chapter – vi insurance marketing and distribution...

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CHAPTER – VI

INSURANCE MARKETING AND DISTRIBUTION

INTRODUCTION

The life insurance industry in India has a great potential to develop. It

can develop only if it accepts the problems and challenges and makes use of

the significant opportunities available in the country. Particularly, the

marketing strategy of insurance companies ultimately leads to a change

aimed at merger and consolidation, the efficiency of the insurance system and

also wider and efficient coverage. Marketing of life insurance service is

considered a difficult area to be seen. It is also a more challenging

phenomenon in India. The insurance selling process is required to be

transparent and create educative value to the prospects. Only a professional

approach to the marketing programs will serve the purpose of dealing

positively with the consumers.

Insurance is a business of sacrifice. This is mainly due to the fact that

the sacrifice of the customer by way of paying premium is real and present.

The benefits of insurance are recovered after a long period and hence it is not

attractive to people. Insurance is like sand when it is bought and gold when it

is realized. Given a choice, people would postpone the decision to buy

insurance as they do not realize its benefit at the time it is offered. They have

to be convinced1.

Insurance marketing must be considered as a positive trend by the

consumers since it develops the habit of buying insurance products to protect

the health of their families and also their assets at a future date. The

strategies of insurance marketing are to be designed in such a way that they

attract the different sections of the society by identifying the need of the

1 Neelam C.Gulati, ‘Principles of Insurance Management’, Excel Books, New Delhi, 2007,p.257.

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prospects and also the designing of the suitability of the product. The

marketing strategies should be designed for maximization of insurance gains

to the customers rather than minimization of insurance risk. It needs larger

investment of both time and effort besides talented marketing personnel as it

is a difficult job to undertake.

The marketing of life insurance is universally considered a matter of

highest priority at all levels in different institutions. New marketing methods

occupy a significant place among top management intelligentia. These include

an aggregation of the salesmanship of the marketing personnel and the

professional approach to the marketing problems by the top management. It

should contemplate the concept of insurance positively by convincing the

customers to make their life happier. Buying insurance by a customer needs

to be a matter of their longevity. The insured will be understood through

marketing that life is not about how many years he lives but about how he

lives is of paramount importance.

There is no product differentiation in insurance business. One company

offers today may be offered by some other company tomorrow. To reduce the

level of competition among insurance companies, the insurers have to stand

efficiently in the area of communicating their products early to the customers

through insurance marketing.

The liberalization of Indian life insurance sector has created many

changes in the market place. This results in massive inflow of foreign brands

and also a revolutionary change in the consumer behavior. These changes

require a movement of the insurance sector from production-driven marketing

to the professional marketing. The market development taken place by

liberalization results in many changes in the intermediary role of the

distribution channels. The insurance arena has been shifted to a market-

oriented environment and hence the insurance system has been adjusted to

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the new changes and also major challenges of insurance distribution. Focus

on the distribution channel is an important pre-requisite to an efficient sale of

insurance product.

The Indian insurance industry has been strongly growing for the last

few years. To ensure improved penetration of insurance, the distribution

system of insurance has to be more focused. And also the well established

training and educational organizations should play a significant role in

educating and motivating people. This provides good opportunities to improve

the delivery mechanism and also tap the vast market. Marketing requires

intriguing creative implying updating knowledge on the markets with global

perspective which calls for availability of enough right data or information at

the hands of the operating offices. It needs appropriate comprehension of

markets2.

Insurance selling should not be regarded as a mere act of selling

insurance policies. But, it must be regarded by the policyholders as a habit of

buying insurance policies to protect the health and assets of their families at a

later date. Hence, the goal of distribution management is to maximize sales,

attract maximum market share, tap new markets, find out the customer needs

and preferences and above all promote customer satisfaction.

ROLE OF DISTRIBUTION

Distribution of insurance products and efficient service delivery has

been an important element of insurance business. The development taken

place in the insurance sector is made possible only with the efficient role

played by the distributors in delivering insurance products. A significant

feature of the complete process of distribution and service delivery of

insurance product is that the multiple distribution channels have yielded many

service benefits not only to the company but also to customers. The process

2 Satish S.V. ‘Life Insurance Marketing – A Phenomenon’, Southern Economist, February15, 2009, p.37.

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of channel diversification and expansion has accelerated in India since

insurance liberalization. Many insurers have intensified their efforts for

establishing and developing cost-efficient and result-oriented distribution

strategies.

