HISTORY OF INSURANCE

Insurance is a form of risk management, primarily used to hedge against the risk of a
contingent loss. In essence, insurance is simply the equitable transfer of a risk of a loss, from
one entity to another, in exchange for a premium.
Gambling transactions also hedge against risk, but it offers the possibility of either a loss or a
gain. Gambling creates losers and winners, whereas in insurance offers financial support
sufficient to replace loss, not to create pure gain. Gamblers can continue spending, buying
more risk than they can afford , but insurance buyers can only spend up to the limit of what
carriers would accept to insure; their loss is limited to the amount of the premium.
Gamblers, by creating new risk transfer, are risk seekers. Insurance buyers are risk avoiders,
creating risk transfer in terms of their need to reduce exposure to large losses.

Early methods of transferring or distributing

risk were practiced by Chinese traders as
early as the 3rd millennia BC. These
merchants travelling treacherous river rapids
would cleverly distribute their wares across
many vessels to spread the loss due to any
single vessel's capsizing.

Modern profit insurance manifested in Babylon almost 2000 years B.C., in a contract of loan
of trading capital to travelling merchants. The contract contained a clause that the risk of loss
due to robbery in transit was borne by the party providing the loan. In consideration for
bearing this risk, the lender calculated interest on the loan at an exceptionally high rate.

The Greeks and Romans introduced the origins of health and life insurance to us around 600
AD, when they organized guilds / benevolent societies (such as sodalitates, collegia and

military societies) which afforded members certain benefits, such as proper burial rites, or a
financial contribution towards burial costs (funeraticium) or travelling expenses of members
of the army. In exchange for this benefit, members of the society made regular contributions
to it.
During this time, Achaemenian (Iranian) monarchs were the first to 'insure' their people to
some extent, formalising the process by registration thereof at court. In accordance with
tradition, during Norouz - the beginning of the Iranian New Year - the heads of different
ethnic groups presented gifts to the monarch. The purpose of these gifts was to ensure
(insure) that whenever the gift-giver was in trouble, the monarch (and the court) would help
him. In return, whenever the giver was in trouble or needed finance, the court would check
the gift's registration, and could even - if the amount exceeded 10,000 Derrik - double that in
return.
These associations afforded members (or their dependants) assistance in case of loss caused
by perils such as fire, shipwreck, theft, sickness or death. Originally, the extent of the
assistance was determined by the actual need of the member who suffered the loss,
eventually, however, he would be assisted to the extent of his actual loss. In many of these
guilds individual members, and not merely the guild itself, were under a legal duty to assist
those members who suffered a loss. Once provision was made for the latter to have a
corresponding legal right to claim such assistance, the development towards proper mutual
insurance was completed.
On 3 December 1591, one hundred Hamburg house-owners concluded the so-called
Hamburg fire contracts, which are generally regarded as some of the first examples of true
mutual insurance contracts that we have today.
Toward the end of the seventeenth century, London's growing importance as a centre for trade
increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee
house that became a popular haunt of ship owners, merchants, and ships captains, and
thereby a reliable source of the latest shipping news. It became the meeting place for parties
wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today,
Lloyd's of London remains the leading market (note that it is not an insurance company!) for
marine and other specialist types of insurance, but it works rather differently than the more
familiar kinds of insurance.

The fire would have started in Pudding Lane in the king's appointed baker's shop (Thomas
Farriner). His maid failed to put out the ovens at the end of the night, and ignited the wooden
home of Farriner. The maid failed to escape the fire, and was one of its few victims. Once it
started, however, the fire spread quickly. The city was basically made out of wood, and
during September very dry. Strong winds fanned the flames.
The Great Fire cost London an estimated 10million, at a time when its annual income was
just 12,000. Not surprisingly, this expense focused minds on the idea of insuring against
fire.
By the end of the 17th century, three London societies were actively engaged in the business
Nicholas Barbon's "Fire Office" (later known as the "Phoenix Fire Office") was established
in 1680, the "Friendly Society" established in 1683, and the "Hand-in-Hand" Office. (The
Hand-in-Hand was originally formed in 1696 in Tom's Coffee House as the 'Amicable
Contribution ship for the Insurance of Houses against Fire', but the name was changed after
the company adopted an emblem of two hands joined beneath a crown. It still exists as part of
the CGNU insurance conglomerate, but is being rebranded to AVIVA.plc).
The first insurance company in the United States underwrote fire insurance and was formed
in Charles-Town (modern-day Charleston), South Carolina, in 1732.
Benjamin Franklin helped to popularize the practice of insurance in North America particularly against fire and in 1752, he founded the Philadelphia Contribution ship for the
Insurance of Houses from Loss by Fire. Franklin's company was the first to make
contributions toward fire prevention. Not only did his company advise / warn against certain
fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as
"all-wooden" houses.

The insurance companies had a rude awakening in 1835 when the New York fire struck. The
losses were unexpectedly high and they had no reserves prepared for such a situation. As a
result of this, Massachusetts lead the states in 1837 by passing a law that required insurance
companies to maintain such reserves. The great Chicago fire in 1871 reiterated the need for
these reserves, especially in large, dense cities.
The industry was growing into massive scale, carrying equally massive risk, and - although
competitors - to find a solution to the challenge of large losses they worked together to create
systems that could be used throughout the industry. Reinsurance - whereby losses can be
distributed among many carriers - was devised, a plan not unlike the Chinese farmers'
solution a thousand years earlier. This system is now commonly used in all types of
insurance.
The first American life insurance association was sponsored by a church the Presbyterian
Synod of Philadelphia and set up for the benefit of their ministers and their dependants.
Although there was initial religious objection against the practice of insurance by a church,
after 1840 life assurance simply boomed as people used the opportunity to protect
themselves against major losses.
Insurance had become accepted practice. Farmers wanted crop insurance. Travellers wanted
travel insurance. Everybody turned to insurers to buy peace of mind.
Mechanically propelled vehicles were not used on the roads of the UK to any great extent
before the beginning of the 20th Century and, consequently, car insurance is of more recent
origin than fire, theft and general liability insurance.
The early underwriters tended to adapt the practices of these existing insurance departments
to the requirements of car insurance, and placed more emphasis on the car for rating
purposes, than they did upon the driver. The increase in road traffic after 1918 and the rise in
the number of occasions when members of the public were injured, led to the introduction of
the Road Traffic Act 1930.
This Act imposed - for the first time in the U.K.- a statutory obligation on the users of all cars
to provide security against their legal liability for death of or bodily injury caused to third
parties.
To make a long story short, insurance (today) is being conducted over a vast array of "lines of
business" that encompass personal, commercial, marine, aviation, agriculture, life, health,
financial and engineering insurance. Virtually anything - from the mundane to the bizarre -

can be insured, as Lloyd's is famous for insuring the life, health, legs or even noses of
actors, actresses and / or sports figures.

