Page 43 - The Insurance Times October 2025

based, causing poor alignment with annual premium with government schemes like PMFBY and Ayushman Bharat
structures. High distribution costs in remote areas increase to help subsidise premiums. Offer flexible premium collection
expenses, but the low premium per policy reduces viability. options via monthly or quarterly micro-premiums through
Additionally, risk pricing is challenging because insurers lack UPI or mobile wallets, making it easier for insureds to make
detailed rural data, leading to cautious pricing that regular payments. Implement usage-based models for assets
decreases product appeal. such as tractors, implements, and equipment, where
insurance covers seasonal use instead of fixed rates year-
Distribution-related: The last-mile network is usually weak. round, reducing costs and potentially increasing insurance
Agents/PoSPs prefer urban or semi-urban areas where ticket adoption. Facilitate cross-subsidisation within portfolios by
sizes and commissions are higher. There is also a trust gap allowing profitable urban products to subsidise low-ticket,
because rural populations have low financial literacy and a high social-impact rural products.
history of mistrust due to delays or denial in claim
settlements. Although smartphone use is increasing, Distribution Strategies: Utilise local networks such as SHGs,
connectivity issues, language barriers, and a lack of PACS, FPOs, dairy cooperatives, and panchayats as partners
technological skills still hinder progress. for distribution and services. Engage rural banks and RRBs
for bancassurance because of their broader reach and trust
Efforts Needed to Boost Penetration within these communities. Implement a hybrid model that
combines digital and face-to-face methods, leveraging
Product Innovation: It involves creating simple, need-based
micro-insurance options that cover health, crops, weather, mobile onboarding supported by village-level entrepreneurs
or agents. Incorporate embedded insurance by linking it with
and assets such as livestock, bicycles, or small shops within
loans, agricultural inputs, seeds, fertilisers, tractors, or
an affordable package. Parametric insurance includes
mobile recharges. Encourage rural agents with higher
weather, rainfall, or index-based policies that automatically
pay out, removing the need for detailed claims assessments. commissions, training, and technological assistance to
Premiums aligned with seasons correspond to harvest strengthen rural enterprises.
periods or local festivals when cash flow is usually higher.
Community or group insurance utilises SHGs, cooperatives, Bottom Line:
and farmer groups as policyholders to lower costs and foster Rural insurance penetration remains low due to several
trust. A faster claims process can be achieved through factors. Products typically cater to urban areas, but prices
Aadhaar-linked bank accounts, satellite data, and mobile often fail to account for irregular income cycles, and
photos, enabling swift settlements. distribution channels lack local trust and durability. True
innovation involves "designing for rural first" - merging risks,
Pricing Approach: A market-driven pricing strategy is aligning premium cycles with cash flows, integrating
essential, beginning with nil or minimal initial profit margins. insurance into existing ecosystems, and building trust
Utilise freemium or subsidised models through partnerships through local partners and faster claims processing.

Framework: Rural Insurance Penetration - From Current Approaches to Needed Shifts

Dimension Current Approach (Reality) Needed Shift (Future)
Product Urban-centric designs, replicated for rural Rural-first product design Bundled covers (health +
Single risk focus (only crop OR only health)- crop + asset)
Complex terms, exclusions, paperwork Simple, claim-triggered products (parametric/index-
based)
Group/community insurance for SHGs/FPOs
"No-frills" products with simplified claim process
Price Annual premiums mismatched to seasonal Flexible premium payments (monthly, Quarterly
incomes harvest-linked)
One-size-fits-all pricing, risk-loaded Micro-premium collection via UPI, wallets
High cost of distribution reflected in Usage-based pricing (e.g., seasonal machinery
premium- Low affordability leads to lapses insurance)

40 October 2025 The Insurance Times