Due to the emerging convergence and globalization, the entire

insurance industry is undergoing rapid changes. The lower middle class

customers are more concerned with savings and consequent tax planning and

hence rely on insurance. Brokers, agents, direct agents and bancassurance

offer good services to these customers. The rural and semi-urban customers

are generally the average working class population. They can afford to save a

little amount. They have little knowledge of insurance. Only agents can reach

these customers.

The corporate customers and institutional investors are interested in

liability insurance, group insurance and healthcare insurance. They are largely

situated in metropolitan centers and cities. They required altogether a different

distribution strategy. Most of these customers are cost-conscious and well-

informed. Corporate agents, brokers and direct marketing are ideally suitable

to attract these customers.

Consequently from a single channel industry i.e., the individual agent,

the industry, at present, has embraced a few well established channels and

continues to experiment with a few more. In the light of severe competition

amongst insurers, the new distribution strategies require complete

professionalism and flexibility towards facing marketing challenges. A well-

trained and plain-speaking distributor has the ability to be the best brand

ambassador for any insurance player. Market expansion, consumer loyalty,

consumer preferences and competition amongst life insurers will initiate

innovations in the distribution segment. This ensures good capacities and

capabilities on the part of distributors so that there are no practices of mis-

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selling and misrepresentation of the facts. Although there is discernible

difference in the marketing styles of the present day insurers, a great

qualitative improvement is yet to be perceived. The marketing initiatives of the

new companies have certainly helped to enhance insurance awareness in the

country.3

Insurance is a business of keeping people’s hopes, aspirations and

expectations through a life insurance contract. It is more important for

insurance companies to be transparent at the time of selling. The policy

documents should be as simplified as possible with minimal fine print4.

The distributor is the first line representative of the life insurance

company and assumes greater responsibility in initial underwriting of the

policies. The distributor should understand the needs of the prospective

customer and recommend suitable policy that satisfies his needs. As a result,

the business retention ratios will improve and the persistency ratio will

increase. The distributor is well trained and equipped in identifying properly

the needs of the customers. He requires to be well-versed in all matters

relating to his job for favour of a proper matching between the needs of the

customer and also the service delivery.

A distributor is the vital link in the policy life cycle. His role begins the

time he starts prospecting till settlement of claims. A life insurance agent is

the key distributor. However, insurance brokers and other intermediaries also

play a key role in this process5. The insurers, at present, require immense

distribution strength and tremendous manpower to reach out to the present

huge customer base available for insurance service in our country. The future

of distribution for insurance products is a ‘brave new world’ and it will require

3 David Chandrasekharan, “Marketing of Life Insurance – Have Things Really Changed?”,IRDA Journal, May, 2009, p.18.

4 Anjana Agarwal, ‘Emphasis on Trust – Grievance Management in Insurance’, IRDAJournal, October, 2011, p.28.

5 Baradhwaj, C.L., ‘Arresting the Trends – Frauds in Insurance Industry’, IRDA Journal, June,2011, p.29.

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both courage and judgment to lead an organization into the rapidly unfolding

realm of possibilities6.

The insurance companies have to concentrate mostly on non-

traditional and more innovative channels and also multi-level delivery

systems. Under these systems, like in the West, the customers can buy an

insurance product from any bank, mall, post office, internet cafes, etc. The

distribution systems have been influenced significantly by cost pressures.

Besides, competition for saving amounts of the consumers is also intensifying.

An efficient and effective distribution strategy for life insurance products

should also be mostly customer-centric. It should represent both the customer

and the company goals.

Customer retention marketing is a process whereby marketers look at

building a long term association with their customers. This involves a

continuous process of interaction with the customer at any point of time. It

needs to understand the needs of the customers and provide products and

services accordingly7.

One of the major challenges of insurance marketing is to identify which

distribution method fits best and suitable to the business. The decisions

relating to distribution strategies must be made dependent upon what the

other insurers are doing. It is very common that every business insurance

prospect expects to receive customized service from his insurer. But, busy

agents can hardly afford any time or expense to present an individualized

proposal each time. A little extra care and attention to some often overlooked

talents can fill this gap and guide the insurer close to the sale8.