INTRODUCTION
Insurance is a form of risk management in which the insured transfers the cost of potential
loss to another entity in exchange for monetary compensation known as the premium.
Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a
premium to protect against the loss. After all, you would not pay a monthly premium to
protect against a $50 loss because this would not be considered a financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary loss. Take
life insurance as an example. If you are the primary breadwinner in your home, the loss of
income that your family would experience as a result of our premature death is considered a
significant loss and hardship that you should protect them against. It would be very difficult
for your family to replace your income, so the monthly premiums ensure that if you die, your
income will be replaced by the insured amount. The same principle applies to many other
forms of insurance. If the potential loss will have a detrimental effect on the person or entity,
insurance makes sense
Everyone that wants to protect themselves or someone else against financial hardship should
consider insurance. This may include:

Protecting family after one's death from loss of income

Ensuring debt repayment after death

Covering contingent liabilities

Protecting against the death of a key employee or person in your business

Buying out a partner or co-shareholder after his or her death

Protecting your business from business interruption and loss of income

Protecting yourself against unforeseeable health expenses

Protecting your home against theft, fire, flood and other hazards

Protecting yourself against lawsuits

Protecting yourself in the event of disability

Protecting your car against theft or losses incurred because of accidents

And many more

HISTORY
Headed up by Rural MD Lance Harvey, the company experienced steady growth in the late
1990s and soon became a well-known provider of specialist agricultural and rural insurance
in the UK. By 2008 Rural Insurance head office in Harrogate had grown to 45 staff with a
GWP of 18 million.
In May 2008, Rural Insurance launched Rural Online, an online quote and buy for brokers
offering Equine, Smallholders and Personal Accident cover, accelerating growth in the
second half of 2009 to over 20 million GWP.
In 2009 Rural Insurance became part of the newly formed UK General Insurance Group one
of the largest specialist insurers in the UK. The UK General Group now writes in excess of
200 million GWP, trading with over 2,500 brokers and affinity trading partners in the UK.
Rural Insurance continues to grow and is now one of the UKs leading agricultural insurance
providers with ambitious plans for future growth. Working exclusively with independent
brokers Rural Insurance offer a range of agricultural and rural insurance solutions.

INTRODUCTION
Under the provisions of the Insurance Act, 1938, insurance companies are obliged to
provide such percentages of business as may be specified by the IRDA, for persons in the
rural sector or social sector, workers in the unorganised or informal sector, for economically
vulnerable or backward classes of the society and other categories of persons, as may be
specified by the IRDA. The IRDA has, in pursuance of the provisions of the above two

sections of the Insurance Act, issued the (Obligations of Insurers to Rural or Social Sectors)
Regulations, 2000, which lays down that every insurer transacting general insurance business,
shall underwrite business in the rural sector, to the extent of at least 2% of total gross
premium in the first financial year, at least 3% of gross premium in the second financial year
and 5% of the gross premium in the third and further financial years. The obligations include
insurance for crops. The Rural sector has been defined as any place which, as per the last
census, has a population of not more than 5000, density of population of not more than 400
per square kilometre, and at least 75% of the male working population engaged in agriculture.
The Government of India has launched various programmes for the benefit of small farmers,
marginal farmers, agricultural labourers, etc. Since 1980, all these programmes have been
integrated into Integrated Rural Development Programme (IRDP) which is funded by the
Central and State Governments.
Rural production and farm incomes in India are frequently affected by natural disasters such
as droughts, floods, cyclones, storms, landslides and earthquakes .Susceptibility of rural to
these disasters is compounded by the outbreak of epidemics and man-made disasters such as
fire, sale of spurious seeds, fertilizers and pesticides, price crashes etc. All these events
severely affect farmers through loss in production and farm income, and they are beyond the
control of the farmers. With the growing commercialization of rural, them agnitude of loss
due to unfavorable eventualities is increasing. The question is how to protect farmers by
minimizing such losses. For a section of farming community, the minimum support prices for
certain crops provide a measure of income stability. But most of the crops and in most of the
States.
MSP is not implemented. In recent times, mechanisms like contract farming and future
trading have been established which are expected to provide some insurance against price
fluctuations directly or indirectly. But, Rural insurance is considered an important mechanism
to effectively address the risk to output and income resulting from various natural and
manmade events. Rural Insurance is a means of protecting the agriculturist against financial
losses due to uncertainties that may arise Rural losses arising from named or all unforeseen
perils beyond their control (AIC, 2008). Unfortunately, rural insurance in the country has not
made much headway even though the need to protect Indian farmers from rural variability
has been a continuing concern of rural policy. According to the National Rural Policy 2000,
Despite technological and economic advancements, the condition of farmers continues to be
unstable due to natural calamities and price fluctuations. In some extreme cases, these
Unfavorable events become one of the factors leading to farmers suicides which are now
assuming serious proportions (Raju and Chand, 2007). Rural insurance is one method by
which farmers can stabilize farm income and investment and guard against disastrous effect
of losses due to natural hazards or low market prices.
Crop insurance not only stabilizes the farm income but also helps the farmers to initiate
production activity after a bad rural year. It cushions the shock of crop losses by providing
farmers with a minimum amount of protection. It spreads the crop losses over space and time

and helps farmers make more investments in rural. It forms an important component of
safety-net programmers as is being experienced in many developed countries like USA and
Canada as well as in the European Union. However, one need to keep in mind that crop
insurance should be part of overall risk management strategy. Insurance comes towards the
end of risk management process. Insurance is redistribution of cost of losses of few among
many, and cannot prevent economic loss. There are two major categories of Rural insurance:
single and multi-peril coverage. Single peril coverage offers protection from single hazard
while multiple

DEFINITION

An agreement in which a person makes regular payments to a company and the

company promises to pay money if the person is injured or dies, or to pay money
equal to the value of something (such as a house or car) if it is damaged, lost, or
stolen.

The amount of money a person regularly pays an insurance company as part of an

insurance agreement.

The amount of money that a person receives from an insurance company

Rural areas (also referred to as "the country," and/or "the countryside") are settled
places outside towns and cities. Such areas are distinct from more intensively settled
urban and suburban areas; Inhabitants live in villages, hamlets, on farms and in other
isolated houses. In modern usage, rural areas can have an agricultural character,
though many rural areas are characterized by an economy based on logging,
mining, petroleum and natural gas exploration, wind or solar power or tourism. The
report Rural Texas in Transition states that factors used to determine the" rural" or
"urban" status of an area include population, population density,"
occupational opportunities," "relative presence of agriculture," sizes of nearby cities
and towns, and "quality of life."

OBJECTIVES
To estimate price/ yield risk involved in different crops at national level and at
disaggregate level
To examine the performance of the existing and earlier national Rural insurance
schemes implemented in India
To discuss and explore the problems and prospects of rural insurance in the country
To look into the role of government in implementing various Rural insurance schemes

 To suggest effective rural insurance programme in India.

