Stringent licensing norms, new persistency guidelines make it the least preferred option.
The corporate agency channel, a key one for life insurance companies, is dying a slow death. Faced with stringent licensing guidelines and new persistency norms by insurance regulator, the channel seems to be the least preferred option for life insurers.
Since April 2010, the life insurance industry has lost nearly a third of its corporate agents, while for most of the bigger private life insurers, the number has shrunk by more than 50 per cent. For instance, HDFC Life now has only 10 corporate agents, compared with 374 in April 2010. Bajaj Allianz Life saw the figure decline 66 per cent to 289 from 864 in the same period. Life Insurance Corporation (LIC) of India has reduced the number of corporate agency tie-ups by 42 per cent during the period.
The share of corporate agents in the total new business fell to two per cent as on September, compared with 5.2 per cent in April 2010, according to Insurance Regulatory and Development Authority (Irda) data.
The future for corporate agents looks bleak, as insurers are focusing on other channels for developing their distribution network. Insurers are more interested in entering distribution tie-ups with banks.
“The future of life insurance distribution lies in the traditional agency route, bancassurance and the broking and direct channels, which include online distribution,” said Vijay Sinha, senior vice-president (marketing), Tata AIG Life.
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“Bancassurance, being a low-cost channel, is eating into the pie of corporate agents,” added an official at a private life insurance company.
Experts blame the trend on the stringent licensing guidelines by the insurance regulator. “Since the new guidelines on the corporate agency channel were introduced, many small corporate agents have quit, since they do not conform. Hence, the numbers have come down. But this channel has never been our focus area. Our main focus remains the traditional agency channel, which accounts for nearly 65 per cent of our total new business and 97 per cent of individual new business,” said a senior LIC official.
After introducing stringent guidelines on licensing of corporate agents in June 2010, which tightened the licence renewal process, Irda also recommended regular on-site inspection of corporate agents to curb various malpractices that had crept into the system.
“There have been many instances in which the same set of individuals have floated different corporate agencies and employed people without valid licences for selling products. With Irda recommending regular on-site inspection of corporate agents, these companies went out of the system, said an official at Bajaj Allianz Life.
In November, the insurance regulator came out with guidelines for persistency ratios, according to which it would be mandatory for corporate agents to retain 50 per cent of their clients. “This, in addition to the cap on the commission payable by the insurers, means the viability of this channel for sourcing life policies are being questioned and big insurers are looking at alternate channels,” said a senior official at private life insurance company.