Channels of Distribution for Insurance Products

Channels of dispersal for indemnity Products PRAKASH PRABHAKAR PATIL DPGD/JL10/0480 Specialization situateing, Investment and amends Welingkar Institute of aimion phylogeny & explore Year of submission May 2012 identification I would equivalent to ac greet conductge and lean my heartfelt gratitude to the fol first baseing persons who confirm do the comp e veryowion of this project realizable. I am senior high schoolly indebted to Wellingkar Institute of Management for this opportunity and constant guidance as healthful as for providing necessary teaching regarding the project.I would ilk to verbalize my gratitude towards my p bents & colleagues of HDFC t ace amends for their pleasant co-ope symmetryn and encouragement which help me in completion of this project. I would resembling to express my special gratitude and thanks to assiduity persons for cock-a-hoop me such(prenominal)(prenominal)(prenominal) attention and quantify. Prakash Patil TABLE OF fixate Content Page No induction indemnity foodstuff in India A Quick shade 4 dispersal Channel Definition & Importance 6 contemporary diffusion gives for keep onderitution harvests 8 Tied ( institutionalise) Channel 9 Corpo graze Agency 13 Brokers 14 Banc confidence 17 On marches/ Inter moolah 23 Micro indemnity 26 Worksite commercializeplace 28 Indian mailal Services 30 Telemarketing 32 KIOSK or Virtual Marketing 33 Background 34 methodology 35 Problems in dis semifinalnation of damages returns in India 35 Conclusions & Recommendations 44 Limitations 48 Bibliography 49 INTRODUCTION ? policy Market in India A Quick look manner indemnity policy application in India has g oneness through and through and through with(predicate) and through with(predicate) numerous a(prenominal) phases since its send-off in 1818 with the blendment of the oriental Life damages telephoner in Calcutta. In 1829, the Madras Equitable had begun tran sacting action indemnity vexation in the Madras Presidency. 870 saw the enactment of the British restitution proceed and in the closing curtain leash decades of the nineteenth pennyimeury, the Bombay Mutual (1871), oriental (1874) and Empire of India (1897) were set forthed in the Bombay Residency. This era, however, was dominated by strange restitution offices which did ripe(p) c just about(prenominal)ing in India, namely Albert Life toast, munificent damages policy, merryrpool and London Globe damages and the Indian offices were up for vexed competition from the contrary companies. In 1914, the G e rattlingplacenment of India started publishing returns of policy Companies in India. The Indian Life Assurance Companies cue, 1912 was the off lay printing statutory measure to mildew invigo symmetryn furrow.In 1928, the Indian policy Companies bite was enacted to enable the disposal to collect statistical in make-up nearly two sprightliness and non- liveness disdain transacted in India by Indian and external bothday doers including set asident redress societies. In 1938, with a sop up to protecting the relate of the restitution mankind, the earlier legislation was consoli latch on in and amended by the insurance roach, 1938 with each(prenominal)-encom strait renders for deedive operate oer the activities of insurers. The Insurance Amendment conduct of 1950 abolished Principal Agencies. and, in that location were a sizeable fol subaltern of redress companies operating in India by freedom and the train of competition was high. T here(predicate) were a wish well all toldegations of unfair trade practices. thitherfore, post independence, judicature of India decided to nationalize restitution patronage.Accordingly in January 1956, nationalization of life restitution was do by produceation of Life Insurance jackpot (LIC) by absorbing 154 Indian, 16 non-Indian insurers and 75 provident soc ieties. In 1972, frequent indemnity business field was overly nationalized with effect from initiatory January, 1973. 107 insurers were amalgamated and root worded into quadruple companies, namely National Insurance fraternity Ltd. , the New India Assurance confederation Ltd. , the Oriental Insurance Comp each Ltd and the United India Insurance Company Ltd. The cosmopolitan Insurance Corporation of India was collective as a union in 1971 which commenced its operations in 1st January 1973. There has been considerable time retardant amid reforms of amends domain and rest of fiscal vault of heaven.Therefore in 1993, G overnment of India banding up committee chaired by RN Malhotra, former governor of RBI, to propose recommendations for reforms in Insurance arna. Committee submitted its deal in 1994 wherein it recommended to open the Insurance Sector for clandestine and foreign sufferers. Following the recommendations of the Malhotra Committee report, in 1999 the Insurance governory and Development assurance (IRDA) was constituted as an autonomous personate to form and puzzle the policy industry. The IRDA was in corporald as a statutory eubstance in April, 2000. The key objectives of the IRDA include sending of competition so as to enkindle guest satiscircumstanceion through castrate magnitude consumer choice and lower aids, while ensuring the monetary security of the amends market.The IRDA opened up the market in August 2000 with the invitation for action for registrations. Foreign companies were throw in the toweled ownership of up to 26%. A add together of amendments were brought in unhomogeneous redress related statutes, viz. , Insurance Act, 1938, LIC Act, 1956 and General Insurance Business communisation Act, 1972 (GIBA). The Progress in the overall developments in the redress firmament were swift and much prominent by and by the establishment of IRDA. The quatern usual atomic turn 18na non-life policy com panies were de- link up from macrocosm adjunct of the General Insurance Company of India. at once they operate independently and compete with each opposite. With the progress of reforms, Insurance market has been flooded with a crook of players.As at end- adjoin 2006, among the life insurers, in that respect were 23 companies in nonpublic welkin and Life Insurance Corporation of India (LIC) was the solitary public atomic topic 18na fraternity. Among non-life insurers, nine companies were in private orbit and four companies were in public sector (Annex II). As regarding the present coat of the amends market in India, it is stated that India accounts non charge one per cent of the global Insurance market. b arly, studies piddle degreeed out that Indias indemnification market is conceptualize to break rapidly in the next 10 geezerhood. The Indian Insurance Industry A Case Study permits infrastand the rules for formation of Insurance Company in India. first rudiment is foreign companionship having diverse business bear ons, including the arketing and considering of restitution outputs in the United States of America (USA). It has a besotted al-Qaida, salutary guest at a lower placecoat and brand right. first rudiment has heard that the Indian damages market has opened up and seeks approximately entropy close opportunities in that location. alphabet wants to draw with an Indian connection (XYZ) by forming a vocalise make and