BENEFITS
Death Benefit
In the event of death during the term of the policy, the beneficiary will receive the base Sum
Assured, the accrued reversionary bonus and terminal bonus if any.
In the unfortunate event of death due to an accident the Rider Sum Assured is paid and the
policy is terminated

Maturity Benefit
On maturity of the policy, you will receive the base Sum Assured, the accrued reversionary
bonus and terminal bonus if any.

Bonuses
Bonuses are available only on participating policies. The bonuses are not guaranteed as they
are based on the Companys actual investment returns, persistency and expense experience.
No bonus is payable for the first 2 years of the policy.

FEATURES & ELIGIBILITY

Minimum Entry Age

Minimum Sum Assured
Maximum Sum Assured
Term
Premium Paying Terms

15 years 60 years
Rs. 5,000
Rs. 74,000
15 years 30 years
Single Pay, Limited Pay (5 or 10) & Regular

Minimum Annual Premium Amount

Pay
Rs. 173

RIDERS
Met Life, wants their customers to get the maximum out of their lives. Be it in terms of
making their dreams come true or getting the best out of their insurance plan. With this in
mind, we created Met More which allows you to customize your life insurance plan. So that it
can be tailored to meet the unique needs of you and your family members. Met More offers
you a choice of riders which are optional contracts that allow you to enjoy additional benefits.
They are always attached to the basic policy at the time of purchasing it, and cannot be
bought separately or independently. Each rider comes with its own premium rates and
separate policy conditions. The premium, nature and characteristics of the rider are based on
the base policy to which the rider is attached.

Accidental Death Benefit

Death caused due to an accident is one of the most unexpected and painful of all causes of
deaths. Due to the high unpredictability of this form of mishap, the benefits offered by the
Accidental Death Benefit Rider become all the more important and relieving.
This Rider provides for the payment of an additional amount should death occur as a result of
an accident by outward violent and visible means before age 60 years.
Death of the Life Insured must occur within 180 days from the date of the accident.

Minimum Entry
Maximum Entry
Maximum age at maturity
Minimum Sum Assured
Maximum Sum Assured

15 years
55 years
60 years
Rs. 50,000
Rs. 10, 00,000 or base Sum Assured
whichever is lower

Death Benefit

In the unfortunate event of death due to an accident the Rider Sum Assured is paid and the
policy is terminated.

Critical Illness Rider

No one likes to think about the possibility of suffering a critical illness like cancer, heart
attack and stroke etc. It is something that many of us assume will not happen to us. In the
daily grind of activities, one ends up never being prepared for such an eventuality. Met life
offers a Critical Illness Rider which provides payment of an additional amount on the
diagnosis of as many as 10 critical conditions. You can have the money to pay for the illness
when you need it rather

Waiver of Premium Rider

Waiver of Premium (WOP) Rider is an additional offering which can be purchased by paying
a nominal extra premium over and above the base premium. The WOP rider ensures that a
policyholders future due premiums are waived off.
In case of total and permanent disability of the life assured due to accident by outward,
violent or visible means, this rider allows premium on base policy and attached riders, if any,
to be waived. Total and permanent disability means that at 13
the time at which disability starts or any time thereafter, the life assured can never be capable
of doing something to earn wages, compensation or profits. The total disability should last for
at least 6 consecutive months. There is no disability cover during the first 6 months of the
policy.
The premium rider will be terminated on the earlier of:
1. The end of the grace period of the first unpaid premium.
2. The policy anniversary on which the life assured is aged 60 years (as on last birthday) or
the maturity date of the base policy which ever is earlier.
3. Death of the life assured.

Term Rider
This is an additional benefit that can be attached to the life insurance coverage to enhance the
death cover on your policy.

The term rider allows the payment of an additional amount should death of the life insured
occur before 60 years. You can match your changing needs (risk protection) and buy
additional insurance at a low cost.
The Term Rider Will be terminated on the earlier of:
1. The end of the grace period of the first unpaid premium. 14
2. The policy anniversary on which the life assured is aged 60 years (as on last birthday) or
the maturity date of the base policy which ever is earlier.
3. Death of the life assured.

ISSUES RELATED TO RURAL INSURANCE

Issues Related to Rural Insurance
Issues related to rural are of two types. One, issues concerning or related to existing scheme
namely NAIS, and two, issues of general nature which go beyond the present mechanisms for
Rural insurance.

ISSUES RELATED TO NAIS

The farming community at large does not seem to be satisfied with the partial expansion of
scope and content of crop insurance scheme in the form of NAIS over Comprehensive Crop
Insurance Scheme (CCIS). There are issues relating to its operation, governance and financial
sustainability. After extensive reviewing, gathering perceptions of the farming community
and discussion with experts from AIC, Rural department, bankers, academicians and other
representatives in Andhra Pradesh on the performance of NAIS, some modifications have
been suggested in its designing to make to it more effective and farmer- friendly. Reduction
of insurance unit to Village Panchayat level As of now, the National Rural Insurance Scheme
is implemented on the basis of "homogeneous area" approach, and the area (insurance unit) at
present is the Mandal / Talk / Block or equivalent unit, in most instances. These are large
administrative units with considerable variations in yields and impact of natural calamities.
For the scheme to become more popular, the unit for determining claim should be reduced to
the level of village in the case of large villages and to cluster of villages in the case of
small villages. However, because of infrastructural and financial constraints States could not
lower the unit to village panchayat. Ideally, "Individual approach" would reflect crop losses

on a realistic basis, and has been regarded most desirable (Dandekar, 1985). However, under
the Indian conditions, implementing a crop insurance scheme at the "individual farm unit
level" is beset with problems, such as:
Non-availability of the past records of land surveys, ownerships, tenancy and yields at
individual farm level
Small size of farm holdings
Remoteness of hamlets and inaccessibility of some farm-holdings
A large variety of crops, varied agro-climatic conditions and package of practices, and
Inadequate infrastructure.
We feel that lowering of the insurance unit to the Gram Panchayat (GP) level, is a welcome
move, as it would reflect yield losses at a reasonable level. However, data being the lifeline of
insurance, the actuarial rating of the product at GP level would be possible only if the
historical yield data at that level (GP) is available for a reasonably long period. In real 46

GENERAL ISSUES

Even several years after the initiation of first rural insurance project in 1972, the coverage
and scope of rural insurance remains far from adequate, even-though the need for various
forms of insurance for rural sector has been widely expressed. Some of the issues related to
expansion of rural insurance and improving its effectiveness are discussed below Role of
Government as mentioned before; crop insurance to be successful requires public support.
This could be in terms of subsidy on premium, meeting part of administrative expenditure,
and reinsurance etc. Global experience shows that due to special nature of rural production, in
several countries, premiums payable by farmers is subsidized by government. Rural in India
is not just dependent on weather conditions, but also suffers the brunt of natural disasters. It
will be quite in order for crop insurance to be regarded as a support measure in which
government plays an important role, because of the benefit it provides not merely to the
insured farmers, but to the entire national economy due to the forward and backward linkages

with the rest of the economy. Society can significantly gain from more efficient sharing of
crop and natural disaster risks. The principles behind the evaluation of crop insurance
schemes all over the world are along these lines for receiving the active support and finance
of the Government. Integrating the various risk mitigation methods and streamlining the
funds not only injects accountability and professionalism into the system, but also increase
economic efficiency. The support mechanism of major countries is given in the Table 7.1.
Government can facilitate rural insurance in several ways. In case farmers are asked to pay
full premium themselves then chances of adoption of insurance are bleak. There is a need for
some subsidisation by government. It can provide information, on weather patterns, locations
of farms and crops, incidence and history of perils and crop yields. It can help to meet the
costs of the research to be undertaken before starting an Rural insurance program. It can also
provide reinsurance.

