CHAPTER IV DISTRIBUTION CHANNELS OF LIFE INSURANCE
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CHAPTER IV
DISTRIBUTION CHANNELS
OF LIFE INSURANCE
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38
DISTRIBUTION CHANNELS OF LIFE INSURANCE
This chapter deals with the various aspects related to emergence of different
distribution channels after privatization of life insurance sector with a major focus on
the role of traditional distribution channels in insurance, emerging distribution channels
which are already in the adoption stream and ones to be adopted. Distribution channels
are the drivers which extends services to satisfy the demands of thousands of
customers. This chapter also looks at channel-wise performance of these in order to
create a platform of success for life insurance companies. When trying to achieve the
objective of this research, growth and financial analysis of distribution channels on life
insurance companies’ perspective was done and it was discovered that both public
sector insurer and private sector life insurance companies have adopted different
channels of distribution to deliver products and services to customers and it was
revealed that growth of channels is upwards which shows prospects of distribution
channels success in future.
4.1 Distribution Scenario in the Indian Market
In today’s Indian Insurance market, the challenge to insurers and intermediaries
is two-pronged:
Building faith about the company in the mind of the client
Intermediaries being able to build personal credibility with the clients
Prior to privatization, the only public sector insurer LIC was having the
monopoly in insurance sector.LIC was having its branches in almost all parts of the
country and it attracted people local people to become their agents..Traditionally, tied
agents had been the primary channel of insurance distribution in the Indian market. The
agents are from various segments in society and collectively cover the entire spectrum
of society. of course, the profile of the people who acted as agents, may not have been
sufficiently knowledgeable about the different products offered and may not have sold
the best possible product to the client. Nonetheless, the customer trusted the agent and
company. This arrangement worked adequately in the absence of competition.
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In today’s scenario, life insurance companies have adopted different channels
for distributing their products. A broad categorization of channels currently being used
in the distribution of life insurance products is presented in Figure 4.1
Figure 4.1
Distribution Channels of Life Insurance
Life Insurance companies have to provide servicing capabilities for the process
of sale, kind of products and demand of the customers as it differs significantly among
different distribution channels. This phenomena is explained in Figure 4.2. Which
shows that internet marketing does not involve direct interaction with the customer and
simple product will be suitable for the mass market segment. Figure 4.2 further
indicates that agency channel helps customers to plan their financial requirements by
personally interacting with them.
AGENCY
BANCASSURANCE
DIRECT
MARKETING
DISTRIBUTION
CHANNELS
BROKER
WORK SITE
MARKETING
INTERNET
MARKETING
CORPORATE
AGENCY
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Figure 4.2
Role of Distribution Channels in Purchase of Life Insurance Products
Individual
Advice
Customers
Mass
Market
Simple Products Complex
Source: www.shodhganga.inflibnet.ac.in
Bancassurance channel provides the same platform for banking and insurance
services. The customers are provided with well trained staff to access and plan their
financial security. It is further indicated that brokers play the role of one stop shop by
providing choice to the customers to make comparative analysis of insurance policies
of different life insurance companies and they provide the best suitable plan according
to the demand of the customer.
However, there is great excitement in the industry over the impending
regulations and companies are planning possible channels in their network to increase
volumes. The new companies have attempted appealing only to the middle, upper
middle and elite classes in the major cities. Contrasted with Life Insurance Corporation
of India and its offices across the country, the new companies have miles to go before
they reach anywhere. Both Life Insurance Corporation and private sector companies are
fighting their own battles from the perspective of customer perception management.
Internet
Marketing
Bancassurance
Agency
Broker
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Table 4.1
Present Position of Distribution Network
Public Sector Company Private Sector Companies
Identity is well established, but the
perception of “poor service providers” is a
stigma.
Have to build their identity in a market
where the public should distinguish them.
Products are not attractive and flexible
enough but expensive.
Remove the perception that anything that
looks good is expensive
To retain their creamy layer clientele who
are most likely to be wooed by the new
companies
Work against the people’s mindset that
they are not here for the long term
Retain and attract good intermediaries Attract intermediaries especially agents
with the requisite qualifications and
attributes who can market the company
and the product.
Source:www.indiaprwire.com
Table 4.1 shows that LIC is well-established insurer which is the reward of its
monopoly in public sector. It is having a strong intermediary base, especially agents
extending satisfactory services to the customers. In this process, all private companies
are targeting are the same market but no attempt is being made to increase the size of
the pie. For example, attempts are made to complete the quota of rural insurance in
percentage terms, the rural market potential is yet to be tapped. The new insurers are
trying to attract the right kind of talent into their distribution force.