6 Chari, V.G. “Insurance – A Re-look at the Distribution Strategy’, Insurance Chronicle,March, 2005, p.31.

7 Teena Makhija, ‘Retention Marketing – The Key to Business Performance’, The Journal ofInsurance Institute of India, Mumbai, January-June, 2008, p.55.

8 Shulman, Allen L., ‘Nine ways to get personal when selling Business Insurance’, InsuranceChronicle, March, 2005, p.40.

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Most of the private insurers are very much trying for a right channel mix

for reaching the potential customers. It is the distributor who makes the

difference in terms of the quality of advice for choice of product, after-sale

service and settlement of claims. The distributors should become trusted

financial advisors for the customers and trusted associates for the insurers.

The new companies are looking for well educated, knowledgeable

individuals with an interest in insurance marketing. At present, insurance

companies are moving from merely selling insurance to marketing an

essential financial product. New players are finding expensive and time-

consuming to bring up a distribution network of good and cost effective

standards. Usage of alternate channels will help, to some extent, bring down

the costs of distribution and thus, benefit the customers and insurers both.

Channel conflicts may arise in some cases. But, those must be

regulated to the best advantage of the customer and the insurer. The

distribution strategy can’t be taken up in isolation. Major elements like, the

organization structure, systems, processes, employees, organizational

cultures are to be taken care of by the insurer for designing the distribution

strategy. The insurance companies consider this distribution channel

profitable due to low customer acquisition cost, quicker reach to untapped

markets, introduction of innovative products and administrative convenience

and suitability. The quality of service rendered by the distributor should be

made the key parameter for efficient distribution management and also

persistence.

INSURANCE ADVERTISING

At present, insurance advertisements take up a lot of space in

television or print media. The emphasis on insurance advertising is on

creative and accent on awareness. The communication in advertising is

modern, young, approachable and conveying the difficult product offering. The

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insurance selling activity usually reaches a peak around March and it needs to

be taken into account by the insurers in spending marketing budget on

insurance advertising. The visual is always more effective and universal.

The ICICI Prudential is the first private insurance company to recognize

and use the power of TV advertising with its ‘Sindoor’ campaign in 2001. The

retirement solution campaign of the company with the tagline ‘Retire from

work not life’ also has attracted a good number of customers.

SBI life has 63 per cent business coming from bancassurance. Its

advertisements are mostly confined towards saying people that they can buy

insurance from the bank. Their advertisements consist of branch

merchandising. It is more about point-of-purchase type of advertising. LIC has

contemplated celebrity marketing – a segment noted for the presence of high

net worth individuals. Life insurance products have accounted for about 88

per cent of overall insurance advertising expenditure with Life Insurance

Corporation topping the list of advertisers.

LIFE INSURANCE OFFICES AND THEIR DISTRIBUTION

The growth of the life insurance industry is mainly influenced by the

rapid pace of insurance spread and reach to the common man. This is more

reflected by an increase in the number of insurers during the last decade.

Each insurer uses to cover many parts of the country. This expansion is clear

from the number of life insurance offices established during the period9.

Table 6.1 gives information on the number of life insurance offices both

in the public and private sector units during the years 2000-01 to 2009-10. It

may be observed from the Table that there is an increase in the number of

offices established by both the sectors. There is a consistent increase in the

offices of the LIC. But, with regard to the private players, the increase in the

9 As on 31st March, 2011, there are 24 life insurance companies in the country with a totalbranch network of 11,465.

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number of offices has registered a rapid pace. With the old guidelines on

ULIPs, many private companies did 90 to 95 per cent of their business on

ULIPs. Only a small and a negligible percentage of the total business is done

on traditional policies. This is also made possible because of a significant

increase in the number of private players who have entered into the insurance

market over a period of time.

The total number of offices has increased dramatically during 2007-08

showing a growth rate of 65.88 per cent. A major portion of this expansion is

in the private sector whose offices have been doubled i.e. from 3072 to 6391.