ADVANTAGES
It is an Endowment plan that offers both savings and life insurance.
Flexible premium paying options to suit various income cycles.
A plan which participates in the bonuses declared by the company.
Customization possible with Accident Death Benefit, Critical Illness, Term, Waiver of
Premium Riders for comprehensive protection.

Rural people live in beautiful natural surroundings.

The air that the rural people breathe is pure.
The food that the villagers take is fresh.
Peace and quiet fill the rural life.
Villagers love our neighbors as our own. Life is simple and natural.

DISADVANTAGES:

 In distant rural areas, the roads are extremely bad and transport difficulties
are great.

Rural people are generally poor and ignorant of the rules of health and
hygiene.

For want of proper education, they become narrow-minded and superstitious.

There are few doctors and few hospitals.

RURAL INSURANCE SCHEMES

CATTLE INSURANCE

Cattle Insurance was governed under Market Agreement as devised by GIC and the rates,
terms, conditions etc. all were applicable to all the four Insurance Companies. However, w.e.f
May 2003, it is no longer under Market Agreement. This policy covers indigenous cross bred
and exotic cattle owned by private owners, various financial institutions, dairy farms,
cooperatives, corporate dairies etc. The word cattle include Milch, Cows and Buffaloes calves
and heifers, stud bulls, bullocks and he-buffaloes and mistunes. Age group is specified for all
the animals.

SHEEP AND GOAT INSURANCE

This scheme is also governed under Market Agreement. Policy provides indemnity to
indigenous cross-bred and exotic sheep and goat against death due to accident (including
fire, lightening, flood, cyclone, famine, strike, riot and civil commotion) and disease.
Earthquake and landslide Covers are also provided. Standard and common exclusions apply
as per Cattle Policy. Animals are identified by means of small brass buttons ear tags. Animals
under scheme category enjoy certain benefits in premium rate and claim.

CAMEL INSURANCE

The camels are covered against death due to accident or disease as per Standard Cattle
Insurance Policy. The maximum S.I. is restricted to Rs.3000/-.

PIG INSURANCE

All indigenous, cross-bred and exotic pigs are covered however under scheme category
exotic animals are not covered. The age group is from 4 months to 3 years. The coverage is
against death due to accident or disease. Exclusions as per Cattle Policy apply here also.
Permanent total disablement, breeding and furrowing risks are not covered. Vaccination in
applicable diseases is compulsory. Evaluation depends upon the age of the animal. Animals
are identified by means of small brass buttons ear tags.

HORSE, MULE, DONKEY, PONY, YAK

INSURANCE

The Coverage is as per Standard Cattle Policy. However the age group is restricted to 2 years
to 8 years.

AGRICULTURAL INSURANCE SCHEMES

Different forms of experiments on agricultural insurance on a limited, adhoc and

scattered scale started from 1972-73 when the General Insurance Corporation (GIC) of India
introduced a Crop Insurance Scheme on H-4 cotton. In the same year, general insurance
business was nationalized and, General Insurance Corporation of India was set respect of H4 cotton. This scheme was based on Individual Approach and later up by an Act of
Parliament. The new corporation took over the experimental scheme in included groundnut,
wheat and potato. The scheme was implemented in the states of Andhra Pradesh,
Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to 197879 and covered only 3110 farmers for a premium of Rs.4.54 lakh against claims of Rs.37.88
lakh.

POULTRY INSURANCE
This is also governed by Market Agreement, amongst all the four subsidiary companies. The
policy shall provide indemnity against death of birds due to accident (including fire,
lightning, flood, cyclone, strike, riot and civil commotion and terrorism) or diseases
contracted or occurring during the period of insurance. The word Poultry includes layers,
broilers and hatchery birds, which are exotic and cross-bred. Indigenous and non-descript
birds will not be insured.

DUCK INSURANCE APPLICABILITY

i.
ii.

All types of Migratory and Non-migratory birds in India.

Duck farms consisting of minimum of 100 ducks for non IRDP and 50 ducks for
IRDP and other Government subsidized schemes. Note: All birds in Ducker Farm
should be insured Duck Insurance Scheme shall provide indemnity against death
of ducks due to accident including lightning, flood, cyclone, famine, riot and
strike, civil commotion or diseases contracted or occurring during the period of
insurance.

ELEPHANT INSURANCE

This scheme is applicable to elephants used for commercial and religious purposes. This
policy covers death due to disease or accident and the coverage is given from 5 to 60 years of
age. Identification is done from the records of forest department of the State Govt. and also
by measuring the trunk of each elephant. Valuation of the elephant varies from breed to breed,
area to area and time to time. Exclusions are as per Cattle Market agreement and some
specific exclusion are as per policy schedule. Company indemnifies the insured only 80% of
market value or sum insured whichever is less.

FAILED WELL INSURANCE

The scheme is applicable only to those wells financed by banks where re-financing by
NABARD is involved and in other case where wells are financed by a nationalized bank but
not re-financed by NABARD, approval of Head Office is must .Sum Insured, premium, perils
covered and exclusions are different in both the schemes and as per policy schedule.

HONEYBEE INSURANCE SCHEME

This policy is to cover beehives and/or colonies belonging to individual,
cooperative societies and those sponsored and subsidized under various projects
of respective State and Central Government against total loss damage to
beehives 36 and/or bee colonies as a result of an accident caused by fire, flood,
inundation, storm, tempest, cyclone, hurricane and tornado. This cover is only for
Indian Honeybee and Italian Honeybee. Sum insured depends upon the cost of
Beehives as given by the respective state KVIC Board

 Crop insurance

Crop insurance is purchased by Rural producers, including farmers, ranchers, and others to
protect themselves against either the loss of their crops due to natural disasters, such as hail,
drought, and floods, or the loss of revenue due to declines in the prices of Rural
commodities. The two general categories of crop insurance are called crop-yield insurance
and crop-revenue insurance.

Crop-hail insurance is generally available from private insurers (in countries with private
sectors) because hail is a narrow peril that occurs in a limited place and its accumulated
losses tend not to overwhelm the capital reserves of private insurers. The earliest crop-hail
programs were begun by farmers cooperatives in France and Germany in the 1820s.

