The Insurance industry is in its nascent stage as far as rural insurance is concerned. It is common perception and conviction among the insurance companies that it is expensive to do business in the rural areas despite the fact that 70% of the population resides in rural India. The penetration of rural insurance in India requires a fresh approach to sell rural insurance products because of the limitations in this business. Since the activity revolves around agriculture, products such as rain insurance, crop insurance, loss of yield, price fluctuations in the market and personal accident cover need to be designated for targeting the rural customers. This paper is conceptual in nature and focuses on different distribution channels which can effectively be captured in the rural areas.

Rural and semi-urban areas are expected to overtake urban centers in generating insurance business and life insurance business in these areas are expected to touch $20 bn and non-life insurance $15 bn by 2010, according to a paper on insurance industry prepared by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). The Indian insurance market was liberalized in 1999 and the first private insurance company came into existence in November 2000. The industry has witnessed nearly nine years but the insurance market has not been open in real terms, the expansions have been limited to the urban market only. There is a vast potential untapped in the rural Indian market (about 60% of Indian population lives in rural India) where there is nominal exposure and can be looked upon as grey market for the private players to approach rather than fighting for the same piece of cake. The insurance companies still do not consider the rural market as a viable and potential option waiting to be explored. The companies are just trying to meet the mandate requirement by Insurance Regulatory Development Authority (IRDA). Cultural diversity and irregular income of the rural market is considered to be obstacles for execution, sales and marketing of insurance products. A brief discussion about the IRDA regulations and definition of rural insurance is inescapable.

The Insurance sector is a promising sector and is developing at a very good pace. The penetration of insurance, with large number of policies in force in the world was 4.8% in February 2008, whereas in 1999-2000 it was 1.2%. The IRDA revealed in its report for January 2009 that the Indian life insurance sector witnessed 3.5% growth in its first year premium during April 2008-January 2009. As per a report published in Economic Times (March 17, 2009), total premium income from life insurance stood at Rs. 13,043 cr ($2.6 bn) in January 2009, whereas it was recorded at Rs. 65,337 cr ($13.1 bn) during April 2008-January 2009. Private insurance companies witnessed a decline of 24% in First Premium Income (FPI) in January 2009 while Life Insurance Corporation of India (LIC) posted 72.53% FPI growth during the same month.

Risk And Insurance Journal, Rural Insurance Industry, Life Insurance Corporation Of India, LIC, ASSOCHAM, Insurance Regulatory Development Authority, Cultural Diversity, Risk Mitigation Solutions, Gross Domestic Product, Insurance Policies, Risk Management, Insurance Sector.