Insurers struggle to get microinsurance agents

Microinsurance, which aims to extend insurance coverage to low-income households in rural areas, has failed to enthuse distributors due to its comparatively small size and lower commissions.

By definition, micro-insurance products are general or life insurance policies offering an assured sum of Rs 50,000 or less. The average ticket size of this category is Rs 2,000-4,000 a policy.

“Micro agents do not want to distribute these insurance products since there is a very low commission structure. At 15 per cent commission, there is no incentive to sell,” says K G Krishnamoorthy Rao, managing director and CEO, Future Generali India Insurance.

According to the Insurance Regulatory and Development Authority’s (Irda) micro-insurance regulations, the commission is capped at 15 per cent of the premium in the non-life segment and 20 per cent in the life segment.

Data from insurance company disclosures show a majority don’t have microagents. While a handful do, the number is limited to three or four.

According to regulations, district cooperative banks, non-governmental organisations (NGOs), microfinance institutions (MFIs), regional rural and urban co-operative banks, primary agricultural cooperative societies, companies appointed as banking correspondents and individual owners of kirana shops, medical shops, petrol pumps and public call offices in rural areas can act as micro-insurance agents.

As the business focus and model vary for NGOs and MFIs, insurance is not a core area for them, says a senior distribution head of a private life insurer. “While they help us in the initial phases, they are not ready to take on distributing insurance as they believe it is not an area of business for them.”

According to experts, microinsurance guidelines, expected to be announced soon, could increase penetration in rural areas. The guidelines talk about enabling local kirana stores, fair-price and medical store owners (who also act like banking correspondents) to sell micro-insurance products. This will improve renewal of premiums, too, experts say.

The regulations prescribe a framework within which insurers can offer affordable micro insurance products to a targeted group of rural and urban insurable population. Due to the non-availability of distributors, insurers also do not have the economic viability to set up branches in rural areas to sell products.

Insurers said above the mandatory 25 per cent of new business in life insurance in rural areas and seven per cent of total business in general insurance, companies were not interested in selling more micro policies.

From a distributor’s perspective, as these products have a term of five years and above, it is difficult to sell it to small households. A senior official of an MFI said customers do not want to buy products for a long term, since there is no guarantee of their income for such a long duration.

MFIs have approached Irda for a solution and the regulator has assured them these changes would be part of the new microinsurance regulations, says the official quoted above.

Extant rules stipulate individual agents can only sell the products of one insurance company. If one quits his micro insurance agent, he can join another agent only after three months from the date of resignation.

While Irda has allowed a tie-up of life and non-life insurers to offer micro-insurance products, regulatory officials point out there has been no significant progress in that area.

In order to improve persistency in this segment, Irda has proposed to link the renewal commissions in micro-insurance in life segment where agents with higher persistency would get more commissions.

Recently, Irda chairman T S Vijayan had said it would be more effective to have a single policy, with options for customisation, which covers all basic insurance needs.

During the last financial year, life insurance firms issued about five million individual micro-insurance products and covered nearly 14 million people.

Life insurers sold 25.7 per cent of new policies in 2012-13 in the rural sector. Out of the of 44.1 million new policies that life insurers underwrote in 2012-13, 11.3 million were in the rural sector.

During the same period, non-life insurers underwrote a gross direct premium of Rs 8,196 crore in the rural sector, which is 12.69 per cent of the gross direct premium underwritten (Rs 64,583 crore).