Li Xuemei, a 42-year-old villager in Qianheizhai, a small village in Central China's Henan province, said she never bought an insurance policy before.

With an annual family income of around 4,000 yuan, a policy higher than 100 yuan could be considered too expensive. But she said she was recently thinking about a new accident insurance product, as it costs her a mere 30 yuan for a maximum payout of 50,000 yuan.

"The price is acceptable, and I think my 21-year-old son, who is working at a building site in Zhengzhou, may need it," said Li.

The product she mentioned is a micro insurance policy jointly developed by New China Life Insurance and Zurich Financial Service Group.

After a study of rural areas of Henan and Hubei provinces, New China Life, backed by Zurich Financial's international experience, launched three micro insurance products covering accident insurance, small loans and pregnant women for rural folks.

But New China Life is not the first insurer to tap the country's vast rural areas: China Life, China Pacific Life Insurance and Taikang Life launched micro insurance policies this year.

China's rural market is becoming increasingly important for the country's largest life insurers.

Statistics show that by the end of 2006, China Life, China Pacific Insurance Life Insurance and Ping An Life Insurance, the country's top three life insurers, received a premium income of 98.2 billion yuan from rural areas, accounting for a quarter of the country's total life insurance premiums. And the proportion is expected to grow to between 40 and 50 percent by 2010.

However, coverage remains low in the country's rural regions, due to a lack of appropriate policies for local residents.

In a survey by the China Insurance Regulatory Commission this April, only 29 percent of rural residents in China's central and western areas had bought a policy, as 55.2 percent of interviewees thought premiums were too high and 12.4 percent of them failed to find the right product for them.

That's why Wu Dingfu, chairman of the commission, said the whole industry would strive to develop policies serving agriculture, farmers and rural areas this year. And micro insurance, with comparatively lower premiums, easy-to-understand policies and simplified claims procedures, is regarded as important in revitalizing the rural insurance market.

Sources said that the government may reduce taxation on insurers who promote micro insurance products and offer subsidies for those buying micro insurance policies.

Micro insurance policies' premiums usually range from 50 to 100 yuan, with the sum insured hovering around 50,000 yuan, mostly in the form of accident insurance.

Jiang Shengzhong, director of the insurance department of Nankai University, said that micro insurance's key feature was to provide protection for low-income people whose annual income is usually lower than 1,300 yuan. Currently, China has 80 million such people, but only 30 million of them have joined the micro insurance system, implying its vast growth potential.

Micro insurance usually delivers a low profit margin. Therefore, ensuring the profitability of insurers is the key to making micro insurance's development sustainable.

Raymond Risler, head of the micro insurance sector of Zurich Financial Services Group, said such a business mode should start with product design, strengthened by low-cost distribution channels and effective IT systems.

"It is pretty important to develop the right policies to meet rural customers' real needs," said Risler. "Since the premium of micro insurance is usually low, we need a large base to improve the profitability. So, the products must sell well."

Jason Yang, director of the product center of New China Life Insurance Co Ltd, has a similar viewpoint.

"Micro insurance will require insurance companies to change their mindset in terms of developing products. We will attach much more importance to customers' real needs instead of selling products with a higher profit margin."

In the long run, micro insurance should be profitable, but in the short term, it could hardly make a profit, Yang added.

To cut down the cost of micro insurance policies, finding a local partner and introducing an effective IT system is also vital to reduce the spending on distribution channels.

More diverse methods of payment are available, such as mobile and online payment. And the insurers could also outsource the claim process, Yang said.

"As rural cooperatives and postal bureaus have a good reputation in the rural areas, we would join hands with them to largely reduce our sales costs," said Yang.

But to prevent risks, Risler suggested micro insurance developers start with simpler products such as accident insurance.

(China Daily December 25, 2008)