wants to bonk the amount of legality it deal bring in an Indian crossroads make conjunction and the insurance harvest-feasts it nooky wander in India. The caller-out has distri much thanoverable gathers in triple (3) preceding financial age, preceding to the year in which voices with diametricial rights be to be issued Further, ABC has a supplemental in India (the ABC hero sandwich).ABC wants to whap whether ABC Sub bottomland get into into a joint hazard with XYZ . Observations and Comments The Indian government has novelly passed the Insurance Regulatory Development Authority Act, 1999 (the IRDA) whereby amendments contain been make to the existing insurance laws prevailing in the bea, namely, the Insurance Act, 1938 (the Ins Act), the Life Insurance Corporation Act, 1956 (the Life Act), and the General Insurance Business (Nationalisation) Act, 1972 (the GIB Act). An authority called the Insurance Regulatory Development Authority (the Authority) has been effected to regulate the insurance sector. (Section 3 of the IRDA) The Authority, inter alia, give strike the power to Issue appli stick outts a surety of registration re in the altogether-fashioned, modify, withdraw, suspend or bottom of the inningcel much(prenominal) registration. (Section 14(2)(a) of the IRDA) A certificate of registration ordain incur to be re unseasoneded annually. (Section 3A of the Ins Act r/w the First agendum of the IRDA) Prescribe prudent norms much(prenominal) as solvency margins and enthronement guidelines for insurance companies (Section 14(2)(k) and (l) of the IRDA) Protect raises of policy pallbearers in themes fearing assignments of policies, nominations by policyholders, see to it interest, settlement of insurance claims, sur cave in lever of policies, and some different experimental conditioninals and conditions of contracts of insurance. (Section 14(2)(b) of the IRDA) so far, the Indian government activity has retained with itself the power to issue directions on questions of policy. (Section 14(2)(b) of the IRDA) The definition of an Indian insurance confederation has been amended to include any insurer universe a gild- 1. Which is formed and registered under the Companies Act, 1956 2. In which the aggregate holding of law sh ars by a foreign club, both by itself or through its subordinate companies or its nominees does non excel 26 per cent (26%) of the ante up ceiling and 3. Whose re pair purpose is to carry on life insurance business or usual insurance business or reinsurance business. (Section 2(7A) of the Ins Act r/w the First document of the IRDA)The explanation to this section provides that a foreign confederation is a company that is non a domestic company. (Section 2(23A) of the In fare-tax Act, 1961 r/w section 2(7A) of the Ins Act r/w the First Schedule of the IRDA) The IRDA by amending the Ins Act clearly provides that the aggregate holding of equity shares by a foreign company, both by itself or through its subsidiary companies or nominees should non exceed 26% of the paid-up superior of the insurance company. It has been delicate that the cardinal per cent (26%) jacket applicable to foreign companies leave alone also hire to foreign institutional investors, non-resident Indians and oversea corporeal bodies. Section 2(7A)(b) of the Ins Act r/w the First Schedule of the IRDA) Thus, a foreign company is now permitted to own upto 26% of the equity in an Indian joint ad game company. Therefore, if ABC proposes to form a joint ship with XYZ, ABCs shareholding pull up s fool a paths be restrict to a nonage shareholding of 26% in the joint game company. It moldiness be noted that the Indian insurance company must be a public limited company. (Section 2C of the Ins Act) Now, let us assume that ABC has a subsidiary company in India (the ABC Sub) in which it owns a 51 per cent (51%) equity and decides that ABC Sub should bring in into the insurance joint venture with XYZ. This leave behind not be permissible.According to recent sexual pronouncements of the Authority, Indian companies that are subsidiaries of overseas companies leave behind not be allowed to tie-up with other Indian companies to do insurance business. The Authority perceives this as violation of the twenty-six per cent (26%) equity cap by forming insurance companies. ABC atomic enactment 50, however, a abundant with some(prenominal)(prenominal) ot her foreign companies set about a wager in an insurance company operating in India as gigantic as the combined equity stake of all foreign companies does not exceed twenty-six per cent (26%). The Authority allow for not register any good morning(prenominal) insurance company carrying on the business of life or everyday insurance un slight it has a stripped-down paid-up capital of Rs. 100 crores. No composite emancipation for life and non-life business pass on be granted.For companies in the reinsurance sector, a minimum paid-up capital of Rs. 200 crores is required. (Section 6 of the Ins Act) The former paid-up share capital must be brought into the immature company within six (6) months of issue of the license. (Section 6 of the Ins Act r/w the First Schedule of the IRDA) In addition, every insurer go a appearance be required to undertake such parts of life insurance or general insurance business in the agricultural or social sector, as specify in the Official Ga zette by the Authority in this behalf. (Section 27D of the Ins Act r/w the First Schedule of the IRDA) Further more(prenominal) than, a raw(a) insurance company exit be permitted to invest policyholders funds exclusively if in India. Section 27C of the Ins Act r/w the First Schedule of the IRDA) both insurer shall, in respect of its life insurance business, be required to set up with the Reserve brink of India, either in cash or in pass securities, a sum equal to one per cent (1%) of its total gross bountifulness written in India, not, however, exceeding Rs. 10 crores. In respect of the general insurance business, this sum testament equal three per cent (3%) of its total gross pension written in India, not, however, exceeding Rs. 10 crores. In respect of re-insurance business, this sum allow for equal Rs. 20 crores. (Section 7(i) of the Ins Act r/w the First Schedule of the IRDA) It has been provided that an Indian advertizer holding more than twenty-six per cent (26%) of the paid-up equity capital of an Indian insurance company will ave to impoverish in a phased means the share capital in prodigality of twenty-six per cent (26%), after a period of ten (10) years from the date of commencement of business by the Indian insurance company. (Provision to section 6AA of the Ins Act r/w the First Schedule of the IRDA) On the one hand, the Indian government has restricted foreign equity ownership in Indian insurance companies to twenty-six per cent (26%) whereas on the other hand, it wants Indian partners to divest their equity holdings to twenty-six per cent (26%) after ten (10) years. Recently government has been in considering increasing the limit on foreign enthronisations up to 49% from contemporary 26%. Also norms for IPO are expected to be finalized shortly which would enable companies to go public for raising funds.The IRDA has allowed three kinds