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Selling Life Insurance in Rural India: New Celent Report

Rural India is the next frontier for life insurance companies. Cost-effective distribution channels and client awareness will be critical to success in this market.

India's life insurance market is booming. From a single company a decade ago to 18 active players today, the market has grown at a healthy CAGR of 24% over the past five years. Most of this growth is coming from the urban areas. The increase in competition is forcing insurance providers to look beyond urban centers and take their trade to the more challenging rural hinterlands of the country, where only 3% of the population of more than 720 million people have any form of life insurance coverage.

Rural India is witnessing a surge of income growth, and the propensity to consume financial products has increased considerably in recent years. With increased urbanization, the rural centers' contribution to the national GDP has come down in percentage but increased significantly in value. Insurance providers are working overtime to ensure that this additional wealth is effectively channeled.

This newfound capacity to tap the rural life insurance industry is expected to grow rural revenues from the current US$487 million to US$1.95 billion by 2015. Providers will have to explore ways of creating a granular reach model to tap the market in over 600,000 villages across the country.

"The clincher in the rural life market will be the footprint set up by private insurance players," says Ravi Nawal, analyst in Celent's banking practice and author of the report. "State-owned entities have a formidable footprint that has been established over the past 30 years and is not easily replicable today. Thus, it becomes imperative for private providers to innovate to ensure distribution effectiveness in a very challenging but lucrative market."

This report focuses on a key aspect of tapping this immense market opportunity: distribution channels. It analyzes the current distribution models and provides perspective on the models of the future, providing the reader with an understanding of the strengths and weaknesses of each of these channels.