4.2 Growth of Distribution Channels.
A major contributor to the growth story of life insurance companies is the
distribution network. Indian regulations allow distribution by insurance companies
throughout India. There are close to three million licensed life insurance agents, split
almost equally between the state-owned LIC and the private players. Agents generate
80% of LIC’s new business and about half for private companies. There are also about
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3,000 corporate insurance agents, mostly banks, brokers and firms engaged in personal
loans. Bancassurance is now emerging as a key distribution channel through a network
of more than 70,000 branches of banks. Last year, banks generated about 20% of new
business for private life companies. Banks are the primary sales channel for a few
insurers such as HDFC Standard Life and SBI Life. They contribute about 40% of their
new business (Asia pacific insurance review, www.towerswatson.com).
The insurance market place is undergoing a transformation that may eventually
lead to significant changes in how consumers purchase insurance products. A variety of
distribution channels are currently used in this market place and some insurers utilize a
combination of distribution channels. These include the internet-led channels,
company-led channels, bank-led channels, and agent-led channels.
Although less frequently used, company-led distribution channels through
mediums such as direct mail or telephone call centers have seen increasing growth.
While an agent is still required in this setting, this person typically does not meet with
the insured. While it is true that insurance purchasers today have more options available
than they did five years ago, it is unclear if and when these channels will dominate
existing insurance distribution channels. Several obvious factors that impact on a
channel’s adoption are consumer attitudes and preferences (Trembly, 2001).
In India, the structure of economic development has undergone a considerable
change in the last decade with the service sector becoming a major part of the economy
contributing to more than 60% of real GDP in the last five years (RBI, 2010; IMF,
2010). Growth in the services sector has been substantive and has resulted in the
emergence of a new breed of larger more sophisticated service companies. Services
cover a wide gamut of activities like insurance, trading, banking & finance,
infotainment, real estate, transportation, security, management & technical consultancy
(Riddle, 1986).
Marketing of life insurance service is critical and complex for various obvious
reasons that include time span, periodicity and potentiality of claims and higher brand
switching costs affecting the buying behavior. In the present scenario, insurance
companies are facing problem of transiting from a perceived selling activity to a
structured strategic marketing activity. Insurance marketing is basically just the
marketing of life insurance products. Insurance marketing emphasizes the importance
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of the customer preferences and priorities. Major objectives of life insurance
distribution channels are to increase customer awareness, successful distribution of
insurance products, developing corporate image, improving customer service and
improving customer base. It is necessary to change the whole organizational
management structure of an insurance company, the channels of technologies of
communication with clients. Insurer has to analyze the nature of the customer’s needs
and plan their products and services in such a way that they can give satisfaction to the
customers and face the competitors. Planning needs analysis of the insurance market to
take a decision, prediction, and forecasting as to future needs of customers. All these
programs involve a number of functions (7Ps), which are to be planned carefully. The
combination of these functions is known as insurance service marketing mix
(Kotler,Bloom,1984).
Marketing mix is the planned package of elements, which will support the
organization in reaching its target markets and specific objectives. The marketing mix
has its origin in marketing of goods for consumer markets and consists of the well-
known 4Ps: Price, Promotion, Place and Product. Numerous modifications to the 4 Ps
have been proposed, the most concerted criticism came from the services marketing
area (Chakraborty, 2011).
4.3 Analysis of Distribution Channels
Distribution is a key determinant of success of all insurance companies. Section
4.3 states that in life insurance markets various insurance covers are provided either
directly or through various distribution channels individual agents, corporate agents
including bancassurance and brokers. These are generally called the traditional
channels. In today’s scenario agents continue as the prime channel for insurance
distribution in
India and almost all the players follow this model primarily. However, with new
developments in consumer behaviour, evaluation of technology and deregulation, new
distribution channels have been developed successfully and rapidly in recent years.
(Chakraborty, 2011).
To maximize reach in the market place, many insurers are aiming to derive
channel advantage because each channel has unique strengths. For example, a direct
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sales force is usually optimal for complex, high cost transactions where face-to-face
interaction is expected and required. Brokers and corporate agents can dramatically
expand market reach through local access and penetration. The internet can be used to
get the message out to untold millions, at an extremely low cost. The companies that
choose and cleverly integrate the right mix of channels can build go-to-market systems
that respond optimally to each of the requirements of the products and markets. They
can, for example, use expensive sales force representatives only to acquire and grow
the most important key accounts. They can then use brokers to reach dispersed groups
of smaller customers and to provide local sales support. They can use call centers to
close simple sales, generate sales leads for other channels and follow up on direct mail
campaigns. They can use the internet to reach customers who prefer to serve
themselves and want to save money. These efforts add up to a huge competitive
advantage in terms of revenue growth, market reach, customer loyalty and higher
productivity. (Rao, 2004).
4.3.1 Bancassurance
This section deals with analysis of bancassurance channel. Bancassurance in its
simplest form is the distribution of life insurance products through a bank’s distribution
channel. Insurance companies see bancassurance as a tool for increasing their market
penetration and premium turnover. It takes various forms in various countries
depending upon the demography, economic and legislative climate of that country. It
was introduced in India when insurance industry was opened up for private players. In
India, a bank can tie up with one general insurance and one life insurance Company as
mandated by IRDA bancassurance practice is yet to be much popular. (Singh, 2011).