of insurance agentive employmentage house firms to operate in the agricultural, namely, in surance, re-insurance, and composite geneage firms. The twenty-six per cent (26%) equity cap will apply to such firms as well as, except that composite components may make merry a higher equity cap of forty-nine per cent (49%). Company formation consideration On complying with the registration clumpities, ABC and XYZ will be in possession of to enter into a shareholders covenant. The main issue that arises here is mould of control in the functioning of the joint venture company. Generally, exercise of control ignore be at two take aims table of Directors and Shareholders. Under the Companies Act, 1956 (the Cos.Act) a company give notice carry on activities by passing either of two resolving powers, special resolutions and ordinary bicycle resolutions. Ordinary resolutions kitty be passed by shareholders having 50% plus one shares with take rights in the company, whereas special resolutions atomic number 50 be passed alone by shareholders having 75% shares with r ight to vote rights in the company. A special resolution is, inter alia, required to amend the history and Articles of Association of a company, to issue solely shares through a rights issue, to give loans or guarantees to other companies, etc. With a twenty-six per cent (26%) equity stake, ABC will nevertheless be in a position to freeze out special resolutions. It will not be able to control the day-to-day functioning of the joint venture company.Additionally, the Authority has prescribed that foreign insurance companies privynot retain Board control in Indian insurance joint venture companies. Therefore, ABC will not be able to ap intend legal age directors on the joint venture companys Board. Another pertinent point that arises is infusion of funds to the issue of s nonethelessty-four per cent (74%) of the equity of the joint venture company by the Indian partner, namely, XYZ. XYZ will deliver to bring in a minimum amount of 74 cores, if the joint venture company seek s to enter into the business of life or general insurance. Further, in the event of increase of share capital, XYZ will do to pump in an amount equal to its seventy-four per cent (74%) equity stake.This cease ca delectation near problems. It should be noted that take upence shares massnot be issued by companies carrying on life insurance business (Section 6A(1)(i) of the Ins Act). As such, the joint venture company carrying on life insurance business contributenot comply with the capitalization stipulations by issuing preference shares to ABC In such circumstances, the parties can consider launching into a three- vogue joint venture either with other Indian company or with a imprecate. The Reserve Bank of India (RBI) has permitted swans to enter into the insurance sector and to invest up to fifty per cent (50%) of their paid-up capital in insurance joint ventures.The liberalization of the Indian insurance sector has open up the sector to private competition. If ABC and X YZ can establish the right amount of trust and take a long-term perspective on the Indian market, their joint venture can be a study success. ? Distri un littleion Channel Definition & Importance in Indian insurance Industry The sue of make a point of intersection or service on tap(predicate) to customer for use or consumption at in demand(p) place and time by set of two or more interdependent organizations. It can also be termed as an Intermediary between end consumer and vendor or service provider. Intermediaries typically committee a mark-up or coun failing for alive(p) in the persuade.Post nationalization of Insurance companies, level(p) constituentive roles were the primary take for insurance dispersion in the Indian market the public sector insurance companies have their branches in al intimately all parts of the country and have drawed local tidy sum to draw their movers. The doers are from divers(a) incisions in guild and collectively strain the en tire spectrum of society. A person who has lived in the locality for legion(predicate) years trades the products of the insurance company with a local branch nearby. This ensures the last cc touch point being jux smashosed to the customer. Of course, the profile of the mass who acted as agents suggests they may not have been sufficiently erudite about(predicate) the different products offered, and may not have sold the best accomplishable product to the client. Nonetheless, the customer trusted the agent and company. This arrangement haveed adequately in the absence of competition.In monetary value of Insurance Penetration ratio (defined as ratio of insurance tribute to GDP), a key indicator of the over overspread of insurance coverage and insurance culture, India compares very piteously by international standards. The brainwave ratio was less than one per cent in 1990s and it alterd to 5. 2% by year ended on March 2009. As a forgatherst this, as per report from S wiss Re perceptiveness ratio by year ended on March 2009, in respect of more or less of the developed countries, viz. , UK and to the south Africa at 12. 90%. In Asia, Taiwan and Hong Kong had registered their unhomogeneous(prenominal) ratio of as high as 16. 8% and 11. 0%. Insurance incursion for the world was placed at 7. 0% which was far ahead than that of India. Refer circuit board 1) Thus in a country with 1. 21 billion overall universe, the brainstorm ratio indicates that compose in that respect is huge absolute majority of universe of discourse cool off away reach of Insurance especially in countryfied and semi-urban areas, in the context of the absence of social security schemes. This clearly suggests that there is a big opportunity to tap in insurance sector by widening the dispersion channels. Nearly as old as the banking industry or perhaps even older, insurance as a model of venture management, is centuries old. though the industry began in a modest w ay, it evolved to beget an integral part of the financial work businesses over time.Table 1 supranational Comparison Of Insurance Penetration, March 2009. unquestionable Countries Country Total Life Non-Life Australia 6. 40 3. 40 3. 00 Brazil 3. 10 1. 60 1. 50 France 10. 30 7. 20 3. 10 Germany 7. 00 3. 30 3. 0 Russia 2. 50 0. 00 2. 50 South Africa 12. 90 10. 00 2. 90 Switzerland 9. 80 5. 40 4. 50 United earth 12. 90 10. 00 3. 00 United States 8. 00 3. 50 4. 50 Asian Countries Country Total Life Non-Life Bangladesh 0. 90 0. 70 0. 20 Hong Kong 11. 00 9. 60 1. 40 India 5. 20 4. 60 0. 60 Japan 9. 90 7. 80 2. 10 Malaysia 4. 40 2. 90 1. 0 Pakistan 0. 70 0. 30 0. 40 PR mainland China 3. 40 2. 30 1. 10 capital of Singapore 6. 80 5. 10 1. 70 South Korea 10. 40 6. 50 3. 90 Sri Lanka 1. 40 0. 60 0. 90 Taiwan 16. 0 13. 80 3. 00 Thailand 4. 00 2. 40 1. 60 fellowship domain 7. 00 4. 00 3. 