But, with regard to an increase in the offices of LIC, there is a modest and

stable increase of around 10 per cent i.e. from 2,301 to 2,522 offices. But,

during the years 2008 to 2010, the private insurers had to close down some of

their offices as a measure of rationalization and reduction in their operating

expenses. The negative growth rate is recorded with regard to private life

insurance offices during 2009-10, i.e. -0.19 per cent, as the IRDA has

formulated new guidelines on ULIPs and this has made the private players to

restrict their business as ULIPs are not profitable to them.

The agents are also not willing to sell more ULIP policies as their

commission rates have been significantly decreased by the Regulator. As

there is a spur in the ULIP business of the private sector insurance units,

there is a need to rationalize branch net work and hence, some branches by

the private players had to close down some of their operations. As there is a

consistent business on both the traditional and the ULIP policies by the LIC,

the new guidelines on ULIPs have not much impact on its total business and

no such rationalization of branch network entertained by the private insurers is

needed by the LIC.

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As regards the market share of life insurers in the total number of life

insurance offices, the private players’ share has increased from 0.59 per cent

to 72.96 per cent and the LIC’s share has declined from 99.41 per cent to

27.04 per cent during the period. Over the earlier years, the number of offices

of private insurers has almost doubled. Their market share in the total number

of life insurance offices established has increased from 0.59 per cent in 2000-

01 to 72.96 per cent in 2009-10. But, the LIC’s share has declined from 99.41

per cent to 27.04 per cent during the period.

Table 6.1

GROWTH RATE AND MARKET SHARE OF LIFE INSURANCE OFFICESOF LIFE INSURERS DURING 2000-01 TO 2009-10

YearLIC Private Sector Total

Number % Number % Number %

2000-01 2,186 99.41 13 0.59 2,199 100.00

2001-02 2,190(0.18) 94.97 116

(792.31) 5.03 2,306(4.87) 100.00

2002-03 2,191(0.05) 89.61 254

(118.97) 10.39 2,445(6.03) 100.00

2003-04 2,196(0.23) 84.07 416

(63.78) 15.93 2,612(6.83) 100.00

2004-05 2,197(0.05) 73.21 804

(93.27) 26.79 3,001(14.89) 100.00

2005-06 2,220(1.05) 57.44 1,645

(104.60) 42.56 3,865(28.79) 100.00

2006-07 2,301(3.65) 42.83 3,072

(86.75) 57.17 5,373(39.02) 100.00

2007-08 2,522(9.60) 28.30 6,391

(108.04) 71.70 8,913(65.88) 100.00

2008-09 3,030(20.14) 25.65 8,785

(37.46) 74.35 11,815(32.56) 100.00

2009-10 3,250(7.26) 27.04 8,768

(-0.19) 72.96 12,018(1.72) 100.00

Note: Figures in brackets are annual growth rate percentage% indicates market share of the insurers

Source: Compiled from the Annual Reports of IRDA

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Statistical Analysis:

i. Mean, Standard Deviation and Skewness

Particulars LICGrowth Rate

Private SectorGrowth Rate

LICMarket Share

Private SectorMarket Share

Number of YearsMeanStandard DeviationVarianceSkewnessRangeMinimumMaximum

94.706.7745.881.7620.090.0520.14

9156.11241.58

58360.732.85

792.50-0.19

792.31

102428.30392.27153875

1.60106421863250

103026.403595.50

129276420.948772

138785

The above table indicates that the average percentage growth rate of

life insurance offices for LIC during 2001-10 is 4.70 and the Private Sector is

156.11. It shows that the average number of life offices of Private Sector is

higher than LIC. The standard deviation for LIC is 6.77 whereas Private

Sector is 241.58. It connotes that LIC has stability and consistency in

establishing offices over the Private Sector. The positive skewness values are

1.76 and 2.85 for LIC and also for Private Sector and the growth rates of

which are stated positively skewed distributions.

As regards market share, it presents that the average number of life

insurance offices for LIC is 2428.30 and Private Sector is 3026.40. It shows

that the average market share of Private Sector is higher than LIC. The

Standard deviation for LIC is 392.27 whereas Private Sector is 3595.50 during

the period. It shows that there is stability with regard to market share of the

LIC rather than Private Sector. The positive skewness values of LIC and

Private Sector, i.e., 1.60 and 0.94 indicate that their market shares are

positively skewed distributions.

