Insurance Sector in India – Need for General Insurance Penetration in Tier 3 & 4 Cities

Insurance business, or General Insurance as is known in this part of the world, has been growing very impressively in India. From a market size of 8000 crore, it has now expanded to more than 120000 crore. in 2016-17. The General Insurance industry has always grown with the overall economic growth. Unlike Life Insurance, which is pure sales driven distribution where sellers try to create a need, in P&C the need or opportunity for insurance already exists. For example, if you have bought a car, you cannot take it to the road unless it is insured with at least a third party insurance cover or if you have applied for a loan with a bank, it is a pre-requisite to get your assets insured. But there are almost 30 General insurance companies in India (Health insurance companies included). There are not enough such traditional ‘opportunities’ for so many players to grow in size & sustain. Motor has always been the dominant line of business in General Insurance and in a country that is home to more than 1 billion lives, Health insurance was the next logical line of business to grow. We have almost all GI companies selling health insurance in India, with at least 5 exclusive health insurance companies (and quite a few more in the pipeline). Logistics, productivity, ticket size and easy distribution have contributed to companies competing in Metros & Tier I cities only. But in India, even today, more than 60% people live in Tier III & IV cities/villages or below. This leaves a huge customer base that has remained largely untapped. This is mainly because of the following challenges most insurers face in terms of penetrating in Tier III & IV cities:

1. High cost of opening physical offices manned with minimum manpower to provide uniform services across
2. Reach/connectivity issues from the metros to these cities
3. Low awareness in these areas which would require more efforts and resources required to create this awareness about insurance.
4. Experienced and trained manpower (in-house and distributor networks) to deal with customer queries and problems, since insurance can be very technical in terms of policy terms & conditions, clauses, claim settlement process etc.
5. Pricing challenges, as the data available on claim size and frequency (especially in health insurance), is insufficient.

Insurance penetration is, therefore, abysmally low in India. However, it is not possible to grow the insurance business if we do not focus on Tier III and IV cities. A few industries have done well there, like the ones in FMCG, Pharma and Telecom sectors. But they have been successful because they were able to adjust their product offerings and distribution methodology as per the need of the local population in these areas. Some of these adjustments include innovations in affordability (without compromising the quality), daily budget rather than monthly packs, easy availability through a widespread distribution network etc. These have contributed to their high success in these areas. Though insurance is very different from these industries, there are still a few learnings we can take away to expand insurance penetration there. The biggest challenge in insurance is that there is no instant gratification for the customer. After all, it is a promise to reinstate or pay losses in case there is any mishap. Many of us still think, even after seeing worst of the tragedies on a daily basis, that it cannot happen to us. It will take a little more effort and hard work for insurers to change this mindset and achieve the kind of success that FMCG & telecom companies have had in these areas. Here are some insights and suggestions that general insurers can consider while devising a strategy for Tier III and IV penetration:

1.   Make full use of technology to create an ecosystem which is self-sufficient (i.e. issue policies, settlement of claims instantly with the help of technology) rather than having a physical presence
2. The distribution strategy cannot be the same as that of metros & Tier I cities. A large number of agents (maybe not full-timers) with regular but lower sales per month is one way to approach this.
3. The necessity for innovation and customization in terms of coverage, features, affordability & policy term (most of the policies are for one year only) etc.
4. Awareness is the larger responsibility of the whole industry, General Insurers must pool in more resources towards smart advertising (innovative use of media TVC, newspaper, social media etc.).
5. New distribution opportunities such as CSC, IMF, POS & regional rural banks can help grow the penetration.

The Bottom Line

At Bajaj Allianz, we’re not just looking at Tier 3 and 4 cities as markets with the need for general insurance penetration, we aim to grow the earning potential for people living in these areas. With over 800 VSOs functional currently, we’ve provided direct employment to over 1000 people, and to a vast network of intermediaries indirectly. The Virtual Office initiative, thus, not only enables customers in these areas to secure themselves, it has also created an opportunity for the community in this area to work with a reputed brand without having to leave their hometown. Contributed by: Aditya Sharma, Senior Vice President & National Head - Strategic Initiatives at Bajaj Allianz General Insurance Co. Ltd