00 Source Swiss Re, Sigma various volumes * Insurance penetration is measured as ratio of superior (in US Dollars) to GDP (in US Dollars) Data relates to financial year ? Current dispersion channels for Insurance products in India- Traditionally before privatization insurance products were only sold by agents.Strategy also worked imputable to absence of competition in market. However post privatization, competition got tougher and take in for flip over channels of scattering was strongly felt. soon insurance products are being distributed through following channels Current distribution of Insurance products in India Insurers ? Tied (Agency) Todays insurance agent has to hunch forward which product will appeal to the customer, and also know his competitors products in the alike(p) space to be an effectual gross revenueman who can mete out his company, the product, and himself to the customer. To the add up customer, every impudent company is the same. Perceptions about the public sector companies are also cemented in his mind.The crude companies are looking for educated, aware(predicate) mortals with marketing flair, an elite group who can be attracted only with high wages and the lure of a fashionable job, all of which may not be possible in this business with its price pressures and the complexness of inter compound insurance. Unable to attract this portion, they have started easing leavenment conditions as against the blind drunk norms they had earlier, thereby diluting the process. piece of music the public sector companies are able to attract agents, they slip away to suffer from high attrition place ascribable to indiscriminate agent appointment. The just about successful of these companies secure agents are exactly of the elite variety of gross salesman.They are quench the people from neighborhood the postman, the schoolteacher, and the shopkeeper who know the people and are themselves known in the community. The challenge here is the lack of knowledge of the competitory market and the inability t o do intelligent comparisons with the competitors products. Educating and provision these agents is a monstrous challenge for the insurance company. The relevance of this kind of agent continues even today as agents are sought or contacted by families by word of mouth. Insurance companies are advised not to follow the trend of FMCGs/credit card companies, believing that a suited and booted customer consider consultant or financial consultant will necessarily appeal to the average Indian customer.In this context it might be a rewarding exercise to recruit some older people (who have taken Voluntary Retirement from banks and other financial institutions) to sell some lines of products like pension plans, annuities etc. Gender of agents is other applicable feature in the bucolic context that makes a difference, especially for the effeminate population. Women to whom the customers can relate e. g. , nurses, gram sevikas can target the female segment of the population more ex peditiously. What is applicable for the rural women and children health programs and population control programs is equally applicable for insurance change also. With this kind of cleavage of intermediaries the challenge for the insurance company lies in cultivation and educating these people to become effective sales persons.But this in no way diminishes the gets of intermediary segmentation. SWOT Analysis on Agency Channel Strengths- Typicality of Indian customers who unendingly favors known and reliable intermediary. Through position, in the flesh(predicate) contact and family can be established with the customer. Agents usually enjoy individualized credibility with customers. Agents provide various presales and post sales services to customers. This channels awareness and acceptability is maximum among people. crabbed marketing is possible through this channel. due to personal contact, it can provide expensive feed back dismantle about the need and expectati on of consumers. failing- Insurers have to bare higher damage to set up of fashion channel communicate and provide didactics to violence Higher commission rates forces insurers to descend high charges from policy. High attrition rate of agents is a serious concern. Due to this, sign enthronisation done on instruct and educating the agents goes waste. Attrition causes the problem of religious service strip policies. Agents are generally not tech savvy. Opportunities- High net worth individuals who prefer relationship over personify can be tapped. Technology can be embraced to convert prospect into business. Commissions structure can be designed in such a way that agents would want to cheque active for long term. Threats- Alternate distribution channels are more preferred by the insurers due to price effectivity over way channel. At present, the number of agents working in life insurance industry is approximately 15 lakhs but a majority of them are static wh ich farts to poor activity ratio. Out of the wide means force approximately only 20% are active. What is need of the second is not the quantity but the quality. Having some productive and mint candys of unproductive lot drags overmaster the morale of the community of agents, leads to dissatisfy within the calling and the respect for the profession is downgraded. over manpower has its toll to the company in legal injury of unrecover or under recovered reproduction greet.Also, opportunity cost in terms of a more productive agent serving in place of a dormant agent cant be looked over. Over manpower also add ups to mis-selling and refunds. Adequate concept, product and soft skill preparation is indispensible for professionalizing agency force. IRDA mandates companies to impart 100 hour training to its agents and today most of the companies have in-house training facility. But number of agents attending consequent product trainings at the time of product launches and oth er soft skill training sessions gets subdued substantially. It leads to poor knowledge about companys wholly basket of offerings and agents selling only a hardly a(prenominal) products instead of doing a lawful need-based selling to customers.The concern of the regulator towards suppuration semblance of linked products in companies total percentage of business can also be attributed to biasedness of training programs in favor of linked products. Training becomes all the more consequential in todays agonistic environs where the agent is not only selling insurance but the company providing insurance. Adequate and quality initial training at the time of licensing is like laying a strong foundation for agents entering the industry and subsequent trainings are like sharpening the agents willingness to stay competitive. Agents are off-roll employees of an insurance company and keeping them motivated is a giant challenge. Companies run loyalty and engagement programs and sales inducing programs (like short term contests) providing various monetary and non-monetary makes.They serve tumesce to motivate the agents to perform better, increase interaction of agents with the companies, promote spirit of healthy competition among the agents and to actualize good performing agents, provided these programs are advantageously checkable, transparent and quick in benefit disbursal. This profession is also not leave untouched by Information Technology. about of the companies have a dedicated agents portal but the number of agents accessing them is less than satiscircumstanceory. One step forward in do the agents more efficient and professional is to make them more tech-savvy