The banking sector in India comprises of more than 67,000 branches and around 20
crore bank accounts.
Banks have expertise on the financial needs, saving patterns and life stages of
the customers they serve. A bank also has much lower distribution costs than insurance
companies and thus is the fastest emerging distribution channel. For insurers, tying up
with banks provides extensive geographical spread countrywide customer access; it is
the logical route for insurers to take.
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However, the evolution of bancassurance as a concept and its practical
implementation in various parts of the world, have thrown up a number of opportunities
and challenges. The motives behind bancassurance also vary. For banks, it is a means
of product diversification and a source of additional fee income. Insurance companies
see bancassurance as a tool for increasing their market penetration and premium
turnover. The customer sees bancassurance as a benefit in terms of reduced price, high
quality product and delivery at doorsteps.
4.3.1.1 Reasons behind Entry of Banks in Bancassurance Channel
By leveraging their strengths and finding ways to overcome their weaknesses,
banks could change the face of insurance distribution. Sale of personal line insurance
products through banks meets an important set of consumer needs. Most large retail
banks engender a great deal of trust in broad segments of consumers, which they can
leverage in selling them personal life insurance products. In addition, a bank’s branch
network allows face to face contact that is important in the sale of personal insurance.
Other bank strengths are their marketing and processing capabilities. Banks
have extensive experience in marketing to both existing customers (for retention and
cross selling) and non-customers (for acquisition and awareness). They also have
access to multiple communications channels, such as statement inserts, direct mail,
ATMs, telemarketing, etc. Banks’ proficiency in using technology has resulted in
improvements in transaction processing and customer service (Kumar, 2000)
Based on the above discussion, certain reasons for considering bancassurance
model can be explained as follows:
Life insurance premium represents 55% of the world insurance premium and as
the life insurance is basically a saving market. So, it is one of the methods to
increase deposits of banks.
Insurers operate through bancassurance, own and control relationships with
customers. Insurers found that direct relationships with customers gave them
greater control of their business at a lower cost. Insurers who operate through
the agency relationship are hardly having any control on their relationship with
their clients.
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The ratio of expenses to premium is an important efficiency factor. It is noticed
very well that expenses ratio in insurance activities through bancassurance is
extremely low. This is because the bank and the insurance company is
benefiting from the same distribution channels and people.
It is believed that the prospects for increased consolidation between banking
and insurance is more likely dominated and derived by the marketing
innovations that are likely to follow from financial service modernization. Such
innovations would include cross selling of insurance and increased use of
internet by consumers.
One of the most important reason of considering bancassurance by banks is
increased return on assets (ROA). One of the best ways to increase ROA,
assuming a constant asset base, is through fee income. Banks that build fee
income can cover more of their operating expenses, and one way to build fee
income is through the sale of insurance products. Banks those effectively cross-
sell financial products can leverage their distribution and processing capabilities
for profitable operating expense ratios.
Insurers have much to gain from marketing through banks as they have found it
difficult to grow using traditional agency systems because price competition has
driven down margins and increased the compensation demands of successful
agents. Over the last decade, life agents have sold fewer and larger policies to a
more upscale client base. Middle-income consumers, who comprise the bulk of
bank customers, get little attention from most life agents. By capitalizing on
bank relationships, insurers will recapture much of this underserved market.
Most insurers that have tried to penetrate middle-income markets through
alternative channels such as direct mail have not done well. Clearly, a change in
approach is necessary. As with any initiative, success requires a clear
understanding of what must be done, how it will be done and by whom. The
place to begin is to segment the strengths that the bank and insurer bring to the
business opportunity. (Karunagaran, 2006)
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4.3.1.2 Scope for Bancassurance in India
The sale of insurance products will help the banks to earn significant
commissions particularly for regular premium products. In addition, one of the major
strategic gains from implementing bancassurance successfully is the development of a
sales culture within the bank. This can be used by the banks to promote traditional
banking products and other financial services as well.
By now, it has become clear that as economy grows it not only demands
stronger and vibrant financial sector but also necessitates to provide with more
sophisticated and variety of insurance and banking products and services. As India is
being considered one of the fast developing economy among the emerging market
economies, financial sector has also grown much vibrant with the financial reforms. In
fact, in recent years, it is noticed that even the ‘global economic growth’ hinges on
growth prospects of the emerging economies like India to a greater extent.
Significantly, Indian economy has recorded an average growth over stability and
indications are that it may grow at even better rate in the near future.
Moreover, as India has already more than 200 million middle class population
coupled with vast banking network with largest depositors base, there is greater scope
for use of bancassurance. In simple words, bancassurance has promised to combine
insurance companies’ competitive edge in the distribution of insurance products
through their vast retail networks.
