The Next Big Regions for Insurance - Introduction

'The next big regions for insurance' is a series of articles where I will analyse and evaluate such markets which augur well and offer excellent scope for insurance growth in the coming decade (by 2020)

The countries under study are groups originally framed for the economic promises they hold. These groups have exhibited tremendous economic growth and have advanced technologically and financially as well. These countries have been in the limelight, offering greener pastures for matured economies (new markets to be targeted) and are aptly termed, 'emerging markets'.

Insurance is an offshoot of economic development. With increasing awareness (result of better educational facilities), higher disposable income (result of an increase in per-capita income) and better standard of living, insurance can reach larger audiences, offer relevant and need-based products through innovative and effective channels. What interests insurance specifically is either the large population or low penetration of a given market. These two factors, as we would discover in the articles, invariably  are present in the group of countries under study.

The groups identified for the study are:

• BRIC+M countries (Brazil, Russia, India, China + Mexico) and 
• CEE countries (Central and Eastern Europe)

We shall evaluate these groups one by one on certain common parameters thus enabling comparison. This would involve analysis of existing insurance scenario in respective markets and future opportunities and challenges for its growth.

IRDA mulls introduction of Variable Annuity products

The need for pension and annuity products in India is larger than ever before. The present population growth, increase in insurance awareness and the need for post-retirement cover have all prompted for a strong and effective pension system in India.
In accordance to the above mentioned points, IRDA has, in a circular dated 6th November 2009, constituted a 6-member working group, with Mr. Peter Akers as the chairperson, to examine the current status of annuity products and steps to strengthen the same.
Many countries are now moving towards introducing variable annuity products. It is quite popular in some mature economies, ex: USA.
The committee is expected to submit the report by January 31, 2010.

Definition of Variable Annuity: Annuity in which the amount of periodic payment varies according to the income generated by the assets in an investment portfolio. One can choose the investment options in which they would want their moeny to be invested.

Debate over agent commission cut

This has been the topic of discussion for some time now in Indian insurance scene. Understandably, with the 2008 recession and the financial crisis that followed, banks and insurance companies which were affected the most have started looking inward in terms of cutting costs. Distribution channels were the target. Most of the companies, especially in the emerging markets, incur heavy expenditure in setting up and running the distribution channels. It is these sales costs that are hurting the companies.

Its been a decade now with the liberalisation of insurance industry in India and one has witnessed a profileration of private insurance companies (with a 74:26 local-foreign joint venture). While increased competition has continued to drive down prices, expand product portfolios and shift focus on customer service, distribution and management costs have continued unabated. Indian insurance being agent-centric, commissions and agent fees constitute a major part of insurance companies' expenses.


The D Swarup committee on investor awareness and protection, formed by Govt., has come out with suggestions addressing the above mentioned issue on distribution costs. The panel suggests moving towards a commission less regime for financial products which includes insurance as well. The point to be noted is that commission is embedded in insurance products, where as the same is not the case in pension. Mutual funds too have incorporated the no-load structure. This would effectively mean a cut in commission to insurance agents, the bed rock of insurance distribution in India.

The panel plans to gradually phase out upfront commissions paid to agents and introduce a fee structure by April 2011. This has been met with a lot of opposition from life insurance agents and recently by IRDA as well. Agent's commission could be as high as nearly 15% to 20% of first year's premium paid by insurance buyer.

Eliminating commissions would result in insurance penetration suffering a setback and diminishing the role of agents. Insurance customers, urban and rural alike, irrespective of newer distribution channels such as bancassurance and internet sales, still prefer the agent route when it comes to life insurance.

The panel is now planning to modify its suggestions based on pure insurance products and ULIPs by alloting different regime of reducing/eliminating commissions.
It needs to be seen how the Govt. responds to this and if there would be any modifications in the final report.