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Insurance marketing firms, a new category of distribution introduced by the Insurance Regulatory and Development Authority (Irda), may not have any immediate benefits, according to broking firm officials.
The Insurance Regulatory and Development Authority (Irda) has constituted a working group to explore the possibility of introducing an intermediary, called Insurance Marketing Firm (IMF), in the sector.
“We do not know who will be the eligible individuals, who can float these firms. Initial discussions suggest that it would be entrepreneurs who wish to be associated with the industry. Their credentials will have to be looked into, before given them licenses,” said the chief executive of a large insurance broking firm.
The working group will study the report of the Govardhan Committee on distribution channels, which was constituted in 2007, and submit the recommendations by February 28, 2014.
The Govardhan committee was asked to look into the strengths and weaknesses of the existing distribution channels namely agency, corporate agency, bancassurance, referrals, direct sales, according to the regulator.
The working group has been constituted with the chief executive officers of ten insurance companies and representatives of Irda. The decision to constitute a new channel of insurance sale was discussed by Irda officials with life and general insurance companies in a meeting in Hyderabad few days ago.
Insurance penetration and reach are one of the major areas of concern of the regulator, for which they have made attempts to introduce new models to reach smaller towns and villages. Among them is the Common Service Centre (CSC) model where CSCs will sell insurance products and help in renewals. Also, the regulator is mulling a proposal to make all banks insurance brokers, so that their entire branch network can be utilised in rural areas.
A senior official from a global broking firm with business in India explained that though penetration is the ultimate objective, it is not clear if new players will look into setting up offices in Tier II/III towns.
“Business expansion from smaller areas will not be economically viable. Hence, very few entrepreneurs would look at setting up these insurance marketing firms in smaller cities and would concentrate on metros, which are already crowded with too many players,” he opined.
This official also clarified that while more competition in this space is welcome, the new players would need time to understand the business before they can offer quality services.
The working group will study the issue and recommend to Irda - the capital requirement, geographical spread within which these marketing firms can operate and distribution costs among other related aspects of the proposal.
A senior official of an insurance company, who is part of the working group, said that it still needs to be ascertained whether these insurance marketing firms will have to commit to the business for a certain number of years.
"The onus of a policy that has been sold through this new channel will also have to be taken by the Insurance Marketing Firm. Hence, they should also have stringent eligibility criteria with good past credentials, so that they have a long-term commitment to the business," the official added.
Insurance penetration in India has fallen for the second time after the sector was opened for private players. The Insurance Regulatory and Development Authority (Irda), in its annual report for 2012-13, said insurance penetration stood at 3.96%, while insurance density stood at $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.
Insurance penetration stood at 3.96% of gross domestic product in 2012, down from 4.10% in 2011. Similarly, insurance density fell to $53.2 in 2012 compared to $59 in 2011.