4.3.1.3 Recent Trends of Bancassurance in India
Bancassurance is still in infancy in India and it is too early to assess the exact
position. Banks even offer space in their own premises to accommodate the insurance
staff for selling the insurance products or giving access to their clients database for the
use of the insurance companies. As number of banks in India have begun to act as
‘corporate agents’ to one or the other insurance company, it is a common sight that
banks are canvassing and marketing the insurance products across the counters. The
present IRDA regulations restrict bankers to act as a corporate agent on behalf of more
than one life insurance company.
In the case of ICICI-Prudential Life Insurance Company, within two years of its
operations, it could reach more than 25 major cities in India and as much as 20 per cent
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of the life insurance sales are through the bancassurance channel (Malpani 2004). In the
case of ICICI bank, SBI and HDFC Bank insurance companies are subscribers of their
respective holding companies. ICICI bank sells its insurance products practically at all
its major branches, besides it has bancassurance partnership arrangements with 19 other
banks as also as many as 200 corporate tie-up arrangements. Thus, among the private
insurance companies, ICICI Prudential seems to exploit the bancassurance potential to
the maximum. ICICI stated that Bank of India has steadily grown the life insurance
segment of its business since its inception. ICICI Prudential had also reported to have
entered into similar tie-ups with a number of RRBS, to reap the potential of rural and
semi-urban Aviva Life Insurance had reported that it has tie-ups with as many as 22
banking companies, which includes private, public sector and foreign banks to market
its products. Similarly, Birla Sun Life insurer reported to have tie-up arrangements with
10 leading banks in the country. A distinct feature of the recent trend in tie-up
arrangements was that a number of cooperative banks have entered into bancassurance
arrangement. This has added advantage for insurer as well as the cooperative banks,
such as the banks can increase the non-fund based income without the risk participation
and for the insurers the vast rural and semi-urban market could be tapped without its
own presence. Bancassurance alone has contributed richly to as much as 45 per cent of
the premium income in individual life segment of Birla Sun Life Insurer (Javeri, 2006).
Incidentally, even the only public sector player LIC reported to have tie-up with 34
banks in the country, it is likely that this could be the largest number of banks selling
single insurance company’s products. Ironically, LIC also has the distinction of being
the oldest and the largest presence of its own in the country. SBI Life Insurance for
instance, is uniquely placed as a pioneer to usher bancassurance into India. The
company has been extensively utilizing the SBI Group as a platform for cross-selling
insurance products along with its numerous banking product packages such as housing
loans, personal loans and credit cards.
There has also been a decrease in the share of direct selling in the total
individual new business. Its share has gone down from 2.42 per cent in 2010-11 to 1.90
per cent in 2011-12. While private insurers have procured 4.35 per cent of their new
business through direct selling. LIC has procured only 0.61 per cent of their new
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business through this channel. The share of corporate agents in the new business
premium procured by the private life insurers was significant at 46.53 per cent in 2011-
12 as compared to 41.91 per cent in 2010-11. On the other hand, LIC has 96.56 per cent
of the new business premium from individual agents. With such heavy reliance on the
agency force, the contribution of corporate agents for LIC has been a mere 2.79 per
cent.
Table 4.2
Individual New Business Performance of Life Insurers for 2011-12 Channel- Wise
Corporate Agents Insurer Individual
Agents Banks Others
Brokers Direct
Selling
Total
Individual
New Business
Referrals
Private
LIC#
Industry
44.05
96.56
78.69
39.01
2.54
14.96
7.52
0.22
2.70
5.07
0.04
1.75
4.35
0.61
1.90
100.00
100.00
100.00
0.16
0.00
0.05
* Any entity other than banks but licensed as a corporate agent.
# Does not include its overseas new business premium.
Note: New business premium includes first year premium and single premium.
Figure 4.3
Individual New Business Premium of Life Insurers – Channel Wise
Source : IRDA Annual Report 2011-12.
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Direct selling continues to be the dominant channel of distribution for group
business, with a share of 87.46 per cent during 2011.12. The corresponding share in the
previous year was 90.06 per cent. While LIC has procured 4.38 per cent of the group
business through its traditional individual agency force, private insurers procured 4.26
per cent through this channel. Another important channel for the private insurers was
banks. During the year 2011-12, banks contributed 29.65 per cent of the total group
business in case of the private insurers. This figure stood at 11.51 per cent in the
previous year.
Table 4.3
Group New Business Performance of Life Insurers for 2011-12
Channel Wise
Corporate Agents Insurer Individual
Agents Banks Others
Brokers Direct
Selling
Total
Individual
New Business
Referrals
Private
LIC#
Industry
4.26
4.38
4.36
29.65
0.36
6.35
5.61
0.02
1.17
2.99
0.07
0.66
57.49
95.17
87.46
100.00
100.00
100.00
0.003
0.000
0.001
* Any entity other than banks but licensed as a corporate agent.
# Does not include its overseas new business premium.
Note: New business premium includes first year premium and single premium.
