CSCs to reduce insurance distribution costs

Newer ways of electronic distribution, like CSCs, insurance repositories, are likely to reduce cost further

Insurance companies are looking to reduce distribution costs by almost 30 per cent for their products using one-point contact centres, known as Common Service Centres (CSCs). In a meeting on Friday, the Insurance Regulatory and Development Authority (Irda) officials and insurance industry representatives discussed the structure and process of implementation of the CSC model in insurance.

Sources said Irda is expected to bring out detailed guidelines for insurers to tie-up with CSCs over the next two weeks. CSCs would also provide information to consumers on all financial products other than insurance, such as mutual funds and other investment products. After taking the views and comments of insurers on it, the new model is expected to come into operation within the next one to two months. These CSCs would act as brokers and will sell products of multiple insurance companies.

A S Narayanan, chief distribution officer, Bajaj Allianz Life Insurance, said the newer ways of electronic distribution such as CSCs and insurance repositories will help bring down distribution costs, while enabling reach. Insurance repositories are companies involved in storing insurance policies in an electronic format.

Industry officials who attended the Friday meeting said Irda officials including chairman T S Vijayan and member (distribution) D D Singh presented their views on the advantages of this model. Presentations were made on the workability of the model and the manner in which it will be brought into operation.

These presentations were made in the presence of chief executives of life and general insurance companies and representatives of the life and general insurance council.

Companies have already begun the process of engaging with the CSCs to understand the model and the way it will function. A senior life insurance company executive explained that they were analysing the economics involved with the process and how the entire model would pan out in the final stage.

CSC is a strategic cornerstone of the National e-Governance Plan. The Centre’s plan is to roll out over 100,000 CSCs across the country with a focus on the rural areas. These CSCs are aimed at providing high quality and cost-effective video, voice and data content and services in the areas of e-governance, education, health, tele-medicine, entertainment and other private services. The CSCs will offer web-enabled e-governance services in rural areas. They can offer application forms, certificates, and utility payments such as electricity, telephone and water bills.

These CSCs will deliver services in the areas of telecom, agriculture, health, education, entertainment, consumer goods, banking and financial services (insurance), utility payments among others. Each CSC is expected to serve a cluster of six to seven villages, thereby covering more than 600,000 villages across India.

The public private partnership (PPP) model of the CSC scheme envisages a three-tier structure consisting of the CSC operator (village level entrepreneur), the service centre agency responsible for a division of 500-1,000 CSCs, and a state designated agency to implement the model in the state.

According to industry sources, CSCs will be authorised to sell life and non-life policies after its officials undergo the mandatory examination conducted by the Insurance Institute of India. “This will provide the much-needed boost to insurance penetration in India. This model can prove to be cost-efficient and quick, if implemented in the appropriate manner,” said a senior insurance executive.

According to the Irda Annual Report for 2011-12, insurance penetration, which surged consistently till 2009, slipped for the consecutive second year and stood at 4.1 per cent in 2011, down from 5.1 per cent in 2010. Insurance penetration is measured as the percentage of insurance premium to gross domestic product.