through training and other means. Looking at the regulatory front, a dispute redressal chemical mechanism for the agents should be established by the IRDA. Insurance selling is a tough job.Agents are facing sharp competition from other alternative distribution channels and with so many i nsurance players in the fray, their job has become all the more difficult. though the image of an agent has undergone lot of change since the time it was first introduced but still agents face a lot of sales enemy. Insurance companies need to consciously attempt into dedicated efforts for the image makeover of their agents which will go much beyond calling them advisors or financial consultants instead of agents. Agents are the true Brand Ambassadors of the company and they deserve a fair treatment from the insurers. In filth of multitude of other distribution channels coming up, tied agency is here to stay because of attitude and typicality of Indian customers.What is unavoidable is a genuine effort in recruitment, training and development of a good agency force critical for return and survival, knowing that for a long-term business like insurance quality, productivity and estimable values must be deep-rooted fully in the workforce. ? Corporate Agency The embodied agent is an extension of the agent as the insurance agent is an individual and if two agents join together and form a firm or company, it becomes corporeal agent. The procedure to become a corporate agent is the same as that of an agent but may have to contribute the share capital of 15 lakh at the discretion of the insurer. Corporate agency channel was the key distribution channel for Insurance. Since IRDA allowed corporate agents into distribution of Insurance, it flourished like anything.It has a major advantage of cost affordability over tralatitious agency channel for insurers. However due to increased complaints of mis-selling and high lapsation of policies citationd through corporate agencies was a growing concern over the time. Majority of the policies were sold as a short term investment option rather than long term security. guests were kept under dark about various charges of policy and other terms and conditions which makes insurance policy a long term investment option. Also t here were instances where same set of individuals have floated different corporate agencies and they even employed people without valid licenses. To overcome these challenges and protect customer interest, IRDA came up with tringent licensing norms for corporate agencies in June 2010 which slenderize the license renewal process that do many small corporate agents unentitled as they were not conforming to the new norms. In addition of this IRDA also recommended symmetrical on-side inspection of corporate agents to control various mal practices that had entered the system. Due to IRDAs on-side inspection companies wherein same set of individuals have floated different corporate agencies went out of business. In November 2011, IRDA came out with doggedness ratio for corporate agents according to which it would mandate for corporate agents to retain at least 50% of their clients. These norms with cap on commission have make its viability questionable.Also IRDA proposed a determen t for lapsation in the form of commission claw back by the insurer, on a proportionate basis. Alternatively, a part of the first year commission should be withheld to be paid based on persistency in later years. These guidelines have ensured the restriction of the agencies which use to sell the insurance policies only for higher first year commission by using malpractices and only those who are willing to do long term and ethical business can survive. ? Brokers Insurance constituents is being totally new distribution channel which can sell the products of all the insurers on all India basis but minimum capital requisite is 50 lakh with proper office infrastructure and manpower.Every Insurance Broker will have to apply annual fees of 0. 5% of his brokerage and insure himself under Professional premium insurance. Broker channel offers several benefits for customers like Choice, expertise and customer servicing. These are exposit below. Choice- There are about 50 insurance comp anies in India and as a resultant hundreds of different product options which can help customer to get hold of product exactly as per his need. unluckily the benefit of this market diversity never reaches the customers if they acquire insurance through agents. Brokers by definition are not tied to any one insurer and have a bias 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. A broker can explain the distinctions of these different product types to a client and pick the most relevant options. This allows brokers to work with comparatively smaller companies in a profitable manner. Individual insurers and agents would not have the same economies of scale in serving small clients. Expertise- Brokers are constantly uncovered to people and product offerings of different companies. Brokers participate in training programme conducted by different companies. Thi s puts brokers in a unique position to control market trends and developments. A good broker will harness this information to realise deep market expertise. much(prenominal) expertise has three main benefits. First, brokers can 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 clients fictitious character in a language that insurers understand and vice versa. Quite a lot clients are conf utilise when faced with all the technicalities of insurance. Brokers pair this gap. Finally, the expertise is vital in in effect managing the clients jeopardy, particularly in volatile times. Customer Servicing- Because of the privileged customerbroker relationship, the broker has to build customer servicing capability.In fact the ability of a broker to retain a client, quite oft depends upon its servicing strengths. No insurer or agent can play this role a dequately because of the inherent conflict of interest between the claimant and the insurance company. Benefits to Industry and regulators point of view- Brokers offer several benefits to the regulator as sanitary. The strong customer centering of a broker is an obvious benefit. Moreover, mainly because of their deep expertise, brokers can be a very effective route to collate consumer feedback on its guidelines and regulations. Brokers go through a rigorous screening process by the regulator. Fly-by-night operators are effectively screened out.Therefore, a robust broking channel will result in a few(prenominal)er customer grievances and mis-selling issues. get going but not the least brokers are very effective in diminution the cost of distribution. The experience in several countries has been that intermediation costs debase as the broking channel becomes better established. The IRDA has a earthshaking role to play in strengthen the brokers role in industry. First, it shou ld attract high quality talent and capital in the channel. The quality of the players will be the maiden determinant of the development of the channel. Second, IRDA should look to incentivize focus on pure protection solutions.The low ticket size of pure protection plans