Finally, the largest network with maximum reach has been roped in to distribute insurance policies in India. Department of Post (DoP) has been allowed by IRDA, the insurance watchdog, to sell insurance policies of multiple insurance companies.
This has been a result of a study undertaken by an expert committee on 'Harnessing the India Post Network for Financial Inclusion' which had recommended that the low cost platform of India Post be used for strategic partners like microfinance institutions (MFIs), mutual funds and insurance companies.
The sheer size of the network and its reach is substantiated by the following facts:
• Over 155,000 branches - twice as large as the outreach of all commercial banks in India put together
• Nearly 16 crore people use India Post
• Savings as on March 31, 2007 - Rs. 3,23,781 crore
• Deposits in savings bank account - Rs.16,789 crore
The DoP across India has been divided into 22 postal circles and now each circle is treated as a separate unit and will be allowed by IRDA to tie up with 2 non-life insurance companies, 2 life insurance companies, 1 agricultural insurance company and 1 stand alone Health Insurance Company for this purpose.
However, IRDA has disallowed the Head/Corporate Office of India Post to engage in the distribution of the insurance products of any insurance company ("in its individual capacity it shall not obtain license to act as Corporate Agent of any insurance company")
An excellent alternative:
With the opening up of this new distribution channel, it provides an excellent opportunity for insurance companies, busy chasing banks for distribution partnership, to tie up with India post. Insurance companies are facing a scarcity on this front with successful and large banks already engaged. This distribution arrangement will provide a low cost avenue with a wider reach for insurance companies, at the same time proving to be a new source of income for department of posts.
Now the fight would be for prime circles (especially in metropolitan areas) with cap on the number of companies that each can tie up with. In the case of metropolitan areas, as noted by IRDA, the head of Circle may approach IRDA for prior approval of further division in the circle as separate units to obtain licence to act as corporate agent in view of the large population. The head of the circle would be deemed to be the corporate insurance executive (CIE) — the key executive responsible for all insurance agency dealings.
One of the interesting points to be noted here is that the regulator has barred India Post from selling customer data to insurance companies under some referral arrangement.
Showing posts with label distribution. Show all posts
Showing posts with label distribution. Show all posts
Monday, October 18, 2010
Monday, June 7, 2010
Indian market: Product clutter and revenue
"The 80:20 rule strongly applies to Indian insurance market. In our business, 8-10% of products contribute 90% of volumes we generate" says Mr. Yashish Dahiya, CEO of PolicyBazar, an online insurance comparison site.
As reported by Economic Times, a handful of products are contributing to a majority of premuims in the Indian insurance market. Indian insurance market is inundated with a plethora of products catering to a varied classes of consumers. As per an estimate by insurance distributors, over 50% of insurance products in the market are dormant, i.e., without any revenue generation / sales.
There are many reasons for this imbroglio. Some of them are:
In any product launch one can observe two main points:
In the present market, most of the business is channel-linked and thus requires distribution channels to be robust, stable and trustworthy as financial advice goes hand in hand with selling. This would require proper training of distributors and strict adherence to competent qualifications. They should be adept with most of the products of the stable and definitely with the newly launched products. Lack of it would reduce the penetration of new products and thus reduced sales.
Alternate distribution channels would add the required reach for insurance companies and can be product specific tie-up thus developing a niche product-channel arrangement. This would require lot of groundwork in ascertaining the relationship between the two and revenue-sharing models. Once established, this could prove very effective. Ex: Bancassurance, banks for mortgage insurance (home insurance with home loans). Internet is an up-coming channel in India at present with a lot of comparator sites leading the way.
New products, no doubt, would run high on expenses and may eat into the profitability of other products, but if managed well, could prove to be a star product in terms of reach and revenue generation
As reported by Economic Times, a handful of products are contributing to a majority of premuims in the Indian insurance market. Indian insurance market is inundated with a plethora of products catering to a varied classes of consumers. As per an estimate by insurance distributors, over 50% of insurance products in the market are dormant, i.e., without any revenue generation / sales.
There are many reasons for this imbroglio. Some of them are:
- Lack of product awareness among retail and SME customers
- Successive launches of newer products
- Old wine in new bottle - Lacking innovation
- Insufficient training to agents and other distributors
- Absence of alternate / new channels of distribution
In any product launch one can observe two main points:
- Replicate product - to cash in on the market share of the popular product in the market
- Innovative product - based on 'first to market' principle. But this too has a lead time, will soon be usurped by a rival product
In the present market, most of the business is channel-linked and thus requires distribution channels to be robust, stable and trustworthy as financial advice goes hand in hand with selling. This would require proper training of distributors and strict adherence to competent qualifications. They should be adept with most of the products of the stable and definitely with the newly launched products. Lack of it would reduce the penetration of new products and thus reduced sales.
Alternate distribution channels would add the required reach for insurance companies and can be product specific tie-up thus developing a niche product-channel arrangement. This would require lot of groundwork in ascertaining the relationship between the two and revenue-sharing models. Once established, this could prove very effective. Ex: Bancassurance, banks for mortgage insurance (home insurance with home loans). Internet is an up-coming channel in India at present with a lot of comparator sites leading the way.
New products, no doubt, would run high on expenses and may eat into the profitability of other products, but if managed well, could prove to be a star product in terms of reach and revenue generation
Monday, May 31, 2010
Globally focus shifts towards DISTRIBUTION
Insurance companies across the world are focusing all their efforts in terms of money, time and technology on 'Distribution'.
As per a survey conducted by Accenture, IT Consultancy on 125 insurers globally, it has been found that over the next three years insurers will be spending USD 84 mn. on mobile technology and digital marketing. The focus is clearly on improving distribution strategy. Sales through mobiles and internet are sure to receive a fresh impetus by this.
While distribution is one side, product development is another side of the same coin. Customisation and innovation are at the heart of product development.
As per a survey conducted by Accenture, IT Consultancy on 125 insurers globally, it has been found that over the next three years insurers will be spending USD 84 mn. on mobile technology and digital marketing. The focus is clearly on improving distribution strategy. Sales through mobiles and internet are sure to receive a fresh impetus by this.
While distribution is one side, product development is another side of the same coin. Customisation and innovation are at the heart of product development.
Tuesday, December 29, 2009
Indian Private Life Insurance Companies - Break-even point
Recently two private insurance companies have been giving positive indication of breaking even by 2012. ICICI Pru Life and HDFC Standard Life expect to break-even in 2-3 years.
Operating and distribution costs hold the key. An established infrastructure plays an very important role in cutting down on the costs and thus reaching break-even faster.
Operating and distribution costs hold the key. An established infrastructure plays an very important role in cutting down on the costs and thus reaching break-even faster.
Wednesday, November 11, 2009
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.
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.
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