BackIn India, insurance is still sold on premise of investment
Anuj Agarwal of Bajaj Allianz Life Insurance explains the impact of shrinking agency channel
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The past couple of years have been difficult for the life insurance industry, which had to deal with not only fast-paced reforms, but also shrinking distribution as agents quit in large numbers. As a result, insurers shifted their focus to nurturing the bancassurance channel for distribution. Anuj Agarwal, managing director and chief executive officer, Bajaj Allianz Life Insurance Co. Ltd, explains the impact of shrinking agency channel and steps taken by the company to make selling smoother and claims settlement faster.
Insurance companies promoted by banks have grown faster than those dependent on agents. How tough have the recent years been?
Companies that are promoted by banks tend to grow faster because it’s easier for banks to tap into their existing customer base. In that sense, the productivity levels are significantly higher for the banks than individual agents. Also, we have seen many regulatory changes and in quick succession. It’s easier to adapt to a one-time change. When the rules change on a regular basis, it’s tough to keep the growth momentum for individual agents. Our agents mostly depend on new business premiums; after the new rules, commissions shrank, but productivity of agents didn’t increase as much, but now all the major reforms have happened and the market is stabilizing. We do business mainly through agents but are looking for a bancassurance partner.
The upside of agents leaving the industry is that only the serious ones are left, which should improve the quality of sales.
There are primarily three stakeholders in the insurance business: distributor, shareholder and customer. Earlier, the value to distributors was on the higher side. Many non-serious agents came on board during the stock market boom, so, their rationalization is good in the long term. But one must realize that the cost of insurance distribution in India is among the least in South Asia and South-east Asia.
Low commission is sustainable if there are tools like technology to simplify the job. We should look at how much an agent needs to sustain a livelihood through life insurance. In South-east Asia, the infrastructure is well in place and there are dedicated agents. You won’t see 30-40% agents disappearing with no accountability, like it happened in India. Also, the penal action is very strict. Plus, more importance is given to training. In India, insurance is still sold on the premise of investments. People don’t take the trouble of going through the policy document. So, it’s very important that the distributor does a good job of explaining the product. This is what need-based selling is and will reduce mis-selling.
There is again a skewed product mix. Earlier, mainly unit-linked insurance plans (Ulips) were sold and now it’s traditional plans.
Ulips were sold in a big way when the industry was undergoing expansion. In Ulips, the risk is borne by the customer and very little capital is required from the shareholder. The capital was being deployed for expansion and the markets were doing well. Ulips are transparent products but meant for sophisticated customers. The problem was they were sold to everyone. After commissions shrank, traditional plans made a comeback. Currently, 13% of our business comes from Ulips and 87% from traditional plans. We are working on a traditional child plan. We want to have a balance of 30% from Ulips and 70% from traditional plans—an ideal mix.
What are your technology initiatives to simplify sales processes?
We launched our app in March. Initially, it was was meant for collection of renewal premium but now we use it for faster policy issuance as well since the pilot launch generated renewal premiums of nearly 3,000 policies.
The agent describes the policy and gives a demo simultaneously using this app on a tablet. After the formalities, premium can be paid instantly either through debit or credit card, using a mobile point of sale device. The customer gets instant notification. Generally, a life insurance sale takes 4-5 visits for discussions and another 2-3 visits to collect documents. With the app, this can be done within hours. There is a lot of cost saving, which may not be directly visible but indirectly shows in benefits such as lower turnaround time and hassle-free renewal premium collection.
The insurance regulator launched insurance repositories last year, but insurers are yet to tie-up with them. Why is that?
We are at various stages of tying up with at least three repositories. There are a few fundamental concerns with digitizing policies. Policyholders don’t read insurance documents even when it’s in paper form; if the policies are online, they are even more unlikely to take the trouble. The second issue is around costs. The current rate for digitizing is too high, and we have to pay all the five repositories. Plus, our systems will need to get integrated with them. A central repository would be better.
Your company’s claims settlement ratio has improved from 89% in the retail segment in FY13 to 91% in FY14. What are you doing differently?
We have a claims notification team now, which helps the nominee with the necessary formalities. But what has dramatically improved our claims experience is the action we take on a delayed claims. This was implemented last year. If a claim is delayed beyond 30 days, we promise to pay 10.5% interest for every day of delay. Our overall claim settlement ratio (group and individual policies) was 97.45% for FY14.
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