)
Micro-insurance or micro agent was a channel in the insurance industry that was developed for deeper penetration of insurance into India. However, with smaller ticket size coupled with low commissions, this channel has seen low participation from distributors.
Micro-insurance products, which offer coverage to low income households is a mechanism to penetrate rural areas. It is a general or life insurance policy with a sum assured of Rs 50,000 or less, however the average ticket size ranges from Rs 2000-4000 per policy.
The main reason behind few sellers of micro-insurance policies could be low commissions. As per the Insurance Regulatory and Development Authority (Irda)’s micro-insurance regulations, the commission for these agents is capped at 15 per cent of the premium in non-life segment and in life segment it is 20 per cent of the premium for the years of premium paying years (10 per cent for single premium policies).
“Micro agents do not want to distribute these insurance products since there is a very low commission structure linked to it. At 15 per cent commission, there is no incentive to sell,” said K G Krishnamoorthy Rao, MD & CEO, Future Generali India Insurance.
Data from insurance company disclosures showed that a majority of insurers do not have any micro-agents. A handful of life and general insurers have such agents, and only 3-4 in number to boast of.
Existing regulations say that district cooperative banks, non-governmental organisations, Micro-Finance Institutions (MFIs), regional rural and urban co-operative banks, primary agricultural cooperative societies, companies appointed as banking correspondents and individual owners of kirana shop, medical shop, petrol bunk and PCOs in rural areas are allowed to act as micro-insurance agents.
A senior distribution head of a private life insurer said that since NGOs and MFIs have a different set of business, insurance is not a core area for them. “While they help us in initial phases, they are not ready to take on distributing insurance as they believe that it is not an area of business for them,” he added.
According to experts, micro-insurance guidelines, which are to be announced soon, could increase the insurance 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 is likely to improve renewal of premiums, too, experts said.
The micro insurance 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 that above the mandatory 25 per cent of new business in life insurance in rural areas and 7 per cent of total business in general insurance, companies were not interested in selling more micro policies.
From a distributor’s perspective, since 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 that customers do not want to buy products for a long term, since there is no guarantee of their income for such a long duration.
They have already approached the Irda for a solution to this issue. This official added that the regulator has assured them that these changes would be part of the new micro-insurance regulations.
Extant rules said that individual agent can only sell products of one insurance company. If they quit from one insurer, a micro-insurance agent is eligible for appointment with another micro-insurance agent or other corporate 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 pointed that 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. Further, Irda chairman T S Vijayan recently said that it would be more effective to have single policy, with options for customisation, which covers all basic insurance needs.
During the last financial year, life insurance companies issued more than 5 million individual micro-insurance products and covered more nearly 14 million people.
Life insurance companies sold 25.7 per cent of new policies in 2012-13 in the rural sector. The life insurers had underwritten 11.3 million policies in the rural sector, out of 44.1 million new policies underwritten by them in 2012-13.
The non-life insurers had underwritten 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) by them in 2012-13.
