution Channels Evaluation Criteria Reach Influence on target segment Trust & reliability

Cybermediaries

Business acquisition capability

Industrial Fin Inst.

Support requirements Financial transaction handling

Eco Exchange Pts

Operational discipline

Brokers

Feasible Channels

Coop Banks Cooperatives Panchayats Agents

Customer servicing

NGO’s & SHG’s 16

Microinsurance – another way forward • Group insurance to SHG’s /Federation of SHG’s • Individual small ticket size policies through NGO’s & SHG’s Support : Appropriate training inputs & integrate with them for outsourcing some functions • Challenges: – Pricing, cost effective distribution & delivery, operational linkages, grievance redressal / claim settlement touch points etc. 17

Take Away • The rural market offers tremendous growth opportunities for insurance companies but their success will depend upon their ability to: – Develop viable, cost effective & customer friendly distribution channels – Develop appropriate products – Build consumer awareness and confidence

• ING Vysya Life is one of the few private insurance companies highly committed to the rural insurance market in India . In fact, it is currently running a pilot project in East Godavari District of Andhra Pradesh to fine tune its rural penetration strategy. 18