With the capital market regulator, Securities and Exchange Board of India, and the Insurance Regulatory and Development Authority locking horns over unit-linked insurance plans (Ulips), the insurance industry seems to have entered a period of flux. Harpal Karlcut, CEO, Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd, gives his views on why insurance agents should get commissions and talks about where the insurance industry is headed. Edited excerpts:
Keeping it simple: Karlcut says a smaller range of flexible products doesn’t confuse customers. Ramesh Pathania / Mint
Your company’s stakeholders are three banks. How have you used that platform to distribute your products?
We sell our policies only through the bancassurance channel and we have no agents. This model has worked well despite the economic slowdown. We are primarily catering to the customers of our stakeholders. The customers interact with their banks for their personal finance needs and we fill the gap by providing investment and insurance solutions.
The argument for giving commissions to agents is that they have to procure customers. But in a bancassurance model, customers walk into the bank and are relatively easy to procure for agents. So, should agents in the bank get lower commissions?
For any insurance company, the biggest cost is the cost of acquisition, including when they sell through banks. This is because banks reasonably require the “going rate” of commission in the market even though their cost of distribution is lower. The commission is set at a level so that the product is competitive, while recognizing that insurance products are very complex products and they need to be backed by sound advice and competent advisers.
When it comes to insurance, you need to look at the long-term, but most of us find it difficult to look even five years from now. Insurance products need competent advisers and, hence, are loaded.
Like most new entrants, you came in the mid of an economic slowdown. Did you find it difficult to take off?
Our focus is the 48 million customers of our stakeholders. To begin with, our target was huge and our bancassurance model did work. The one advantage of entering at the time of slowdown is that we knew that the core focus of our business has to be persistency of insurance policies.
The insurance market is fairly new and like the dynamics of any new market, the first entrants focused only on getting more business. Slowdown exposed the pitfalls and now insurers are focusing on persistency.
Like you said, the market is fairly new. Where do you think the insurance market is headed?
I think the next big leap will be in the space of disclosures and transparency. The Indian market is not yet mature like the market in UK where customers don’t want complex products. Instead they go for a term plan, which is a pure form of insurance. Here the customers still wants returns. Our market is just like the markets in China, Hong Kong and Singapore, where insurance-cum-investment products are very popular. It is to this mindset that unit-linked insurance plans fit in well, which is the most transparent form of investment.
But as far as investments go, aren’t mutual funds better products, considering they are transparent and have no load?
I think too much is being made out of Ulips and mutual funds. Ulips has many similarities with a traditional plan, (it) just (comes) with greater transparency and they allow customers to choose their exposure to the stock markets depending on their risk appetite. But, in principle, both (Ulips and traditional plans) are the same. They (Ulips) are investment solutions that also take care of your insurance needs. Because of this dual characteristic, they need sound advisers to do a proper need-based analysis of a person’s financial goals and, hence, the load.
In fact, in traditional plans also you have to pay commission to advisers at levels comparable with Ulips.
You have five retail insurance policies right now and you plan to keep to fewer products. How do you plan to cater to varying demands of the customer with limited products?
One of the features of the bank staff is that they are highly trusted and have a limited range of good value products, be it loans, deposits and, indeed, insurance.
Our view is that having a proliferation of insurance products adds to cost, complexity and a much greater risk of inadvertent mis-selling and misbuying. A smaller range of flexible products gives greater confidence to the sales staff and doesn’t confuse customers.
The main segments in which we are looking to introduce new products are rural, corporate and high networth individuals.