Multi-peril crop insurance (MPCI): covers the broad perils of drought, flood, insects,
disease, etc., which may affect many insureds at the same time and present the insurer with
excessive losses. To make this class of insurance, the perils are often bundled together in a
single policy, called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually
offered by a government insurer and premiums are usually partially subsidized by the
government. The earliest MPCI program was first implemented by the Federal Crop
Insurance Corporation (FCIC), an agency of the U.S. Department of Rural, in 1938. The
FCIC program has been managed by the Risk Management Agency (RMA), also a U.S.
Department of Rural agency, since 1996.

Crop-revenue insurance is a combination of crop yield insurance and price insurance.

For example, RMA establishes crop-revenue insurance guarantees on corn by
multiplying each farmer's corn yield guarantee, which is based on the farmer's own
production history, times the harvest-time futures price discovered at a commodity
exchange before the policy is sold and the crop planted. There is a single guarantee
for a certain number of dollars. The policy pays an indemnity if the combination of
the actual yield and the cash settlement price in the futures market is less than the
guarantee. In the United States, the program is called Crop Revenue Coverage.

 Crop-revenue insurance covers the decline in price that occurs during the crop's
growing season. It does not cover declines that may occur from one growing season to
another. That would be called "price support," and would raise a series of complex
Rural-policy and international-trade issues.

Health insurance for the rural poor

For most people living in developing countries health insurance is an unknown word. It is
generally assumed that, with the exception of the upper classes, people cannot afford such
type of social protection. This is a pity as also poor people demand protection against the
financial consequences of illnesses. For most people living in poor developing countries
illness still represents a permanent threat to their income earning capacity. Beside the direct
costs for treatment and drugs, indirect costs for the missing labour force of the ill and the
occupying person have to be shouldered by the household. Health insurance schemes are an
increasingly recognized factor as a tool to finance health care provision in low income
countries. Given the high latent demand from people for healthcare services of a good quality
and the extreme under-utilization of health services in several countries, it has been argued
that social health insurance may improve the access to health care of acceptable quality.
Whereas alternative forms of health care financing and cost recovery strategies like user fees
have been heavily criticized, the option of insurance seems to be a promising alternative as it
is a possibility to pool risk transferring, unforeseeable health care costs to fixed premiums.
Recently, mainly in Sub-Saharan Africa but also in a variety of other countries, non-profit,
mutual, community-based health insurance schemes have emerged. These schemes are
characterized by an ethic of mutual aid, solidarity and the collective pooling of health risks.
In several countries these schemes operate in conjunction with health care providers, mainly
hospitals in the area. Against this background the Centre for Development Research (ZEFBonn) analyses within his research program on social security systems in rural areas the
prospects and limitations of innovative health insurance schemes. In close collaboration with
national research institutes empirical studies are currently being carried out in Ethiopia,
China, Ghana, India, Senegal and Tanzania. The aim of these projects is to estimate demand
for health care and health insurance, quantify economic and social impacts, as well as
identifying factors of success and failure. The studies focus on rural areas because here the

need for insurance is especially, but private insurance markets do not exist and public
measures often fail to reach their target population.

NEEDS
INSURANCE has thus far been mostly city-oriented. But things are happening in the rural
areas where human life and income-generating rural assets need protection, and there is
tremendous scope for developing insurance business. This shows up the gross neglect of
the rural areas visa-visa insurance cover, though since the late-1960s, a silent economic
revolution has been on in the villages.
Now that the insurance sector is open to the private sector and foreign companies, the
Government should pay serious attention to covering the rural areas.
While it is true that access to insurance cover depends on the literacy/awareness levels
and assured income, well-planned and organised efforts by committed private sector
companies can yield rich dividends from the rural areas. This is because:
(1) A large number of rural districts have witnessed significant growth and prosperity;
(2) Access to reliable and authentic data and information has improved considerably,
which can enable quick and correct decision-making;
(3) There are specific functionaries and agencies in the rural areas which can help
explore and exploit insurance business in the untapped rural market.
The number of families living below the poverty line has considerably declined in Punjab
(11.7 per cent), Goa (14.9 per cent), Andhra Pradesh (22.2 per cent), Himachal Pradesh
(23.4 per cent), Gujarat (24.2 per cent), Haryana (25.0 per cent), J&K (25.2 p er cent),
Kerala (25.4 per cent) and Rajasthan (27.4 per cent) -- much below the national average
of 35.97 per cent in 1993.
Rural banking as catalyst
While public investment in agriculture has declined to 16.2 per cent, the rural banking
system has been encouraging farm development through provision of credit facilities for
production of crops including horticulture, plantation, forestry; purchase of farm
equipment; livestock and fish farming; irrigation facilities and installation of diesel
engines, and so on.
Bank credit is also provided for establishing village/cottage industries, stocking/supplying
farm inputs and cattle-feed, and business and trade purposes. From 1969-70 to 19992000, up to Rs 3.1 crore has been provided to the farm sector.
With enhanced incomes, and further supplemented by bank credit, the rural population is
acquiring consumer durables, constructing houses, purchasing vehicles, computers, and
so on.
All these assets need to be protected from damage/loss, natural or manmade. Thus, the
rural areas offer enormous opportunities for committed private insurance companies in
both life and non-life insurance schemes.

This will, in turn, help create more that would have direct impact on rural development
and the country's economic growth, in general. In fact, insurance in the farm sector
should benefit from the advances of science and technology as well.
LIC in the last decade has evolved a number of products which, however, do not suit the
needs of the rural areas. Similarly, the four GIC subsidiaries have also been providing
insurance cover for specific kinds of assets owned by rural households through bank
credit. But more has really put in the required marketing effort in the villages. The claim
lodgement and settlement procedure is time-consuming and cumbersome. Cattle
insurance under the government-sponsored Integrated Rural Development Programme
and crop insurance (till now covering banks' loanees) have not met with the expected
results.
Valuable data and information on rural areas has been available on the rural areas
through the publications/surveys of the Central Statistical Organisation, National Sample
Surveys, National Council of Applied Economic Research, and so on. From 1989, the
National Bank for Agriculture and Rural Development has been formulating Potential
Linked Credit Plan, and the Lead Bank has been the Annual District Credit Plan that give
considerable insights into the Government's plans for farm and rural sector devel
opment.
Besides, the village profile available with each of the branches of nationalised/public
sector banks contain exhaustive data on the population, cultivating households,
categories of farmers, classification of workers, livestock, cropping pattern, farm eq
uipment and machinery and so on.
There are more than 1,75,000 rural credit outlets in addition to the offices of the District
Rural Development Agency, the District Industries Centre, the District Development
Manager of nationalised banks and Lead District Manager of the Lead Bank. All these
institutions and agencies can offer considerable information to insurance companies.
Firms interested in developing rural insurance can: *Identify insurance products best
suited to rural elite/rich as well and rural households.
*Evolve area- and client-specific products.
*Design a method and system for fixing and collecting premium, and claim settlement
procedure to ensure customer-friendly services.
Educated unemployed youths of the villages can be trained and become valuable assets
for the companies. While insurance companies are eager to build their business in the
urban areas, there is a hitherto untapped potential for business in the rural areas which
can be exploited.
The Centre and the State governments must encourage private and foreign insurance
companies to enter the rural areas, and provide protection to rural assets from damage
and loss due to natural and man-made calamities. For this purpose, reasonable and nee
d-based concessions/reliefs in taxations and subsidies, required infrastructural facilities
and administrative support must be extended, at least for ten years. The government
may consider appointing an Expert Committee on Rural Insurance to work out the
modalities for private and foreign companies interested in entering the rural areas.