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The relevant line graphs of the growth rate and market share of the LIC

and Private Sector are given below:

Figure A: Line Graph of Growth Rate of LIC and Private Sector

Figure B: Line Graph of Market share of LIC and Private Sector

ii. Regression Analysis

Market Share

Dependent Mth Rsq F Sigf b0 b1

LIC Sector LIN 0.666 15.97 0.004 -209656 105.752

PRIVATE Sector LIN 0.834 40.26 0.000 -2172296.90 1084.68

Independent Variable: Year

YEAR

2010

2009200

8

2007200

6

2005200

4

2003200

2

2001

Number ofInsuranceOffices

900080007000600050004000300020001000

0

LIC

PRIVATE SECTOR

YEAR

201020092008200720062005200420032002

Growth Rate(Per cent)

1000

900

800

700

600

500

400

300

200

100

0

-100-200

LIC

Private Sector

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Regression Equations

a) The linear trend forecasting equation is

LIC (Market Share) = - 209656 + 105.752*Year

The regression coefficients are interpreted as follows:

The Y intercept b0 = - 209656 is the fitted trend value reflecting the

predicted mean of life insurance offices for LIC during 2001-2010.

The slope b1 = 105.72 indicates that the life insurance offices are

predicted to increase by an average of 105.72 offices per year.

The significance value of F(0.004) is smaller than 0.05. Then the

independent variable(Time: Year) do a good job explaining the variation in the

dependent variable (LIC Market Share).This table displays R squared (0.666).

It is the proportion of variation in the dependent variable (LIC Market Share)

explained by the independent variable (Year) in the regression model.

b) The linear trend forecasting equation is

Private Sector (Market Share) = - 2172297 + 1084.68*Year



predicted mean of life insurance offices for private sector during 2001-

2010.

The slope b1 = 1084.68 indicates that the life insurance offices are

predicted to increase by an average of 1084.68 offices per year.

The significance value of F (0.000) is smaller than 0.05. Then the

independent variable( Time: Year) do a good job explaining the variation in

the dependent variable (Private Market Share).This table displays R squared

(0.834). It is the proportion of variation in the dependent variable (Private

Sector Market Share) explained by the independent variable (Year) in the

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regression model. Hence, it is clear that for both the sectors, the significance

value is less than 0.05 and the ‘R’ squared value is close to 1.

Figure C: LIC Market Share Regression Plot

Figure D: Private Sector Market Share Regression Plot

The above Regression Plots clearly show that the LIC and Private

Sector are fitted to the linear mathematical model. The observed figures are

closely related to the linear trend values. To reach the linear mathematical

line, both the insurers have to maintain an increase, on an average, 106

offices for LIC and 1085 offices for Private Sector in future every year.

Another remarkable feature for the life insurance offices is their

distribution over different areas of the country. The growth in life insurance

offices is observed to be not confined mainly to metropolitan centers and

Year

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

Number of InsuranceOffices

10000900080007000600050004000300020001000

0

-1000-2000

ObservedLinear

Year

2010200920082007200620052004200320022001

Number ofinsurance Offices

34003300

3200310030002900280027002600

25002400230022002100

200019001800

Observed

Linear

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cities. The insurers have opened their branch offices in semi-urban and rural

areas as a way to spread insurance service to these areas. This indicates

clearly that the insurance industry has widely campaigned the insurance

service in all areas and developed accordingly.

Table 6.2 shows the details on the area-wise distribution of life

insurance offices as on 31st March, 2010. The total number of offices

established by the life insurers is 12,018. Out of which 8,768 offices are

established by the private sector insurers and the remaining 3,250 offices are

established by the LIC. As regards the number of offices established in metro

and urban areas taken together, both the public and private sector players

spread only a 28 per cent their branches. But, there is an increase in the

number of offices in semi-urban and rural areas of both the sectors of the

insurance players mainly to tap the insurance market in these areas.

Consequently, around three-fourths, i.e. 72 per cent of the branches are

established by the LIC and also the private sector units in these areas.

