Banking on agents too

The insurer rethinks its distribution strategy and plans to rely equally on the agent network as well as on bancassurance.

It was not late to the party, but took a while to settle down. After March 2006, though SBI Life Insurance, a joint venture between State Bank of India and Cardif SA of France, started perking up and seemed to be having a good time even till earlier this year; sales actually quadrupled in FY07.

Over the last few months though, the insurer has missed a few steps: from a share of 14.8 per cent of the private sector insurers' share that it commanded in March, SBI Life now has just half of that at 7.1 per cent in July (Source: Irda & Merrill Lynch estimates).

The company, however, has a different view. "We haven't lost share, we've maintained share," says Pier-Paolo Dipaola, deputy CEO.

Dipaola says the practice of accounting for single premia (a premium paid as a lump sum), by allocating just 10 per cent of the premia earned to that particular month, may not the best way of arriving at the market share.

Analysts believe the right way to account for single premia, is to allocate just 10 per cent of the amount to the month in question.

It's not just the loss in marketshare that's worrying. The pace of growth at SBI Life is slowing down.

After turning in strong triple digit growth for most months in FY07 "" a huge 375 per cent y-o-y in March""the growth has tapered off significantly to double digits in the first few months of the current year "" in June it was about 45 per cent y-o-y (Source: Irda, Merrill Lynch estimates).

While SBI Life is in it for the long haul and is not too perturbed, the insurer is nonetheless rethinking its distribution strategy. For some time now it has increased focus on selling through agents, a channel that it paid relatively less attention to earlier, when it was concentrating more on the bancassurance channel.

"We have refined our thinking and we feel both are equally important," says Dipaola. Adding, "it's a distribution game and all about feet on the street."

So the agent network is being beefed up: about 19,000 agents were signed on in FY06-07 taking the total to 27,000 and in the current year, the insurer plans to add another 23,000 agents. The firm's reach too will have improved with the number of cities covered going up from 125 at the end of March 2007, to about 175 by the end of the year.

Indeed, even the relatively small network (ICICI Prudential has close to 2.5 lakh agents), Dipaola concedes, has helped SBI Life tremendously and has been a key reason for its growth.

Says Seshadri Sen, who tracks the financial services sector at Macquarie Securities, "We believe that key to the growth in SBI Life's weighted new business premium over the next few years will be its focus on the agency network."

Even as it builds up the agent network, the insurer continues to leverage the distribution network that it has in SBI's branches. The share of premiums sold through the bancassurance channel at 38 per cent is far lower than it was a couple of years back.

SBI Life's costs are lower because it is the employees of SBI who are selling the insurance policies from their own offices. And SBI Life doesn't pay their salaries or rent for the space they occupy, though it trains people.

"Our costs are among the lowest because our competitors post their own people at the branches of the banks they work with, which means they need to pay them," explains Dipaola.

That may be true, but analysts point out that it is difficult to push sales without giving special incentives to the sales people, who after all work for the bank and sell multiple products.

Moreover, they're selling other products too. Dipaola disagrees. Says he, "We may not be giving monetary incentives , but their performance is recognised and they are given promotions." That may not be enough; perhaps SBI Life needs to do some rethinking here too. After all, it's banking on this channel too.