Figure 4.4
Group New Business Premium of Life Insurers – Channel Wise
Source : IRDA Annual Report 2011-12
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4.3.2 Brokers
Section 4.3.2 deals with broker regulations to be issued by IRDA and the
various aspects relating to working of the channel. The image that ‘broker’ carried in
the mind of the customer is not very favorable. Thus, the new breed of insurance
brokers faces the challenge of establishing credibility. The positives are that brokers in
the urban arena can attract the elite and the upper middle class customer. Brokers
represent the customer and will sell the products of more than one company. They seek
to determine the best fit for the client and can effectively address the mind block faced
by the public about the various companies. This is applicable in the case of life
insurance for the high-end and corporate group segment. However, the challenge lies in
establishing regulations that protect the customer and attract the right players into the
brokerage market rather than creating another middlemen segment eroding the
premium.
Insurance brokers are professionals who assess risk on behalf of a client, advice
on mitigation of that risk, identify the optional insurance policy structure, bring
together the insured and insurers. Brokers by definition are not tied to any one insurer
and have a chance to present as many options as possible to clients. Also, brokers have
a unique advantage as they can combine the life, non-life and health insurance
requirements of a client. This allows brokers to work with relatively smaller companies
in a profitable manner. Individual insurers and agents would not have the same
economies of scale in serving small clients. Brokers are constantly exposed to people
and product offerings of different companies. Brokers participate in training
programmes conducted by different companies. A few brokers are part of international
broking networks. This puts brokers in a unique position to understand market trends
and developments. A good broker will harness this information to create deep market
expertise. Such expertise has three main benefits. First, brokers educate clients about
product options and then push insurers hard to develop the appropriate products. The
result is a steady improvement in product quality. Second, brokers can express a
client’s case in language that insurers understand. Brokers bridge this gap. Thirdly,
brokers bridge the gap between insurer and insured (Chakraborty, 2011).
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People who have spent years in the industry take up the broking profession because it
provides the highest level of customer service and satisfaction. Entrepreneurs find that
the broking route provides them with excellent opportunities to serve customers in an
unbiased manner. The broker has to build customer servicing capability. In fact, the
ability of a broker to retain a client, quite often depends upon its servicing strengths.
When an insurance claim is made, it is the broker who is always the customer’s
champion and pushes the insurer towards timely and appropriate claim payment. No
insurer or agent can play this role adequately because of the inherent conflict of interest
between the claimant and the insurance company.
IRDA has significant role to play in strengthening the broker’s role in industry.
First, it should attract high quality talent and capital in the channel. The quality of the
players will be the foremost determinant of the development of the channel. Second,
IRDA should incentivize focus of pure protection solutions. The low ticket size of pure
protection plans and the current commission structure results in small absolute earnings
for the channel. In the backdrop of low consumer awareness, the cost of acquiring a
customer is high, hence the current compensation does not provide an economic
rationale of intermediaries to focus on such pure risk products, (IRDA Journal, Nov
2012).
4.3.3 Agency Channel
Agency is the largest distribution channel of almost all life insurance
companies, comprising a large advisor force that targets various customer segments.
The strength of agency channels lies in an aggressive strategy of expanding and
procuring quality business. With focus on sales & people development, tied agency has
emerged as a robust, predictable and sustainable business model.
All life insurance companies have an agency-building distribution strategy
under which they recruit, train, finance, and supervise their agent/advisers. For decades,
agency was the only distribution channel for life insurance in India. Even today more
than 70% of business is carried through insurance agents. Through agency channel,
personal contact and relationship can be established with the customer. The system of
agents is a major source of both presales and post sales services to customers, since it
has the direct relationship with customers. Due to personal contact, it can provide
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valuable feedback about the need and expectation of consumers. However, it is
nowadays considered as an old fashioned channel and not fully updated with latest
technologies. (Chakraborty, 2011).
Table 4.4
Details of Individual Agents of Life Insurers
Insurer As on 1st
April, 2011
Additions
during 2011-12
Deletions during
2011-12
As on 31st
March, 2012
AEGON RELIGARE 10861 5107 8655 7313
AVIVA 23219 8625 12718 19126
BAJAJ ALLIANZ 189667 70796 87317 173146
BHARTI AXA 15210 6754 7122 14842
BIRLA SUNLIFE 144573 32165 45441 131297
CANARA HSBC 0 0 0 0
DLF PRAMERICA 5199 2149 226 7122
EDELWEISS TOKIO 0 828 3 825
FUTURE GENERALI 52666 12402 23787 41281
HDFC STANDARD 136009 16259 46024 106244
ICICI PRUDENTIAL 190407 26747 78271 138883
IDBI FEDERAL 7882 2252 2734 7400
INDIAFIRST 296 1364 2 1658
ING VYSYA 34957 20301 25862 29396
KOTAK MAHINDRA 38269 12263 19235 31297
MAX LIFE 43542 18443 26617 35368
METLIFE 28840 9894 9316 29418
RELIANCE 189433 45999 84842 150590
SAHARA 14180 415 17 14578
SBI LIFE 79628 49609 42248 86989
SHRIRAM LIFE 10139 202 3961 6380
STAR UNION DAI-ICHI 128 422 0 550
TATA AIA 87223 25215 65490 46948
PRIVATE TOTAL 1302328 368211 589888 1080651
LIC 1337064 345917 404747 1278234
INDUSTRY TOTAL 2639392 714128 994635 2358885
Source : IRDA Annual Report, 2011-12
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Today’s insurance agents has to know which product will appeal to the customer, and
also know his competitor’s products in the same space to be an effective salesman who
can sell his company, the product and himself to the customer. To the average
customer, every new company is the same.