NEEDS
Need a rural insurance
It's always best to be prepared for unfortunate circumstances and this is why you should
consider getting a rural insurance policy. A rural insurance policy will shield you from
financial ruin in case accidents happen. Getting rural insurance will also give you added
security
1. Guaranteed Surrender Value
2. Maturity Benefit
3. Death Benefit

Need a Rural Insurance Policy

It's always best to be prepared for unfortunate circumstances and this is why you should
consider getting a rural insurance policy. A rural insurance policy will shield you from
financial ruin in case accidents happen. Getting rural insurance will also give you added
security

Increase in credit finance in the rural areas o Increase in income and assets of rural
poor.

Availability of information for decision making.

Design tailored products.

Establish efficient methods of premium collections and claims settlements.

Nature and Importance:

In the 21st century, the rural markets have acquired significance. The green revolution and the
white revolution combined with the overall growth of Indian economy have resulted into
substantial increase in the purchasing power of the rural communities. Rural marketing
denotes blow of goods and services from rural producers to urban consumers at possible time
with reasonable prices, and agricultural inputs and consumer goods from urban to rural.

It is of paramount importance in the Indian marketing environment as rural and urban

markets in India are so diverse in nature that urban marketing programmes just cannot be
successfully extended to the rural market differs from that of the urban Indian. Further the
values aspiration and needs of the rural people hasty differ from that of the urban population.
Buying decisions are highly influenced by social customers tradition and beliefs in the rural
communities. As regards the purchasing power, the urban markets are segmented according
to income levels, but in rural areas, the family incomes are grossly underestimated.
Farmers and rural artisans are paid in cash as well in kind, and their misrepresent their
purchasing power. For their reason, a marketer must therefore, make an attempt to understand
the rural consumer better before meaning any marketing plans.
Rural markets in India have untapped potential. There are several difficulties confronting the
effort to fully explore the rural markets. The concept of rural markets in India is still in
evolving shape, and the sector pages a variety of challenges. Distribution costs and nonavailability of retail output are major problems faced by marketers.
Many successful brands have shown high note of failure in the rural markets because the
marketers try to extend marketing plans that they use in urban areas. The unique consumption
pattern, tastes, and need of the rural consumers should be analysed at the product planning
stage so that they match the needs of the rural people.

Problems in Rural Marketing are as Follows:

1. Under developed people and underdeveloped markets:
The impact of agricultural technology is not felt uniformly throughout the country. Some
districts in Punjab, Haryana and the Western U.P. where the rural consumers are somewhat
comparable to their urban counter part; but there are large areas and grown of people who

have repaired beyond the technological breakthrough. In addition, the farmers with small
agricultural land holding are also unable to take advantage of the new technology.

2. Lack of power physical communication facilities:

Nearly 50 percent of the villages in India do not have all weather roads, physical
communication to the villages is highly expensive. Especially during the monsoon 4 months
these villages become complete inaccessible.

3. In adequate media coverage for rural-communication:

A large number of rural families own radio and TV sets, there are also community radio and
TV sets. These have been used to diffuse agricultural technology to rural areas. However, the
coverage relating to marketing is inadequate.

4. Many languages and dialects:

The number of languages and dialects vary from state to state and region to region. This type
of distribution of population warrants appropriate strategies decide the extent of coverage of
rural market.

5. Other problems of rural marketing are natural Calamites:

Of draught or examine rain, epidemics, primitive methods of cultivation, lack of printer
storage facilities, transportation problem and inadequate market intelligence, including long
chain of intermediaries between cultivator and farmer and wholesaler and retailers.
There are also problems of extending marketing efforts to small villages with 200-500
population. Vast cultural diversity, vastly varying rural demographics, poor infrastructure,
low income levels and low levels of literacy often tend to lower the presence of large
companies in the rural markets.

(d) Rural Marketing Strategy:

Rural marketing strategy is based on their As Availability Affordability and Acceptability.

The first A-Availability emphasises on the availability of the product for the customers, i.e.,
this gives importance on effective distribution through efficient channels of distribution.
The second A- Affordability which focuses on product pricing, i.e, this gives importance for
smaller packages/pouches easily affordable by families in the rural areas, The third A
Acceptability focuses on convincing the customers to buy the product, i.e., extending suitable
promotional efforts to influence the customers to buy the product. Marketers need to
understand the psycho of the rural consumers and then act accordingly.
Rural marketing involves more intensive personal selling efforts compared to urban
marketing. Firms should refrain from pushing goods designed for urban markets to the rural
areas. To effectively tap the rural market a brand must associate it with the same things the
rural consumers do.
This can be done by utilizing the various rural folk media to reach them in their own
language and in large number so that the brand can be associated with the myriad rituals,
celebration, festivals, melas, fairs and weekly hats.

(e) Rural Distribution Strategy:

One of the ways would be using company delivery mass, which can serve two purposes it
can take the products to the customers in every hook and corner of the market and it also
enables the firm to establish direct contact with them and thereby facilitate sales promotion.
However, only the large manufactures can adopt this channel. The companies with relatively
fewer resources can go in for the syndicated distribution where a tie-up between noncompetitive marketers can be established to facilitate distribution.
Back-haul method for the distribution vehicles:
Organising a suitable back-hual method for distribution vehicles may prove to be an
economic to transport the urban goods like soap, detergent, oil, cream, shampoo, tooth

paste, and other daily necessary items for the rural consumers and in the return journey, the
energy verticals will transport the fruit and vegetables etc. from rural areas to the nearest
towns and cities for distribution among the urban consumers.
But this needs a well co-ordinated VMS distribution strategy in which the manufacturer,
distributor/relation and the customers jointly make a strong distribution chain. Annual
melas and fairs organized are quite popular and provide a very good platform for
distribution because profit visits them to make several purchases. According to the Indian
Market Research (IMRB) Burean, around 8000 such nulas and fairs are held in the rural India
every year.
Rural markets have the practice of faxing specific days in a week as weekly market days, i.e.,
Haats when exchange of goods and services are carried out. This is another potential low
cost distribution channel available for the marketers.
Also, every region consisting of several villages is generally served by one satellite town,
formed as Mandia or Agri-markets where people prefer to go and buy from their
commodities. The marketers using their feeder fown will be able to cover a large section of
rural population.
The other distribution strategies for the rural population are as under:
i. The general insurance companies may promote their policies of health insurance, crop
insurance and vehicle insurance through the existing co-operatives.
ii. Marketers may arrange more number of wave-houses for storage and re-packaging into
smaller pouches for which employing local villages will work profitable and popular.
iii. All communication in the rural areas must be in the regional language and dialects.
iv. Markets need to develop innovative packaging technology which would be economic,
protective and improve shelf-life of goods.