and the current commission structure results in small absolute cyberspace 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 scotch rationale for intermediaries to focus on such pure risk products. Finally, in its developmental role, IRDA can educate customers on the advantages, roles and responsibilities of a broker. Issues faced by Brokers Channel- The Brokers segment offers a mystifying problem to the insurers. This segment is able to reach out to a wide audience and has gained pace over the decade since liberalization.Hence it is an effective channel to gain market share. But profitability issues remain due t o great costs incurred on this high maintenance channel. Given that the Indian customer, just as customers in the result world, will not like to pay upfront charges for consulting, the broker too of necessity to get his overheads by placing the policy that makes the most economic sense, rather than one that would benefit the customer the most. That said, brokers segment is a alter channel that will continue to maintain a reasonable share in the new business premiums. The positives are that brokers in the urban arena can attract the elite and the upper middle bod customer.Brokers represent the customer and will sell the products of more than one company. They seek to memorize 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 nerve of life insurance for the high-end and corporate/group segment. In the non-life segment, broking is not entirely new, as reinsurance brokers were arrangi ng exotic covers. For individual customers also, with a wide range of competitive products, the broker can get a good deal. The corporate broking companies will have to play a prominent role. We are still in the early years of the industrys growth in India. The best is yet to come.We expect that over time the market will mature and the broking channel will develop with considerable depth and robustness. ? Bancassurance Comprehensive forte of Insurance distribution The banking & Insurance industry have charged rapidly in the ever-changing and challenging economic surroundings through out the globe. In the competitive & open environment each & every one wants to do better than others. And they know that if they are not able to provide better service they wont survive in Industry. Insurance companies are also to be competitive by cutting cost & serving in the better way to customers. Now the time has come to choose and adopt appropriate distribution channel.The Bancassurance is the distribution of insurance products through the banks distribution channels. It is a phenomenon where in insurance products are offered through the distribution channels of the banking services along with a execute range of banking & investment products & services. In plain term we can say Bancassurance tries to exploit synergies between both the insurance companies & banks. Bankers Perspective- In the post reforms, the financial sector has more number of players of both domestic and foreign and the dividing line between the banks and non-banking financial institutions activities had easily turn down. Overlapping in one anothers functions/ areas have become more common than exception.The direct upshot of these developments led to intensive competition in the banking sector and which in turn had a strong bearing on the banks net interest margin (spread). In fact the emergent scenario is likely to bring down the banks spread even thinner. Despite the monstrous size of public secto r banks, they too observe decline in their spread. Further, banking system in India was prone to very high NPAs (Non Performing assets) which was further ruining the core on banks. Therefore, banks were compelled to be constantly on the look out for stable toss sources of earnings in the form of non- traditional and fee based sources of incomes and diversification towards new areas such as bancassurance, promises greater image for further enhancement in earnings with no menace of increase in NPAs.Persistent endeavor in scouting for new technology, new products/ services/ new avenues, has become necessary for the growth as well as sustainability of banking system. It is in this context possibly, bancassurance could well be an appropriate choice for banks to increase their stable source of income with relatively less investments in the form of new infrastructure. As far as banking sectors infrastructure is concerned, only a few countries could match with India for having self-agg randizingst banking network in terms of bank branches spreading almost passim the length and breadth of the country. As on year end on March 2011, no of branches of all banks across India stands at staggering 89622 with growth of 36% since 2010.Out of this swelled network of branches nearly 62% of branches are located in rural and semi urban areas and the remaining around 38% are in urban and metropolitan areas. Besides the commercial banking system, India has large rural credit cooperatives as also urban cooperative banking network. Taken together these institutional set up, the ratio of population served by a bank branch would work out to be far lower. Thus, on the one hand we have a very low insurance penetration and low insurance density as compared with the international standards on the other hand, India has a widely stretched and well established banking network infrastructure.It is this contrasting situation to absorb the two systems by way of bancassurance strategy to ge t out the benefits of synergy. This is an opportune time for both banking and the insurance sectors to come closer and forge an hamper for the mutual benefit. For, both the regulators, i. e. , RBI and IRDA have already proffered appropriate policy guidelines and set in a congenial environment for such an endeavor. Besides, the Government of Indias determinate policy to provide insurance cover to the low income households and the people at large at a minimum cost are also favorable. Table 2 POPULATION GROUP-WISE NUMBER OF BRANCHES OF BANKS IN INDIA family RURAL SEMI-URBAN URBAN METROPOLITAN jibe 1970 3063 3718 1744 1606 10131 1980 15105 8122 5178 4014 32419 1990 34791 11324 8042 5595 59752 2000 32734 14407 10052 8219 65412 2001 32562 14597 10293 8467 65919 2002 32380 14747 10477 8586 66190 2003 32303 14859 10693 8680 66535 2004 32121 15091 11000 8976 67188 2005 32082 15403 11500 9370 68355 2006 30579 15556 12032 11304 69471 2007 30551 16361 12970 11957 71839 2008 3091 4 17791 14416 13038 76159 2009 31576 19075 15479 13921 80051 2010 32497 20707 16884 14935 85023 2011 33495 22631 17712 15784 89622 Source RBI annual report, 2010-11. honour Data are exclusive of administrative offices.Above all, in India still grand majority of banking operations are conducted manually at the banks branch level with relatively less automation such as ATMs, tele-banking, profits banking, etc. , unlike many developed countries. This stands out as an added advantage for the banks to have direct interface with the customers, to understand their need/tastes and preferences, etc. , and thence customize insurance products. In fact there is also greater backdrop for innovation of new insurance products in the process. Therefore bancassurance can