Figure 4.5
Factors Affecting Performance of Agents
Source: www.shodhganga.inflibnet.ac.in
Agent
Recruitment
Agent
business
startup
plan
Agent
meeting the
customer
Agent
assisting the
customer
Follow up
and service
calls
Taking
reference
from
customer
Performance
of an Agent
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The new companies are looking for educated, aware individuals with marketing
flair, an elite group who can be attracted only with high remuneration, all of which may
not be possible in this business with its price pressures and the complexity of selling
insurance. Unable to attract this segment, they have started easing recruitment
conditions as against the stringent norms they had earlier, thereby diluting the process.
While the public sector insurer LIC is able to attract agents, it continues to suffer from
high attrition rates due to indiscriminate agent appointment. The challenge here is the
lack of knowledge of the competitive market and the inability to do intelligent
comparisons with the competitor’s products. Education and training of these agents is a
serious challenge for the insurance company.
Another social feature in the market is the considerable respect for age in Indian
society and a belief that an older person knows better. A very young up- market agent
who is typical salesman may not appeal to a large segment of the middle class, which is
looking for a solid trustworthy person from whom they can buy insurance.
Gender of agents is another relevant feature in the rural context that makes a
difference, especially for the female population. Women to whom the customers can
relate e.g. nurses, gram sevikas can target the female segment of the population more
effectively. What is applicable for the rural women and children health programs and
population control programs is equally applicable for insurance selling also. Max Life
has adopted a version of this strategy by appointing gram sahayaks to sell and service
the rural customers. With this kind of segmentation of intermediaries the challenge for
the insurance company lies in training and education these people to become effective
sales persons (Lakhsmikutty and Baskar, 2007).
4.3.4 Internet Marketing
The growth of the Internet has led to a great deal of speculation and discussion
regarding its potential impact on traditional distribution channels. Though India is
joining the fast growing breed of net users, using net for transactions has not yet caught
up. Though few companies provide online insurance service, the usage is still a small
fragment. The insecurity associated with transactions over the net is still an inhibiting
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factor. At present, most of the insurance companies have product information and
illustrative tools available on the web. But web is not seen evolving into a means for
direct selling of insurance in the current scenario. In the Indian market, where insurance
is sold after considerable persuasion and face to face selling, selling over the net which
must be initiated by the client, would take some more time (Gilbert and Bachedler,
2000).
While the adoption rate of the Internet as a distribution channel has been low,
companies have seen widespread adoption of the Internet as a support channel. Insurers
are using the Internet to provide general information of financial services products
(e.g., insurance, investments) and planning involving the use of these products, to
provide specific information of the company and its product lines, to provide
administrative support to its policyholders and to serve as a prospecting and
communication tool for its agent-led channel (Dumm,Hoyt 2002).
Rogers (1995) suggested that widespread diffusion of an innovation will lead to
significant changes in the market channels themselves. As noted above, we have seen
widespread diffusion of the usage of the internet in insurance industry. However, the
adoption patterns have been quite different in different companies. Internet helps to
collect information for consumers. It is a two-stage process. The consumers first use the
Internet to collect information on products or services. They, then return to the agent to
complete the purchase. This behavior highlights the current role that the Internet plays
in providing support to the agent-led channel (Dumm, Hoyt 2002).
Initially, insurance was seen as a complex product and buyers preferred face-to-
face interactions with intermediaries. Now a days, the advantage of technology allows
insurers to increase their reach into the market. All insurers have websites through
which they provide information about products and services. In India, internet
penetration is still low legality of agreements is posing a difficult problem. The
insecurity associated with transactions over the net is still an inhibiting factor. Internet
has not been evolved into a means for direct selling of insurance in the current scenario.
In the Indian market, where insurance is sold after considerable persuasion even after
face-to-face selling, the selling over the net, which must be initiated by the client,
would take some more time (Chakraborty, 2011).
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4.3.5 Worksite Marketing
Worksite marketing is the distribution method providing voluntary insuance
products to employees at their work place with the sponsorship of their employer,
which is done on a deduction from their payroll. The contract for insurance is directly
made with the employee rather than the employer.