v. In addition to focusing on targeted promotions and advertising, there is an urgent need to

work on economical packaging, dual pricing and special size of PMCQ and household
products.
vi. Marketers need to place emphasis on retailers directly rather than depending on the
wholesalers for distribution in the rural market as this has not proved to be very effective
marketing channel.
vii. Marketers targeting the rural market should be well aware about the seasonality of the
business. Because the trade is seasonal, employment and disposable income can fluctuate
arrange the villages during the year. This means that business should view market research
data that relies on yearly aggregate statistics with caution.
viii. Marketers must trade off the distribution cost with incremental market penetration

OPPORTUNITIES AND THREATS IN RURAL INSURANCE

MARKET
Opportunities and threats go hand in hand in every industry and insurance industry is no
exception. Identification of opportunities and threats help in better analysis of the market. An
attempt is made to examine the opportunities and threats related to rural insurance markets
and how insurers can get the most out of them.

Opportunities:
Gigantic population: India has higher population growth rates. The rural population
amounts to nearly 72% of the total population and as discussed earlier, majority of them are
left uncovered. This can be a major avenue for the players in the insurance market.

Agriculture insurance: agriculture is a major vocation and source of income for the rural
India. This segment has vast potential, which cannot be overlooked.

 Growth in income level of the rural population: the national income of the country as well
as the individual income level is on the rise. The agriculture and allied sectors are showing
steady growth rate. The rural market contributes up to 55% of the national GDP. it point out
to the tremendous amount of the potential available in rural areas.

High saving habit: Indians and its particulars, rural people have high saving habit. This may
be due to uncertainties and perils they are exposed to in the rural areas. Hitherto, they had
only a few investment avenues like post office savings or bank deposits, and insurance could
be make an alternate investment opportunity with the benefit of life cover.

Falling interest rates: insurance have become an alternative investment product. With the
fall in the interest rates, insurance products can be made an investment avenue, which gives
good returns with insurance protection. Threats o Uneven distribution of population: Indian
population is not evenly distributed. The percentage of village with population below 200 is
20%, and the percentage of villages population between 200 and 500 is 40%. The total
village exceeds six lakh in number. The uneven population distribution could be a hurdle for
the insurers to reach out the ultimate customer. On the other hand insurance as a product is
unique in itself. o Low literacy level and insurance awareness: statistics suggest that literacy
rate is as low as 65% and much as to be done in this area. Low literacy stand out as another
major threat for insurers because communicating the benefits and mechanism of insurance
product to the illiterate or semi-literate masses may not be easy. o Rural employment
condition: the major employment source for rural populace exits only in agriculture and allied
activities. This profession needs much muscle work, which affects the longevity of a person.
The earning power of a person is crucial point for life insurance underwriting, and insurers
cannot ignore this fact. o Low earnings: as much as 30% of the Indian population lives below
the poverty line. Majority of them are landless agricultural laborers and wage earners.
Therefore, it is quite essential to design low rate products that are affordable by this people.
For them to be able to meet their basic needs food, clothing and shelter is the primary object
and purchasing insurance is not a top priority. o Traditional saving habit: if we give a close
look at the saving habit of rural population we find them they prefer to invest in real asset
than in intangible assets like bank accounts, insurance, post office schemes etc. the most
favorable avenues for them are purchase of land, both agriculture and non agriculture, gold
and silver etc.to shift their saving habit from tangible to in tangible assets would be big
challenge for the financial institutions. o Health conditions: with efforts of the government
and nogovernmental organizations there is some improvement in the health conditions of
Indian population, especially in the urban areas. But much has to be done rural area. Many of
the villages do not have minimum basic amenities like proper sanitation, drinking water
facilities, good hygienic environment, health facilities etc., which have direct and indirect
impact on their health conditions. o Peoples psychology: the majority of the Indian,
especially rural population, believes in god and is superstitious to some extent. They tend to
either retain the risk or avoid the risk, instead of managing or hedging the risk. This tendency
should also be considered as a potential threat in selling insurance. o Credibility: the research
studies conducted by FICCI in association with ING insurance reveal that, one of the major
factors influencing the marketing of insurance in rural areas is the credibility of insurers. In

the past, there were cases of financial frauds, which affected the faith of the rural population
adversely. Confidence building exercises need to be carried out, and government and the
IRDA need to join hands with the insurers in this regard

CHALLENGES
1. Awareness and Education :
There is major challenge for insurance companies and policy makers to increase the
awareness levels among rural population, so that they may view insurance policies as a risk
management tool. Traditionally rural households have addressed their risk protection in
various forms: form the joint family, investing in gold, land and other assets. Most insurance
polices that rural customers are familiar with have been sponsored or subsidized by the
government, the legacy of this past is that rural people do not fully see insurance as a risk
sharing mechanism through contributions in premium. There is need for sufficient investment
by both private and public institutions to bring about a change in the perception of insurance
as a risk mitigation instrument and enhance the awareness levels on various insurance
products and how they work in principle.

2. Documents for certification:

For effecting and servicing various insurance contracts a variety of document are expected to
be provided by the customer to the insurance company. On account of their low awareness
levels and also lack of documentation systems in public institution for issuing various
documents, rural people face a peculiar disadvantage of not processing even some very basic
documents required for taking insurance policies. Below are listed a few such cases

a. Age proofs:
Most rural people do not have a formal age proofs that are demanded by insurance
companies. A common kind of age proof that may be available with good number of people is
the voter identity issued by the government. Unfortunately, the quality 55 of information
captured on these voter IDs is found wanting and therefore is not accepted as a standard age
proof by some insurance companies. If we are to seriously look at extending life insurance on
large scale in rural areas, it will be necessary to provide a standard age proof to all rural
customers which will be accepted by all insurance companies

b. Death certificate:

Currently there is no standardization of how a death certificate is issued uniformly across the
country. Some insurance companies have difficulty in accepting death certificate issued by
other than municipal authorities and revenue departments. For rural people the most feasible
way to get a death certificate is form the gram panchayat. The regulator should clarify to the
industry to give sanctity to the death certificate issued by gram panchayat. Some times the
insurers insist for cause of death, which is possible only if an autopsy is conducted.

c. First Information Report (FIR):

In claims that involve an accident, all insurance companies insist on submission of a fir report
registered with the police. In the rural context the access to a police station is quite remote to
many places and perception and experience of rural people is such that accessing a police
station only invites more hassles to them. In view of this, insurance companies should be
willing to substitute an fir with a declaration from community members in cases where it is
convenient to get an fir.

