The distribution gridlock

It was January 2014 when a crucial meeting was on between insurers and the regulator. About 200 representatives of the industry discussed solutions on how to improve insurance distribution architecture in the country. Cut to 2016, distribution is still the biggest challenge in the industry. While touch-points of sales have seen a jump, sales and penetration remain low.

Insurance distribution in India is divided into tied-agency channel and third party distributors such as corporate agents, brokers and web aggregators. Recent additions to this include insurance marketing firms and common service centres (CSCs).

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But are these enough? Insurance industry wants more. V Manickam, secretary general, Life Insurance Council said that the agency channel has traditionally been the lifeline of the industry. "However, the number of exits of agents is alarming and this is primarily due to the low remuneration that they receive," he said.

Higher fees for agents

The life insurance industry has seen over 30,000 agents exit between April 2015 and February 2016. Lack of a continuous income flow and no proper career development have led to the decline in numbers.

However, the regulator has a solution for this. Insurance Regulatory and Development Authority of India (Irdai) in an exposure draft on remuneration for insurance agents and intermediaries has proposed higher commission for agents. Further, it has also said that insurance companies can give rewards over and above commissions.

This, say insurers, could resolve part of the problems. R M Vishakha, MD & CEO, IndiaFirst Life Insurance said that the proposals would help incentivise agents and would be especially beneficial in the group term space to bring it on par with the non-life sector. (INSURANCE INDUSTRY: A SNAPSHOT)

Even flexible incentives based on performance and business quality would be facilitated, said Deepak Mittal, MD & CEO of Edelweiss Tokio Life.

Commissions have been raised by up to 50 per cent in the first year for term products. This is in order to enable them to do more business and earn more incentives.

Spawning entrepreneurs

The regulator even went a step forward in order to boost the entrepreneurship spirit among insurance agents. It launched a new channel for selling insurance called insurance marketing firms where agents could set up their own firms.

Insurers encouraged their agency force to be a part of this channel. However, only few agents expressed interest in this new structure where these firms could solicit insurance products, undertake insurance service activities, and distribute other financial products.

Till now, 14 such firms have been registered. Apart from soliciting and procuring insurance products, almost all of them are also involved in back-office activities of insurers.

A senior industry professional said that agents were apprehensive of running their own firms and were satisfied maintaining status quo. "Allowing these firms to work under insurance companies as a pilot would have given more agents the confidence to join this channel," said the head of distribution at a private life insurance company.

Banks come to rescue

Despite the vast population, India stands 15th globally in premium income, as per global reinsurer Swiss Re's sigma study. This is because insurance penetration, measured as a percentage of premium to a country's gross domestic product, has been on a constant drop in India.

Swiss Re's latest sigma study says India's insurance penetration fell to 3.3 per cent in financial year 2014-15 (FY15) compared to 3.9 per cent in FY14. This has been the lowest since FY06 when the penetration was at 3.14 per cent.

Rural areas in particular, have been hit the hardest. Overall, less than five per cent of insurance penetration has been seen in public sector bank branches across the country including smaller towns. With poor internet connectivity, customers in these areas only have a handful of points where they can buy policies.

Data shows that the bancassurance market size grew from Rs 9,500 crore in FY14 (individual segment) to over Rs 11,000 crore in FY15 driven by large unit-linked insurance policy sales. There is huge scope since public sector banks with 400 million accounts have an insurance penetration of just over one per cent.

It is estimated that increase in penetration in public sector banks alone to 15 per cent, can add 50 million customers and generate additional Rs 60,000 crore in life insurance premium in the next five years.

Since constant nudges to open up their branches to more insurers did not work, Irdai brought out a new set of regulations which allowed banks to sell products of three insurers each in life, non-life and health. Banks have been given strict instructions to come up with a policy and time-line for opening up to other insurers to give more choice to consumers.

Making it mandatory would be essential to enable customers to buy products of their choice, said G Srinivasan, chairman and managing director of New India Assurance. From this financial year, banks have been given the option to open up and the regulatory body has also started seeing action towards this endeavour.

However, other concerns remain. With insurance still being a push product, several complaints of banks forcing customers to buy a policy with a banking product or service have been reported. But with Irdai stating that each bank employee will be responsible for the product they sell, these practices may see a drop.

Group networks and malls

Various studies have shown that it is easier to cross-sell to existing customers rather than acquiring newer customers. For this, insurers are also looking at utilising their corporate group networks to sell products.

Future Generali India Insurance, for instance, which began selling insurance in outlets like Big Bazaar is now preparing a database. K G Krishnamoorthy Rao, MD & CEO of Future Generali India said that the company is targeting the group's customer base to sell insurance products.

Having common products across life and general insurance companies across a business group was also proposed. Termed combi or combination product, it would have components of pure term and health insurance offered by a life and non-life insurer within one group. But this failed to take off.

CSCs: New touch-points

Since newer distribution infrastructure would be expensive, the regulator has also looked at utilising existing networks like CSCs. Irdai said that insurance companies could tie up with CSCs to act as insurance brokers. However, due to the expense management norms, insurers are not finding it cost-effective to partner CSCs.

Also, special products for this channel would have to be devised which are being designed. A handful of insurers have entered into such tie-ups though sales are not high.

Anoop Pabby, managing director and CEO of DHFL Pramerica Life Insurance said, "CSCs require huge economies of scale for the product to be offered at such a cost." However, he added that with payments banks coming into play, there might be a drastic reduction in transaction costs.

CSCs will offer web-enabled e-governance services in rural areas. They can offer application forms, certificates, and utility payments. Some insurers, including IndiaFirst Life, SBI Life and HDFC Life, have products to cater to this channel.

With costs under pressure, newer channels like online brokers and web aggregators are also catching up. Though four per cent of overall sales come from these channels, heavy investments are being made in digital, be it via their own company website or aggregator platforms, insurers are looking at more online visibility.

While the regulator has been giving a gentle nudge to make good use of all existing sales channels, the real challenge is that insurers are seeing a big swing in business from one channel to another. When given an equal opportunity to perform, third party intermediaries are of the view that the true potential of the industry will be unlocked.

Bringing in newer touch-points to complement the existing points of sales will only lead to more numbers to the overall business, bringing newer dimensions to India's insurance growth story.


Insurance industry and Irdai do not agree on certain issues. A look at some of them:
  • What the regulator says: Banks can sell products of three life, three non-life and three standalone health insurers

  • What the industry says: Those banks with insurance partners will not immediately open up; others want banks to mandatorily sell multiple insurers' products
  • What the regulator says: As per the new law, no claim can be rejected after three years of policy being in force

  • What the industry says: Fraud claims should not be included in this definition as it will lead to losses
  • What the regulator says: Proposal to cap expenses and violations will lead to clawbacks in management variable pays

  • What the industry says: Overall caps should be imposed within which insurers could set their own limits
  • What the regulator says: Simple products in general insurance can be sold directly without being filed

  • What the industry says: Simple products in life and non-life should be allowed to be sold directly

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