Bajaj Allianz Life is making impressive strides in its strategy of becoming a major player in India’s potentially enormous microinsurance market. This is in keeping with the thinking of its strategic investor, Allianz’s global strategy aimed at growing microinsurance into a significant contributor within 10 years.
One of the more onerous requirements imposed on insurers in India is that services must be extended to rural areas, which in virtually all instances demands the sale of microinsurance products. While some insurers have been accused of dragging their feet on this issue, India’s third-largest life insurer, Bajaj Allianz Life (BAL), has approached the challenge with commendable zeal.
Reflecting its achievements in India’s rural sector, BAL has been awarded the 2011 SKOCH Financial Inclusion Award in recognition of its “execution of financial inclusion initiatives through life insurance across India”. The award was presented by the SKOCH Development Foundation, a not-for-profit organisation.
The specific product for which BAL was recognised is Sarve/Swayam Shakti Suraksha (SSS), a microinsurance product designed specifically for inhabitants of rural areas. BAL began the SSS project in 2008, following studies on consumer demand in cooperation with various financial institutions engaged in microcredit, regional rural banks, cooperatives and dairy boards.
According to BAL, monthly premiums are as low as INR45 ($1.13) for a policy with a minimum term of five years. Three million lives are now covered by the SSS product which is distributed through 5,000 consumer touch points in 19 Indian states.
According to developmental organisation the World Bank, about 70% of India’s population of 1.16bn people reside in rural areas, with more than 80% of rural dwellers earning less that $2 per day.
Microinsurance’s big potential
Commenting in mid-2010 on BAL’s move into microinsurance, its head of business procurement and microinsurance business Yogesh Gupta said: “Our objective was to create something like a revolution and cover a huge mass of communities spread out over a huge territory.”
At the time Gupta spoke, he said BAL had twom rural customers spread across the country but with a major density in South India. BAL’s short-term target was to increase the number of rural customers it serves to 10m.
Gupta said that among major challenges faced in India’s rural market are a low level of awareness of the benefits of insurance and a lack of trust in insurance and big companies. He added that the area in which BAL sell its products covers a vast area in which logistics and communication infrastructure is poor. BAL also faces linguistic problems.
“India has 22 official languages, but people speak hundreds of different languages,” said Gupta.
BAL’s proactive approach to microinsurance is in keeping with that of Allianz, which together with Indian motorcycle manufacturer Bajaj Auto established BAL in 2001. Allianz has a 26% stake in BAL which is also India’s second largest private general insurer.
Worldwide, Allianz first entered the microinsurance market in 2004 with the establishment of a small credit life insurance portfolio in India. It has since been actively pursuing microinsurance in other developing countries including Indonesia, Colombia, Egypt, Cameroon and Senegal.
In June 2010, Allianz announced that in 2011 it would launch a microinsurance division in Brazil where it believes it can potentially meet the needs of between 50m and 60m people.
Commenting on Allianz’s strategy, Allianz’s head of microinsurance Michael Anthony said in late-2010 that Allianz has seen “extremely strong growth patterns, particularly in Asia, less so in Africa as of yet, and to a solid degree in Latin America”. He added that he expected that by 2020, probably 20% of the people that Allianz is providing insurance services to on a worldwide scale will come from the very low income client segment.
And there is certainly a vast potential market. According to Allianz, worldwide, more than 2.6bn people are living in extreme poverty, with only 3% of them having access to government or private insurance schemes.
Anthony highlighted that microinsurance takes less time to become profitable than normal insurance.
“But the margins are small and you only make real profits when you serve a lot of clients,” he stressed.
For example, in the Indonesian microinsurance market, which Allianz entered in 2007, the insurer reported that despite total microinsurance premium income of only €165,000 ($225,000) in 2009 it was already profitable.
Anthony continued: “But the success of our microinsurance business is not just measured in instant revenue and profit. We believe that once our microinsurance clients become wealthier, they will also start buying our mainstream insurance products.”