Benefits to the Insurer:
o Captive customer base
o Potential to sell individual insurance and group insurance
o High trust factor
o High hit ratio for the intermediaries
The challenges would be the cost effectiveness, product customization and
efficient post sales servicing, which would determine continued business. Technology
has a key role to play in worksite marketing to ensure cost benefits. Banks and financial
institutions have been successfully marketing credit cards and other financial products
using this channel (Laksmikutty and Baskar, 2006).
In this channel, life insurers send team to a target group and explain the
products either individual or group products suitable to them. The target group may be
employees of a particular company or an educational institute. Insurance companies
will be able to sell insurance products particularly, pension and health plans through
this channel. One possible reason for insufficient development of this channel in India
is that employers generally expect some kind of incentive to provide the facilities to the
life insurers for making presentations and making arrangements for deduction of
premium from salaries. With changes in human resources management polices and
compensation packages, group products or work site products do have a definite market
that cannot be ignored (Chakraborty, 2011).
Insurance companies have provided coverage with mix of group and individual
products. These include traditional group insurance products that have become
“voluntary” because the employee is now required to pay either some or all of the
premium, portable group insurance products that employees can take with them when
they change jobs and individual products of many kinds, including life insurance, long
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58
term care, disability, auto, home owners, critical illness, and annuities. Till date, many
insurance companies have been disappointed by low penetration for worksite marketed
products. The transition from defined benefit to defined contribution pension plans are
used to provide perspective on possible changes in life and health insurance products
sold in a worksite setting.
Numerous factors are important for these sales – innovative product design,
competitive pricing, superior marketing material. However, the most important
expertise is enrollment – actually signing up employees for the insurance coverage. In
today’s worksite business model, the insurers who open new employer account are
primarily responsible for enrolling employees, either by doing it themselves or
outsourcing the task .This enrollment procedures often do an inadequate job of
educating and counselling employees about their benefit choices and often do not
support the application process well, e.g. leaving employees to fill out their own forms.
The result is that employee enrollment often falls below target goals, raising unit costs
and threatening the insurer’s profitability. There are always more new customer
opportunities, which offer higher premium potential and consequently higher
commissions.
The emergence of worksite marketing from a small niche of the insurance
market to a major distribution channel depends on the integration of new technologies
with traditional distribution methods. This new marketing and sales platform will
generate substantially higher sales and customer satisfaction at reduced costs. The
future prospect for the worksite channel is extremely promising. But competing in the
worksite arena today requires the ability to do worksite marketing. Commitment and
focus are needed, but are not enough to guarantee success (News Direct Newsletter,
Fall 2000).
4.3.6 Corporate Agency Channel
The corporate agency channel is a key one for life insurance companies and it is
facing stringent licensing guidelines. Since April 2012, the life insurance industry has
lost nearly a third of its corporate agents, while for most of the bigger private life
insurers, the number has shrunk by more than 50 per cent. For instance, HDFC Life
now has only 10 corporate agents, compared with 374 in April 2010. Bajaj Allianz Life
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59
evidenced decline of 66 per cent. Life Insurance Corporation (LIC) of India has
reduced the number of corporate agency tie-ups by 42 per cent during the period
(Bhattacharya, 2012).
4.3.6.1 Details of Corporate Agents of Life Insurers and Number of Policies Sold
Table 4.5 shows that there was a noticeable change in the number of corporate
agents in year 2011-12 in comparison to 2010-11 due to strict IRDA regulations. At
present, in private sector life insurance companies 642 corporate agents are working
and incase of LIC there are 240 corporate agents.
Table 4.5
Details of Corporate Agents of Life Insurers
Insurer As on 1st
April, 2011
Additions during
2011-12
Deletions during
2011-12
As on 31st
March, 2012
Private
LIC
Industry
1870
295
2165
107
27
134
1335
82
1417
642
240
882
Source : Indian Insurance Statistics 2011-12
Figure 4.6
Details of Number of Corporate Agents
Source : Indian Insurance Statistics 2011-12
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60
Over the years, there has been a perceptible shift away from the individual agency
channel. The contribution to the new business premium procured through individual
agents has slightly decreased to 78.69 per cent during 2011-12 from 78.95 per cent
reported during the previous year. The share of corporate agents, which was 16.86 per
cent during 2010-11, has increased to 17.67 per cent in the year 2011-12.
Since the new guidelines on the corporate agency channel were introduced,
many small corporate agents have made a quit. Hence, the numbers have come down.
The main focus remains the traditional agency channel, which accounts for nearly 65
per cent of total new business.. After introducing stringent guidelines on licensing of
corporate agents in June 2012, which tightened the licence renewal process, IRDA also
recommended regular on-site inspection of corporate agents to curb various
malpractices that had crept into the system. There have been many instances in which
the same set of individuals have floated different corporate agencies and employed
people without valid licences for selling products. With IRDA’s regular
recommendations regarding on-site inspection of corporate agents, these companies are
getting out of the system (Bhattacharya, 2012). The movement of the number of
corporate agents.
