Micro Insurance and its Penetration in India

Almost 80% of Indian population suffers due to lack of insurance awareness, though Insurance industry is considered to be sunrise industry for India.

There are several reasons for low insurance penetration; one among it is lack of skilled work force. Since privatization of Insurance in 2000, industry has shown great promise. According to the experts, Indian insurance industry ranks 15th in the world in terms of insurance market.

More than two third of the Indian population lives in villages, while the growth of insurance is limited to big cities. This large population is deprived of proper access to insurance products creating greater opportunity for Insurance companies to tap the unserved huge market.

Rural population do not buy insurance as they are not aware where to buy insurance from, products are not customized to their needs & there is no regulation for rural population making insurance compulsory.

crops field

With the death of the head of the family resulting in sudden cut in the main source of household income creates heavy financial burden. There are several instances which deepen the poverty of the rural population like, serious illnesses, unfortunate accidents, natural disasters etc. All such instances create the challenge for survival & existence of poor people.

There has to be some financial protection to attend quickly. That’s where “micro insurance “Comes in.

To tackle the insurance need of rural population of India, micro insurance is considered as most suitable method taking into consideration poor literacy in terms of understanding the insurance need.

Insurance policies planned to market as micro insurance products are designed specifically for the protection of low income people.

Low affordability of poor people is always kept in mind by Insurance companies while pricing the products targeted to cope up with common risks of rural population.

Man seating on buffalo

What is Micro Insurance in India?

 Micro insurance is a protective shield for the certain contingencies/losses provided for the low income people. Protection to people to safeguard their lives & assets, which is provided in exchange of highly reasonable premium. Insurable perils are namely, loss of life, asset loss, critical illnesses, risk of reduction in agricultural productivity, risk to livestock, burglary etc.

Micro insurance policies are specifically designed to meet the need of poor class like, services, social relief in case of deadly & critical illnesses, deaths & certain disabilities due to unfortunate accidents, sicknesses requiring hospital care & urgent medical attention, natural catastrophic events affecting agricultural yield & natural disasters like floods & droughts affecting their livestock’s.

Micro insurance policies also provide protection from natural disasters, fire, and theft etc. affecting property stakes.


General Insurance companies to cater the need of rural population usually aims to provide the basic needs of the below poverty line population by providing a simple & small Sum insured products, tailor made especially to match the needs of poor’s at reasonable rates.

Various Micro insurance products offered by General Insurance Company are; Health/Accident Insurance, Cattle & Livestock Insurance, Poultry Insurance, Agriculture Insurance, Pump set Insurance, Plantation Insurance etc.

These products are available to the rural customers at minimal premiums. Basic Insurance needs of Hospitalization, Personal accident & Critical Illness is taken care by this products. Fire & Allied perils, Burglary & Robbery provides coverage against loss or damage of assets.

Many other risks can be insured by micro insurance, although as with traditional insurance, some of them are more complex and therefore more difficult and expensive to cover than others. General Insurance companies are looking forward to design & include more such products in this line of business.

Cows Feeding on Green Grass

Regulator has taken many initiatives to improve penetration of micro insurance with strong belief for tremendous growth in this area. To widen the product portfolio & distribution network of the micro insurance, regulator had made and executed several guidelines which will help to uplift the micro insurance sector.

Regulator has now allowed cooperative banks, regional rural banks, and primary agricultural co-operative societies to act as micro-insurance agents aiming to reach the poor & low income groups of the society.

Apart from it regulator has set rural insurance targets for each General Insurance company i.e. 2 per cent of insured premium in the first financial year should be from rural social business, increasing annually to 5 per cent in the sixth year. This focused approach of regulator has abided Insurance companies to market their small ticket; micro products in rural areas.

Rustic Tractor

Challenges to Insurance companies while selling Micro Insurance products:

  • Selling micro insurance product is not easy. Convincing value of insurance to low income groups is difficult.
  • Rural population is illiterate and are not familiar with the concept of insurance.
  • Inadequate cost efficient sales methods.
  • Mismatch of needs and products
  • Low affordability
  • Lack of information and understanding – an issue for all types of micro insurance, poor clients often do not understand the concept of formalized risk-pooling.

Constraints pertinent to the growth of the micro insurance sector hindering growth of rural insurance market

  • Rural financial markets characterized by limited and inappropriate services, inadequate information
  • Non utilised or under-utilized available marketing channel for penetration in rural market.
  • High cost & resource required to create efficient channel for distribution in rural area.

Old accident car

Gap of micro insurance in India

Government programs and micro insurance products are not suitably designed to match the demand of the poor households (e.g., relatively large lump sum payments, significant transaction costs, and dependence on relationships with unfamiliar parties), and that the poor are less educated and cannot understand the concept of insurance or risk management, thus justifying the necessity of financial education program in India.

Generally poor income households are risk averseness towards the insurance take up. Because the poor might not understand the concept fully, they might even think that they have been deceived when they remain healthy and do not utilize insurance because “they have paid the premium but gained nothing.”

With such a wide open market for risk-management tools leading to potential opportunities for providers there are only few people in India who benefits from micro insurance.

Several demand studies have been carried out in India to identify specific micro insurance gaps among the low-income markets.

It is important to recognize that a gap in micro insurance coverage does not equate to a demand for micro insurance. Until people see that micro insurance is a valuable solution, its growth will be limited.


Studies reveal that somewhere between 20,000 and 40,000 deaths occur each year due to lack of health insurance apart from loss of finances due to damage to the assets due to Fire & Burglary. India is home to many experiments in micro insurance. There are a host of registered micro insurance products (Rural and social products) in India.

Thus access to micro insurance by the poor and disadvantaged population can contribute significantly in a developing country like India.

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