India Post to distribute Insurance Polices

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.

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.

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.