3. Product customization:
Most products being offered today to rural market are very often urban products, offered to
the rural market with some tweaking in features. Very often this may not be the right way to
go about selling rural products, as the requirements of rural customers can be very different
from that of the urban customer. The product needs specific design in terms of pricing,
premium payment options and simplicity in product features and process requirements.

4. Premium routing :
Customer in rural areas does not have direct access to insurance companies, in order to remit
small premiums amount in cash to the insurer directly. The alternative available for them is
to remit cash to the insurer through banking instruments like cheques or demand drafts. But
this option is unlikely to be helpful to rural customers as very few have bank account to use
these instrument and also the banking infrastructure in rural areas is grossly inadequate.
Therefore there is a need for the regulator and the insurance companies to work on a process,
which allows rural customers to remit premiumto insurance companies in a convenient and
cost effective manner. An alternative would be to route the premium through distribution
channels like micro-insurance companies, which have the capacity to handle small, and
multiple cash transactions in villages.

5.Remuneration of expenses for distribution and servicing:

It is well know that cost of delivering micro-finance services is very high. This is a result of
the combination of small and multiple transactions, with the customers scattered over a wider
geography. The current regulations on compensation for insurancever a wider geography. The
current regulations on compensation for insurance distribution have a cap on the

commissions payable, which does not necessarily cover the cost of the selling and servicing
policies in rural areas. There is need to de-regulate the commissions payable on various kinds
of policies, especially for the rural sector. This would allow the insurance companies to
ensure that the transaction costs of selling and servicing of rural insurance policies are
recovered by the distribution partners. This would be absolutely essential to ensure that rural
policies are sold and serviced actively.

6. Moving from willingness to pay approach to willingness to charge

approach:
Traditionally all research and design of rural products has been weighed down by thinking on
what will be minimum premium amount that rural customers will be willing to pay for
various policies. The result of this has been that most products have been designed with very
low premiums that do not adequately cover the actual cost of covering the risk, lease alone
the cost of delivery and servicing of the product. This has only helped to meet in the short
term the regulatory requirement imposed on the insurance companies to do a certain
minimum number of pricing; there is little incentive for either the insurance company or the
distributor to sell these policies in large numbers and do the needful servicing. Therefore
there is a need to design products that are priced in such way that there is enough interest for
customers and also for the insurance companies and distributors to sell the products on a large
scale.

7. Lack of focus on pure risk policies by insurance companies and high

lapsation of policies in rural areas.
In India, traditionally life insurance business has been seen more as a saving and taxreduction instrument rather than as a major risk protection tool. in the rural context it has got
translated into a mere savings instrument, with very little risk coverage. The time bound
contracts in insurance policies are such that, there is every chance of lapsation of these
policies if the customer cannot pay the premium in a timely manner. This result in, not only
the loss of risk coverage, but the loss of a significant part of the savings made by the
customer. The probability of this happening in rural areas is very high as the incomes of rural
household are unpredictable and varying. This is on account of the agrarian economy of the
rural areas, which is subject to the risks of nature (like inadequate rainfall) quite frequently.
Thus the current life insurance policies, primarily designed for the urban market, are to the
disadvantage of rural market, where the customers stand to loose both their savings and risk
protection. There are reports (the hindu, 08sep-2004)which indicate that LIC itself has
mopped up about 100 crores in lapsed polices from rural Andhra Pradesh alone in the past
two years. Hence there is need to motivate life insurance companies it sell pure risk products
actively and also make the savings linked products more flexible and fair to rural customers

keeping in view their fluctuating this situation, by ensuring that life insurance companies do a
certain minimum number or percentage of pure risk policies in their overall portfolio.

8.Minimal targets for rural areas:

The current targets set by the regulator for the insurance companies, to meet the rural/social
sector obligation are not representative of the percentage of people residing in rural sector.
Further the target talk about only first 5 years from commencement of the company. As a
result of this, insurance companies have not made sufficient investment in the right direction,
to design and deliver products for the rural market. They have by and large preferred to
exhaust their efforts on rural market by meeting the minimalist targets by the regulator. To see
a greater investment in rural products by insurance companies, it is possibly time for the
regulator to consider a revision in the rural targets for the insurance companies to higher
level.

9.Group approach:
While the group is very much being explored by many insurance companies to offer
insurance services, it very gets restricted to groups where members have taken credit from an
institution. The down side of this arrangement is that those customers who do not have credit
requirements get left of insurance coverage. Therefore there there is a need for insurance
companies to design products for groups in rural areas where insurance can offered as a stand
alone service without necessary bundling with credit. This would getting a large size of rural
population under insurance coverage through the simplicity of group products.

10.Health insurance a morphing product

Health insurance product would be more viable to administer for the high impact and low
frequency healthy risk events. These would generally fall under the critical illness category.
While there is an expressed demand by both customers and grass-roots organization in rural
areas to provide insurance coverage for minor or more frequent ailments, it would be more
advisable to meet these smaller costs through savings (self-insurance). It is also well
document that one of the major requirements for credit in rural areas is to meet health
expenses. Thus, it would be useful to design a health risk are addressed by savings and the
other end higher frequency health risk are addressed by saving and the other end of the
spectrum with higher cost and lower frequency health risks can be addressed by insurance.
Some of the health risk in the middle of the spectrum could be addressed by credit possibly.
Thus we will have a health finance product, which morphs from a savings credit to insurance
product based on the scale and frequency of health risk. Of course the delivery of such
product would need the capacities of more than one institution, which have the capacity to
deliver all these services in a complimentary manner.

11. Separate regulation for rural insurance:

Today most of the regulatory activity is directed in general at the whole market, which is still
dominated by the urban and commercial insurance business. Some of these regulatory
directions while addressing the regulatory requirements of the large market may sometimes
actually work to the disadvantage of developing the rural market. Therefore it essential for
the regulator come out with separate regulations, which would propel the development of
insurance services for the rural sector.

PROSPECTS OF RURAL INSURANCE

The farming community in India consists of about 121 million farmers of which only about
20 per cent avail crop loans from financial institutions and only three fourth of those are
insured. The remaining 80 per cent (96 millions) are either self-financing or depend upon
informal sources for their financial requirements. Most of the farmers are illiterate and do not
understand the procedural and other requirements of formal financial institutions and,
therefore, shy away from them. Therefore, while the institutional loaners are insured
compulsorily under the NAIS, only about 15 per cent of the non-loanee farmers avail
insurance cover voluntarily. This is quite indicative of the enormous insurance potential that
exists for addressing the needs of the farming community and enhancing the overall
efficiencies as also the competitiveness of the agriculture sector. This also signifies the
tremendous potential of agriculture insurance in the country as a concept, which can mitigate
the adverse impacts that such uncertainties would have on the individual farmers.