With growing per capita income, rising financial awareness and marketing initiatives of private life insurance companies the micro-insurance market is growing faster.
Apart from the regulatory requirements, the rural and social sector represents a huge opportunity for insurance companies as the bulk of Indian population belongs to this group. This segment is also referred as the bottom of the pyramid. It constitutes a new important market segment where the basis of return on investment is volume of the business. The sheer numbers available in this segment make it lucrative. Even if the profit per unit of sale is minuscule, when multiplied across a huge number of sales it can become attractive to shareholders.
Moreover, for insurance products this model suits the basic insurance principle of law of large numbers which states that as the number of people in the risk pool increases there is higher chance of the claims experience resembling the expected claims. When projections can be estimated with a high degree of confidence, then the pricing does not have to include a margin of error.
This makes the product affordable to the poor.7 In spite of the efforts in micro-insurance, a recent survey revealed that 81% rural households have no risk cover.8 Though there is a reluctance to buy insurance in all segments of society, the low income market may be particularly disinclined to purchase insurance. Insurance products have a certain degree of complexity and the poor often lack familiarity with insurance and do not understand the way it works till they actually receive a claim payout. People in this segment feel that if claim situation does not arise, their premium payments will be wasted. Insurance benefits are intangible, so it is difficult to persuade someone to part with his limited resources to buy peace of mind. People in the lower economic strata have a short-term perspective, only making financial plans a few weeks or months into the future.
Consequently, they are not likely to trust a company offering such a long-term financial proposition such as a life insurance. Even when a low income market is familiar with insurance, the insurance company has to build trust and acceptance in the market. Some techniques used by the insurance companies to promote insurance in this market are the use of short films or street theatre. Some companies use posters and mobile vans to spread message in the rural areas. These social marketing techniques along with the financial education are being employed to change the attitude of the target market towards insurance.
The key message that is conveyed by the insurance companies in the rural market is cooperation, which promotes the idea of people helping each other. This message builds on informal self-help mechanisms which are more familiar to this market than insurance. This message is particularly important to explain the risk pooling aspect. If they do not experience the insured event, they may not receive money back because it is being used to pay for the claims of other community members. This message tries to steer away from the association of insurance with unpleasant events. Instead of portraying the risks leading to insurance benefits, optimistic approaches concentrate on the security provided by the insurance. Trust building is critical in this market.
The intermediary has to be a recognizable and trustworthy person or organization in this market. Insurance companies leverage an existing relationship and partner with rural cooperatives and SHGs to market micro-insurance products. Some companies hold village meeting and involve the headman or other respected elders in such meetings to spread insurance awareness and create trust. The language and cultural sensitivity are taken into account by most insurance companies in their marketing efforts.
Application forms and marketing brochures which are used are in the local language. Use of simple concepts and familiar images on all marketing communication is important. Training material for intermediaries is made appropriate for their literacy level and degree of familiarity with insurance. Products designed by the insurance companies for micro-insurance also reflect the market conditions. Different methods of premium payment are used for this market.
These variations include special premium payment plans, monthly savings towards annual premium, one-time lump-sum payment put in fixed deposit (and the interest accrued is used to pay the annual premium) etc. Micro-insurance is a big opportunity for life insurers.
At the same time it poses many challenges too. The rural market is very different from the urban market, and hence, insurance companies need to have a holistic strategy to capture this market. Success in this market would come from ingenuity in product design, appropriate marketing efforts, simple application procedures and, easy and prompt claims processes.
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