New Delhi: Insurance Regulatory and Development Authority (Irda) chairman J. Hari Narayan said the dominant agency model of selling insurance has serious shortcomings.
An alternative would be to take better advantage of the bancassurance model, which involves tying up with banks to sell insurance products.
“Irda has set up a group to look into how the bancassurance channel can be more efficiently utilized and re-engineered to meet the needs of tomorrow,” he said in Delhi on Monday. “How can we leverage the vast infrastructure of the banking sector in a manner which promotes consumer interest... Of the 80,000 odd bank branches in India, only around 15-18% sell even one policy.”
The regulator set up a committee in 2009 to examine whether banks could be allowed to sell policies of more than one life and general insurer. The report of the committee is still awaited.
“Agency in the traditional form has vanished in many markets in the world and I don’t see why India will be an exception to this,” Narayan said at an insurance seminar organized by industry lobby group Federation of Indian Chambers of Commerce and Industry (Ficci).
Greater emphasis on per-branch profitability will add to the pressure on the agency channel. That is, premium collections will have to be commensurate with fixed costs, said M.N. Rao, managing director and chief executive of SBI Life Insurance.
However, the bancassurance model could make up for any drop in the number of agents. “The banking system has more than 60 crore accounts. We are nowhere near utilising the full potential of the channel,” Rao said.
The insurance industry can leverage the reach of the banking sector to expand in rural areas. “Almost 30-35% of the banking industry’s branches are in the rural areas,” Rao said. “So insurance companies do not need to spend their funds in setting up branches”.
Almost 41% of all premiums for the non-life industry come from the agency channel, according to a report by the Boston Consulting Group (BCG) and Ficci on the non-life insurance industry. This rises to 90% for state-run Life Insurance Corp. of India (LIC) and 51% for private life insurers.
Industry says poor productivity and low persistency levels due to mis-selling have made the agency channel non-profitable. The persistency rate is the percentage of policy contracts still in force in a specified time interval.
In February, as part of efforts to improve the quality of the agency force, Irda issued guidelines mandating agents to maintain at least 50% persistency till 2013-14 and 75% from 2014-15.
The agency channel is no longer considered lucrative, Narayan said.
“Today, a young person in India doesn’t look at agency as a sustainable means of livelihood and career,” he said. “This needs to be addressed both from the point of view of regulation and by the companies.”
Agents need to make themselves relevant to customers by becoming advisers, said Amitabh Chaudhry, managing director and chief executive, HDFC Standard Life.
“Over a period of time, for an agent to be relevant to the customer, he will need to be able to offer a whole suite of financial products,” he said.
Many agents won’t be able to mature into that kind of role and so their number will drop, he added.
The insurance industry is still looking for a profitable agency model, said Alpesh Shah, partner and director, BCG.
“To cover costs, the average monthly annualised new business premium per agency manager has to be in the range of Rs 2 lakh,” he said. “In reality, it’s only around Rs 1.25-1.5 lakh per month.”
The Irda chairman indicated the regulator may be willing to alter renewal commission structures once it is empowered to do so after the insurance amendment Bill gets passed by Parliament.
“There will be a greater flexibility in terms of commissions and payouts. The Bill...will provide greater flexibility on the regulatory side rather than the enactment side,” Narayan said.
At present, renewal commissions that can be paid to intermediaries is capped at 5%.