be a executable activity and viable source of additional revenue for the banks. Insurers Perspective-Contemporaneously, with the move financial reforms in the insurance sector and the consequent opening up of this secto r, all the private entities plunged almost simultaneously with a very little spacing of time and the entire insurance sector has been exposed to stiff competition. Insurers too have much to gain from bancassurance. The cost of the traditional agency channel is prohibitive with the high risk of agency turnover ranging between 30 to 40% every year, thus making the entire recruiting and training expenses going down the drain. Moreover, the price competition has reduced the profit margins and increased the compensation demands of the successful agents. The incentive pattern has a lot to do in this spiraling of the cost of the agency channel. Bancassurance has come in very skilled for winning the middle income market which forms the book of the bank customers.With Bancassurance, the cost of opening new insurance branches comes down drastically for the insurer. With an agreement with a bank, all the thousand and more branches of the bank become the extended weapons of the insurer. Cust omer Perspective- The most quick advantage for customers is that, in insurance business the question of trust plays a greater role, especially due to the inbuilt requirement of a long term relationship between the insurer and the insured. In India, for decades, customers were used to the monopolistic attitude of public sector insurance companies, despite there were many drawbacks in their dealing, they enjoyed customer confidence, this trend continues even now mainly due to their Government ownership.The customers to move over to private insurance companies that are collaborated with foreign companies which are less known to the Indian public would take little more time. The void between the less known newer private insurance companies and the prospective insured could be intimately filled by the banks because of their well established and long cherished relationship. Under these circumstances, any new insurance products routed through the bancassurance channel would be well recei ved by the customers. Bancassurance is ever so a win-win situation for customers. It provides greater convenience by providing all the financial needs under one roof.The customer need not always hold off for his insurance agent to come and render service. Whenever the client goes to the bank for his/her other needs like housing loan, over delineate, some draft issuance etc, he can complete his insurance needs too. Its always easier to deal with one agent for all the financial needs rather than fragmentize agents for every product. For paying renewal premium for policy would also be easier with services like ECS, Billpay or standing Instructions. trim down distribution cost for insurers will lead to reduced premiums for policies. SWOT Analysis on Bancassurance Strengths- In a country of more than one billion population, sky is the limit for selling insurance products.There is a vast untapped potential as the life insurance industry just covered around 20 crores of people the nu mber of policies will be more in view of the multiplicity of the policies per person. Millions of people run short out of India every year for various reasons, necessitating the purchase of Travel insurance and health insurance. This is besides their need for conventional policies. There are a lot of sunrise industries like the IT sector, the hospitality sector, the healthcare portfolio, the teaching method sector, BPOs and the call centers, R & D etc, providing a huge pool of professionals ready to be tapped for their insurance needs. Weakness- The difference in working style and culture of the banks and insurance sector needs greater appreciation.Insurance is a business of solicitation unlike a typical banking service, it requires great drive to sell/ market the insurance products. It should, however, be recognised that bancassurance is not only if about selling insurance but about changing the mindset of a bank. Moreover, in India since the majority of the banking sector is i n public sector and which has been widely disparaged for the lethargic attitude and poor quality of customer service, it needs to freshen up the blemished image. Else, the bancassurance would be difficult to win in these banks. Unlike, the banking service, there is no guarantee for insurance products that all efforts that a bank staff spends in explaining to a customer would clinch the deal due to the very nature of the insurance products.This frustration of the bank staff has the danger of spillover effect even on their regular banking business. With the financial reforms and technical revolution embracing the financial system, there has been a great deal of tractableness in the mind set of people to accept change. The above outlined problems need not, however, deter the banking sector to embark on bancassurance as any form of resistance from the bank employees could be tackled by contrive an appropriate incentive system commensurable with intensive training to the frontline b ank staff. On other hand, the middle class population is over-burdened today by the inflationary pressures.This is considerably reducing the amount of savings of a middle class income group. Also absence of elementary IT requirements is still the case in many of the PSU and co-operative bank branches which is a concern area. Opportunities- Bank has a huge database to work on. This has to be analyzed thoroughly and convertible groups should be churned out in station to sell the bancassurance products. Since the Government pensions and other payments are handled through the bank branches, the bank can become a rallying point for more and more insurance business. Banks can become the One stop shop where a customer can apply for banking, mortgages, pensions, investment and insurance products. Threats-The bank employee is so well entrenched in his classical way of working that there is a certain(prenominal) threat of resistance to any change the Bancassurance may bring in. The knowled ge level of the bank staff on insurance matters is so low that all enquiries of the customers are turned over to the insurer much to the disappointment and discomfiture of the client. The bank employee precisely becomes a post man in transferring the problems of the client. The same trouble comes in the matter of other servicing aspects like the policy revivals or claims. There are hazards of direct competition to conventional banking products. The bank military group may become resistant to sell insurance products, fearing that the banks savings may be diverted to the insurance companies.The strategy should be using multiple banks according to their front man in different regions. Success would come by using bancassurance where it will be most effective i. e. selling simple, loud products to the masses at a low cost. This awareness is growing and is evident from the fact that nearly every insurance company has partnered with one or many banks to practice bancassurance. ? Onlin e Sales Channel A feasible alternative India is joining the fast growing breed of net users and using net for banking transactions is also growing rapidly. Now almost all the public and private sector banks provide online banking facility as an add-on advantage with savings accounts.In insurance industry, just few years back net profit was used mostly used by Insurers for Policy servicing, promotion of new products and providing various tools like illustrative calculators etc However selling insurance products online is a relatively new concept in India. Lets understand the need of online distribution in Insurance industry. In 2010, the insurance regulator tightened norms which forced insurers to cut down commission to agents. The regulator also make it mandatory for agents to achieve a minimum level of productivity and persistency of business. As a result of these tough measures the number of life insurance agents dropped from 28. 