Irda asks insurers to re-look at their distribution model

The distribution channels of insurance companies needs to be re-looked, said J Hari Narayan, chairman of the Insurance Regulatory and Development Authority (Irda). Speaking at the Global Insurance Summit of the Associated Chambers of Commerce and Industry (Assocham), Narayan added that insurance companies needed to leverage technology the way their banking counterparts have done.

On the agents side
The Irda chairman said that the attrition on the agents’ side needed to be contained. “Each year about 7 lakh agents pass out from institutes. However, more than 7 lakh agents drop out every year. So, the problem here is not generation, but attrition,” he said.

He explained that commissions are not in favour of the agents. Pointing a finger at the companies, Narayan said that though the companies had breached the expenses on management, agents which are a subset of management costs have not seen a rise. “There is still room for commission to increase,” he said.

On customer experience
Irda chairman slammed the insurance companies who have been lacking on the customer satisfaction front. “Several players in the industry have worked in more than one regime. My question to then is, though they follow all the stringent minimum guarantee and other stringent rules of insurance in other nations, why is it that they act surprised while doing business in India? Is it that they are here to make a quick buck?,” he questioned.

He opined that none of the projections by these companies were right and they were seen surviving largely on surrender profits. “We must revisit our models to make sure that it conveys some value to the customer,” Narayan said.

Bancassurance
Narayan said that India had adopted a 1:1 system in bancassurance, meaning a bank could cater to the needs of only one insurance player. He added that though the stake holders including Indian Banks’ Association and banks have been asking for a system to tie-up with more than one insurance player, it could not be facilitated as the regulations did not permit this system.

To deal with this issue, Irda chairman proposed that the 1:1 model could be applicable to a group of states. “We can shape it such that a bank is able to tie-up with an insurance company for certain group of states and another insurance company for some other states,” he said.

On rural needs
The chairman said that rural and social obligations need to be fulfilled by the insurance players. He added that the regulator has proposed to the life insurance council a structure of having a lead insurer for selling rural products in certain geographies. “We are examining a way to have a lead insurer for each state/geography, so that it would bring greater stability in insurance for these regions,” he said.

Irda Chairman noted that the insurance regulations in India, in terms of products and product clearances are much milder in India, compared to other developed nations. “Products are not a brand of biscuits,” he said, adding that the market is not starved for products.

He further said that our persistency levels was one of the lowest in the world and adding in new products would not be very helpful.
Speaking about the pension products, Narayan said that the current products with the regulator for approval were mutual fund products and not pension products. “Just because an insurer names a product as pension, it does not mean that it serves the purpose of a pension product. A pension product, invariably, should lead to some kind of an annuity and unless they are structured accordingly, they will not be approved,” he asserted.

Narayan further added that they would meet the Finance Minister on Wednesday to discuss key issues, including income tax and service tax proposals and suggestions. It is to be noted that some insurance players had met the FM in th first week of September to give their wishlist to the ministry oon issues ranging from product design and approval, taxation, investment and micro-insurance. Those measures would be deliberated upon on Wednesday.

PTI adds: The insurance industry needs big investments for growth in the coming years and will welcome hike in FDI cap, sectoral regulator Irda said today.

"We will welcome the steps to increase the FDI in insurance sector," Narayan added.

Foreign Direct Investment in the insurance sector is capped 26%. With the government taking policy reform initiatives last week, especially allowing FDI in multi-brand retail and aviation sectors, there is expectation that the limit in the insurance industry may be raised.