Table 4.6
Analysis of Average Number of Policies Sold
AVERAGE NUMBER OF INDIVIDUAL POLICIES SOLD BY
CORPORATE AGENTS
2007-08 2008-09 2009-10 2010-11 2011-12
Private
LIC
Industry
1798
1905
1815
1857
2190
1908
2289
1606
2172
1976
1708
1933
2533
2194
2474
Source: IRDA annual report, 2011-12
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Figure 4.7
Average Number of Policies Sold
Source: IRDA annual report, 2011-12
From the Table 4.6, it is observed that the average number of individual policies
sold by the corporate agents of LIC has shown significant increase during the last two
years. The share of business in number of individual policies of private insurers and
LIC is exhibited in Table 4.6. It is interesting to see that the share of individual policies
sold through corporate agents of the private insurers is increasing over the years.
4.3.6.2 Details of Corporate Agents of Life Insurers
This section deals with detailed number of corporate agents of life insurance
companies presently operating in India along with additions and deletions.
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62
Table 4.7
Details of Corporate Agents of Life Insurers
Insurer As on 1st
April, 2011
Additions
during 2011-12
Deletions
during 2011-12
As on 31st
March, 2012
AEGON RELIGARE 6 3 1 6
AVIVA 11 2 2 11
BAJAJ ALLIANZ 289 4 47 246
BHARTI AXA 13 6 12 7
BIRLA SUNLIFE 164 37 111 90
CANARA HSBC 7 0 0 7
DLF PRAMERICA 7 4 1 10
EDELWEISS TOKIO 0 0 0 0
FUTURE GENERALI 12 2 6 8
HDFC STANDARD 8 1 1 8
ICICI PRUDENTIAL 15 1 2 14
IDBI FEDERAL 6 0 3 3
INDIAFIRST 6 3 0 9
ING VYSYA 1027 4 1022 9
KOTAK MAHINDRA 25 5 6 24
MAX LIFE 55 0 32 23
METLIFE 12 3 5 10
RELIANCE 67 15 37 45
SAHARA 8 0 0 8
SBI LIFE 100 10 37 73
SHRIRAM LIFE 7 4 2 9
STAR UNION DAI-ICHI 9 0 0 9
TATA AIA 18 3 8 13
PRIVATE TOTAL 1870 107 1335 642
LIC 295 27 82 240
INDUSTRY TOTAL 2165 134 1417 882
Source : IRDA annual report, 2011-12
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In an overall sense, the new guidelines bring some discipline into the system.
The insurers will incur additional expenditure if it has to monitor the compliance of its
corporate agents. The decision has to permit only insurance qualified persons to man
the corporate agency, the Met Life has start up with capital of Rs. 15 Lakh, appeared
high and would restrict the small professional players from entering the business. The
old regulations permit partnership firms and sole proprietorships to act as corporate
agents.. IRDA restricting multiple corporate agencies with different insurers and
prohibition of sub-agencies and other intermediaries under the corporate agents will
prove to be a positive step (www.indiaprwire.com).
4.3.7 Direct Marketing Channel
Section 4.3.7 deals with the details about another key distribution channel that is
direct marketing. Direct marketing means selling products by dealing directly with
consumers rather than through intermediaries. More recently telemarketing, direct radio
selling, magazine and T.V advertising, and on-line computer shopping have been
developed.
4.3.7.1 Benefits of Direct Marketing
There is no need to share profit margins and the insurer has complete control
over the sales process.
There may also be specific market factors that encourage direct selling.
There may be a need for an expert sales force, to demonstrate products, provide
detailed presale information and after-sales service.
Retailers, distributors, dealers and other intermediaries may be unwilling to sell
the product.
Existing distribution channels making it hard to obtain clientele like direct
marketing channel.
Insurers have resorted to direct marketing wherein insurance companies get in
touch with the customers without the aid of an intermediary. A separate department
has been set up and officers were deputed to solicit and administer insurance
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business. The advantage of this system is the reduction of cost incurred by the
agency system. Company owned sales team concept is now employed by a majority
of new players and has proved more effectiveness in customer creation and
retention. However, as compared to the system of agents, contribution of direct
marketing is considerably low. It was reported that contribution of direct marketing
channel in case of public sector insurer is 26.86% and private sector life insurance
companies is reported as 23.63%) in the year 2010-11 (Chakraborty, 2011).
This chapter highlights different distribution channels of life insurance
companies available for conducting insurance business. Intelligent segmentation of
these channels to match the market segmentation is something indispensible that
will help the companies to move towards the appropriate direction. The choice of
right channel lies on the hands of insurance companies, to make sure that they have
fulfilled the demands of their customers. These channels are identified as the prime
driver for growth of any organization. Distribution channels are the enabling
mechanism through which organizations ensure that their products and services
reach the market and it also decides the growth graph of companies. The identified
challenges are impacting and hindering the fast developing distribution scenario in
the insurance industry. Social, legal, corporate and many other factors were
identified to have slowed down the fast pace of distribution network.
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