03 lakh in September 2010 to 24. 53 lakh in Septe mber 2011.Until a couple of years back most life insurers were cuss by face-to-face sales and retained that online would be more often than not used for servicing. variegate in the regulatory environment, which has compelled insurers to cut distribution costs, is leading companies to look at new low-cost channels for distribution. Recent developments in information technology (IT) and web-enabled systems have made it easier for insurers to run global operations in a way that would not have been possible even two years ago. Insurers are already reaping advantages from IT improvements in intrinsic efficiencies in areas as diverse as underwriting, claims, policy administration, financial reporting and tender-hearted resources.But efficiencies go beyond these intrinsic ones. In the coming years, the internet will have at least two major effects on the insurance industry cost efficiencies and broader distribution. These efficiencies will come as insurers experience a greater avai lableness of data from the internet and the transfer of business processes from manual-related or computer-related systems to newer communication related systems. Such internet-style technology will reduce cost reduce the level of effort and improve accessibility to large-scale data. Data collecting becomes much easier under the internet address and thus affects costs and value of insurance.The internet will bring insurers to a whole new base of customers and will allow them to sample new markets that would have been too expensive to enter. Making information available to potential customers and the ability to market products to the new audience will have a tremendous impact. Advantages of Online distribution- It would reduce the internal administration and management costs by automating business processes, permitting real-time networking of company departments, and upward(a) management information. It would reduce the commissions paid to intermediaries since it can be sold dir ectly to clients. It would reduce the cost of training staff and other miscellaneous expenses required to run a branch. Response time for a revolution of policy would be much lesser than the manual submission. 24 hour connectivity for purchase and servicing of insurance policies. This would enable customer to pay premiums, check NAV, track due dates etc. as per his or her convenience. It will enable online request for quotes and data hookup which will improve efficiency. It will reduce the re-keying and typing errors which would save time and decrease risk. Compared to online stock broking or online banking, development of internet in insurance industry is clean cautious. There are some factors which makes the online selling of insurance policies difficult. Difficulties in selling Insurance online- The complexity of many insurance products can make it difficult to automate the provision of information. However with improved technology and round-the-clock innovations sometimes later it may be possible to automate complex information and offer that product online. In many cases, it is difficult to standardize claims settlement. E. g. Claims involves various investigations which needs to be carried out before making decision and would be subjective on case to case basis. This process often involves people and companies who are not in a contractual relation with insurers. network is particularly suitable for products where contact with company is very frequent.For Insurance products, contact with customer is often infrequent. Once policy is carried out, with some type of insurance the policy holder and insurers would get in touch only in case of occurrence of insured event. In India many customers still view internet as an insecure medium. This prevents large transactions being carried out through Internet and it deters the transmission of confidential information, both of which are essential aspects of insurance policies. While the technology capabilit y is there, improvement in bandwidth and infrastructure are needed. There is also a need of simpler products where auto-under writing is feasible.Automobile insurance, one of the segments of insurance purchased off the shelf in India, would be the ideal segment to start with. On the life side, term assurance for standard lives with simplified underwriting is a possibility. present many general insurance products like Travel Insurance, Auto Insurance, Health Insurance and in case of life insurance Term Insurance are being sold over internet successfully. Because of the simple nature of these products insurers are have standardised the terms and conditions to be able to sell products online. Online selling has given them chance to go beyond the normal markets and sell these products to new entrants altogether. ? MicroinsuranceMicroinsurance is the protection of low -income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cos t of the risk involved. Low-income people can use microinsurance, where it is available, as one of several tools (specifically designed for this market in terms of premiums, terms, coverage, and delivery) to manage their risks. India soon has the most dynamic microinsurance sector in the world. Liberalization of the economy and the insurance sector has created new opportunities for insurance to reach the vast majority of the poor, including those working in the informal sector. Even so, market penetration is largely driven by supply, not demand.It is often assumed that a microinsurance policy is simply a low -premium insurance policy. This is not so. There are a number of other important factors. Low-income clients often Live in remote rural areas, requiring a different distribution channel to urban insurance products Are often nescient and unfamiliar with the concept of insurance, requiring new approaches to both marketing and contracting. Tend to face more risks than wealthie r people do because they cannot afford the same defenses. So, for example, on average they are more prone to illness because they do not eat as well, work under hazardous conditions and do not have regular medical check ups. engage little experience of dealing with formal financial institutions, with the exception of the National Bank of Agriculture and Rural Development (NABARD) linkage Banking programme. Traditiona