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.
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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.”
