Why it is crucial to introduce new insurance products in rural India?

By Priya Chetty on January 19, 2012

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmruthi), Yaganavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance inIndiahas evolved over time heavily drawing from other countries,Englandin particular.

In the past

The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era-past few centuries- yet its beginnings date back almost 6000 years.

Modernization

After GAT & privatization, insurance industry has gained more importance. The main aim of marketing is to give proper recognition and value to the customer and sustain the growth of insurance industries by developing suitable marketing policies and strategies

Today, the customer concept has got immense significance in the changing organizational climate. This is due to cultural changes, technological changes, economical changes etc. Today customers are considered as an “Asset” in the LPG era.

Insurance contract

An insurance contract provides risk coverage to the insurer. A purchaser of insurance pays a fixed premium in exchange for a promise of compensation in the event of some specified loss. Insurance is bought because it gives peace of mind to the holders. This comfort level is important in personal and business life. Though the primary purpose of insurance is to provide risk coverage, when the contract period extends over a long time, as in the case of life insurance, premium payments comprise of two components – one for buying risk coverage and the other towards savings. This bundling together of risk coverage and savings is peculiar to life insurance and is more common in developing countries like India. In the industrially advanced countries, this is not necessarily so and short duration life insurance contracts without a savings component is equally popular. In the developing economies because of the savings component and the long nature of the contract, life insurance has become an important instrument of mobilising long-term funds. The savings component puts the life insurance in direct competition with other financial institutions and savings instruments.

Present figures

The total investment portfolio of the insurers in India at the end of March, 2005 was Rs. 4,65,864 crore. The total premium collected by the insurers both life and non-life in 2004-05 was Rs.1,00,335 crore. The major contribution came from life insurance. The insurance penetration i.e., premia as percentage of GDP was 3.17 per cent in 2004. While this ratio is steadily increasing, it is far below the world average of 8.06 per cent. This shows the vast potential that exists.

Economy and Insurance

Insurance and economic growth mutually influences each other. As the economy grows, the living standards of people increase. As a consequence, the demand for life insurance increases. As the assets of people and of business enterprises increase in the growth process, the demand for general insurance also increases. In fact, as the economy widens the demand for new types of insurance products emerges. Insurance is no longer confined to product markets; they also cover service industries. It is equally true that growth itself is facilitated by insurance. A well-developed insurance sector promotes economic growth by encouraging risk-taking. Risk is inherent in all economic activities. Without some kind of cover against risk, some of these activities will not be carried out at all. Also insurance and more particularly life insurance is a mobilizer of long term savings and life insurance companies are thus able to support infrastructure projects which require long term funds. There is thus a mutually beneficial interaction between insurance and economic growth. The low income levels of the vast majority of population have been one of the factors inhibiting a faster growth of insurance inIndia. To some extent this is also compounded by certain attitudes to life. The economy has moved on to a higher growth path. The average rate of growth of the economy in the last three years was 8.1 per cent. This strong growth will bring about significant changes in the insurance industry.

Insurance market scenario

The insurance sector has opened up for private insurance companies with the enactment of IRDA Act, 1999. A large number of companies are competing under both life and general Insurance. The FDI cap/equity in this sector is 26% and the proposals have to be cleared by Insurance Regulatory and Development Authority (IRDA) established to protect the interest of holder of Insurance policy and act as a regulator and facilitator in the industry. Some of the major players in this sector are LIC, Max New York Life Insurance, Bajaj Allianz, ICICI Prudential, HDFC Standard Life, Metlife Insurance, Birla Sun Life Insurance, etc. Various types of policies and instruments are coming up in the market to attract more customers. Most of the population ofIndiais not insured, hence there is a lot of scope in this sector and a number of companies are planning to enter the sector. Every futuristic individual would want himself to get insured.

Due to ‘Globalization’ and increased competition in the insurance sector the public as well as private insurance Companies struggling like anything to survive and increase their market share in the changing insurance market environment. Here Marketing practices in insurance companies will help the LIC to increase the organizational competitiveness and as well as the individual employees performance and productivity, which will be alternately help the LIC to digest the shocks of competition thrown by private players in the insurance industry. Insurance being the services industry, majority of the giant insurance MNCs entered in the Indian market, to face this challenge LIC has to undertake the marketing activities. Few studies on marketing that have been undertaken in the Indian content.

After knowing this, researchers have realized the importance of studying the insurance industry in rural India, and how crucial it is to keep innovating and introducing new products in this industry.

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