Insurers cold to the idea of insurance marketing firms

Trust deficit may force industry to take cautious approach

The Insurance Regulatory and Development Authority (Irda) has brought out draft norms for insurance marketing firms and the final norms are expected to be out in the next few months. However, insurance companies seem to be taking a cautious approach and might not rush to distribute products through this channel.

“With low penetration of insurance, the regulator has introduced a new channel of distribution. However, there had been several complaints by customers when a section of the agent/broker community pushed unit-linked products (Ulip). That trust deficit is yet to be bridged; hence, we will be cautious with this channel,” said the chief distribution officer of a private life insurance company, who did not wish to be named.

Under Irda’s draft norms, insurance marketing firms can market and service insurance and sell mutual funds, pension products, and other Sebi-regulated financial products.

Irda had said it might allow distribution companies to have multiple tie-ups with insurers - a model akin to “independent financial advisor” based on the recommendations of the Govardhan Committee on Distribution. In this connection, meetings were held with the representatives of life and non-life insurance companies and with a cross section of marketing personnel in life and general insurance industry at Hyderabad.

Partnership firms, companies formed under the Companies Act, limited liability partnership firms or any other person recognised by Irda can apply to be an insurance marketing firm.

A senior industry official, who was part of the committee in framing the regulations, explained the idea was to have entrepreneurs who are passionate about insurance to enter the industry via a new route.

Industry players are also not too happy with one distribution channel selling other financial products. "Though the insurance marketing firms will be dealing with customers for different financial products and will have an opportunity to cross-sell products, there is fear of misuse of customer data. When even entities like web aggregators have been barred from dealing with non-insurance products, the rationale behind one entity marketing insurance, pension and mutual fund is not very clear," said the chief executive of a bank-promoted life insurance company.

Irda has the power to inspect the records of insurance marketing firms anytime and in case of any deficiency observed, it might suspend or cancel the licence.

“The insurance marketing firm structure proposes that new entities can be licensed under this model. At a time when we are already battling with orphaned policies due to agents quitting the profession, there is no clarity on what would happen if the licence of such entities are cancelled or suspended,” said the claims head of a large non-life insurance company.

Irda has asked all stakeholders to provide their views on the draft by April 15, 2014. After this, the final norms will be gazetted and firms will be licensed.

Insurance penetration in India has fallen for the second time after the sector was opened for private players. In its 2012-13 annual report, Irda said insurance penetration stood at 3.96 per cent, while insurance density was $53.2 for 2012.

The measure of insurance penetration and density reflects the level of development of the sector. While insurance penetration is measured as the percentage of insurance premium (in $) to GDP (in $), insurance density is calculated as the ratio of premium (in $) to total population.