Life Insurance Market in India: Dr. Sudas Roy

Life Insurance Market in India
Prepared by :
Avishek Roy
Under Guidence of : Praveen Kumar
Dr. Sudas Roy Prasenjit Sengupta
Priyam Dawn
Contents
• History of Insurance
• Individual Agents
• Need of alternate Distribution system
• Individual Agents- challenges
• Distribution Chain of Insurance Companies
• Evaluation of Channel Effectiveness
• Challenges for Distribution Channel
• Conclusion
History of Insurance
• In 1818 Oriental Life Insurance Company Started operation in
Kolkata
• In 1823,the Bombay life insurance company started operation
in Mumbai.
• In 1912,the ‘Indian Life Assurance Companies Act’ was passed
.
• In 1928, the Indian Insurance Companies Act was passed
• In 1956,LIC was formed through LIC act 1956.
History of Insurance Contd.
• LIC launched several group insurance and social security
schemes to enhance its reach in the rural areas.
• In 1993, the Indian Govt. set up the Malhotra Committee to

suggest reforms.
» Opening of the Insurance sector to the private players.
» Improving service standards.
» Extending insurance cover to larger sections of the
population.
Individual Agents- Benefits/Challenges
• Traditional distribution channel.
• 90% of the Life Insurance worldwide are sold through
Individual Agents!!!
Life Insurance Business Underwritten Through Various Intermediaries
Insurer Individual Corporate Agents Brokers Referral Direct

Agents Banks Others Business
Private 59.71 16.87 8.92 0.83 7.06 6.61

Sector
LIC 98.37 1.25 0.32 0.06 0.00 0.00
Total 85.67 6.38 3.15 0.31 2.32 2.17
All data are in percentage Source: IRDA annual report 2005-06

Benefits of Individual Agents
• Greater relationship and more face to face contact.
• Consumers are used to the channel.
• Experience and greater knowledge of the industry.
• Agents provide various pre-sales and post sales services to the

customers.
Need for Alternate Distribution System
• To increase insurance awareness and knowledge
among people.
• To increase insurance penetration in the country.
• To improve cost efficiency in insurance
distribution.
• Fierce battle in the Indian Insurance Industry post-
liberalization.
• Challenges of distribution through Individual
Agents.
Individual Agents- Challenges
• High attrition rate.
• Majority of the agents are dormant.
• Higher cost for insurer and consumer due to high commission
rate.
• Old fashioned channel ,not fully updated with technology.
• Lack of coverage.
Distribution Chain of Insurance Companies
Insurance
Company
Individual Corporate NGO &

Bancassurance Internet
Agent Agent VEWs
Customers
Corporate Agent
• Corporate Agents (CAs) are corporate entities (NBFCs) that
source policies for the Insurance Company with whom they
have a tie-up.
• Relatively new and untapped NBFCs like Religare, India-

Infoline etc.
• Retailers
CAs : Challenges in the Indian context
• Creating an environment of top level involvement of NBFCs
management.
• Resolving possible conflicts of interest between the CA and the
insurer.
• Establishing credible service level agreements between the CA
and the insurer.
• Setting up distribution procedures consistent with the manual
systems in the CA.
• Bringing relevance, motivation and skill development at the
operating level at CAs branches
Bancassurance
• Analysts believe that bancassurance would play a very
important role in India.
• Familiarity with the needs of the target customer.
• Strong service delivery mechanism.
• Good quality administration.
• Complete integration of insurance and bank products and
services.
• Win-win situation for both the bank and the insurance
company.
Win-Win Situation
Benefits to bank Benefits to Insurance Co.
• Total of 65700 commercial • Channel diversification.
bank branches across India. • Increased volume of
• Good awareness of business and improved
geographic region—Lower geographic reach.
per lead cost. • Benefit from substantial
• Fee based income in the database of the bank.
scenario of tightening • Known customer , hence
interest margins. risk assessment is easier.
• Customer retention– by • Can develop new financial
providing wider range of product by collaborating
services. with the bank.
Benefits for Consumers
• Greater convenience by meeting all financial needs under one
roof, universal banking.
• Reduced distribution cost will lead to reduced premiums.
• Provide easy accessibility.
• Double Assurance/credibility.
• Convenience in payment.
Bancassurance - Challenges
• Proper training of Bank Staffs
• Lack of Branch personnel’s involvement.
• Lack of sales culture within the bank.
• Insufficient product promotions.
• Failure in integrating marketing plans of both bank and insurance
company.
• Inadequate incentives to the bank personnel involved in the sales of
insurance products.
Village Extension Workers(VEWs)
• Adopted primarily by Birla Sun Life Insurance for marketing of
its rural products.
• For villages with population exceeding 5000.
• VEWs are people from the local Aditya Birla Group Companies
who are involved in social improvement projects.
• VEWs act as a liaison point between the villagers and the
insurance advisors.
Direct Marketing of Insurance through
Internet
• The Internet should be recognized as a direct distribution
channel, not a new sales model.
• Successful online insurance marketers focus on simple
products.
• If a product is complex by nature then the product is best sold
by driving quoted leads to a licensed call centre.
• In 2001 , 12% insurance products were sold through internet.
The number will rise in future.
Evaluation of Channel Effectiveness
• Reach
• Influence on target segment . Trust & reliability.
• Operational discipline.
• Support requirement.
• Customer servicing.
Challenges for Distribution Channel
• Insurance knowledge is complex.
• Investment has to be made on education, training and
establishment of a distribution channel.
• At times channel members are more target oriented than
customer oriented.
• Miss-selling is very common in insurance industry.
Conclusion
• Distribution channel is the life and blood of the insurance
business.
• Traditional distribution channel still rules the roost in life
insurance in India.
• Only 25% of the insurable population has been covered.
• With competition and private insurers coming into existence ,
there will be a paradigm shift in the concept of insurance
distribution.
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Life Insurance Market in India

• In 1993, the Indian Govt. set up the Malhotra Committee to

Insurer Individual Corporate Agents Brokers Referral Direct

Private 59.71 16.87 8.92 0.83 7.06 6.61

All data are in percentage Source: IRDA annual report 2005-06

• Consumers are used to the channel.

• Experience and greater knowledge of the industry.

• Agents provide various pre-sales and post sales services to the

Individual Corporate NGO &

• Relatively new and untapped NBFCs like Religare, India-

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