Further, for meeting competition from the public sector giant, LIC and also for

promoting the business in untapped areas, the private sector insurers also

have established a good number of branches in semi-urban and rural areas.

Table 6.2

AREA-WISE DISTRIBUTION OF LIFE INSURANCE OFFICESAS ON 31ST MARCH, 2010

AreaLIC Private Sector Industry

No. ofoffices

Percentageto total

No. ofoffices

Percentageto total

No. ofoffices

Percentageto total

Metro 347 10.68 897 10.23 1244 10.35Urban 550 16.92 1555 17.73 2105 17.52

Semi-Urban 923 28.40 3607 41.14 4530 37.69Rural 1430 44.00 2709 30.90 4139 34.44

TOTAL 3250 100.00 8768 100.00 12018 100.00

Sources: IRDA Annual Report, 2009-10

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INDIVIDUAL AGENTS

The agents, a traditional and a customary form of insurance

distribution, are proved to be very useful in building long-term relationships

with the customers and occupied a major share of the total insurance market.

They contribute significantly to its growth by making the insurance services

available to every nook and corner of the country. With a gigantic strength of

agents, the life insurance industry is the only financial wing to reach a good

number of villages in the country. There are over 30 lakh agents who are

active and these agents contribute to about 80 percent of the insurance

industry’s sales.

The insurance agent has been the bedrock in the marketing of life

insurance. He has been the link between the insurer and the insured. He has

the prime duty of explaining the concepts, terms, conditions and benefits of

taking an insurance policy. He has to identify the needs of the customers and

select the suitable insurance products to them. All insurers have recognized

the importance of agency network and they are encouraging professionalism

and greater competency among agents.

Under Sec.2(10) of the Insurance Act, 1938, an insurance agent

means an agent licensed under section 42 who receives or agrees to receive

payment by way of commission or other remuneration in consideration of his

soliciting or procuring insurance business, including business relating to the

continuance, renewal or revival of policies of insurance10.

The code of conduct for agents makes its clear that his role is not

confined to soliciting and procuring insurance business for his company. He

has to service the policies sold by him. With many life insurance companies

operating in the market and selling almost similar products, the most

distinguishing factor of the companies is the competency level of the agents.

10 Shri Krishna Laxman Karve, ‘Principles of Life Insurance’, Himalaya Publishing House,Mumbai, 2009, p. 94.

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Hence, agents’ training and development occupies a prominent place for

increasing their competence.

To accomplish the responsibility of educating and training of agents,

most insurance companies have a highly organized training and development

programme. The training programme covers IRDA regulations and the

strategies used to protect against risk. During the programme, trainers and

managers are equally responsible for a new agent’s development. The

curriculum is mostly designed to develop positive habits that form the basis of

success of these programmes. The best practices and also the sales

practices of the insurance industry form the basis of the curriculum. An agent

requires to provide a good advice to the customer. He has to offer competent

and professional advice right from tax planning to investment in insurance.

The Life Insurance Market Research Association (LIMRA) is the best

known international organization aimed at supporting and improving the

marketing function of life insurers through research. The certificate

programmes are available for agents and managers. The 100-hour training

agenda is only a one-time intervention. In many cases it is not sufficient to

meet the ongoing training needs. The agent is a self-disciplined, self-

motivated and an independent operator. He has to be well-equipped with the

best practices of training and knowledge and adequately backed up by life

insurers’ commitment to strengthen the marketing channel. He has to

transform himself from a sales advisor to a financial expert.

The nomenclature of insurance agent is changed as an insurance

advisor with changing times. He has a prominent role in our society. The

prescriptions of the regulator, like imparting training, code of conduct for the

agents, etc. is to be implemented in its true spirit at all levels in the best

interests of the industry. Some sort of self-discipline and regulation among all

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the existing agents is very vital and this can be made possible by giving them

suitable periodic training.

There has been a lot of change in the approach of the insurance agent.

The agent in the past established informal contacts with potential buyers and

mostly depended on referrals from friends and family members. But, the new

age and professionally-dominated companies insist on professional and often

aggressive measures on the part of the sales personnel. The agent should be

a man of trust and confidence for both the parties. The insurer appoints

agents mainly to create business based on the varied advantages of different

insurance products.

The average attrition rate among insurance agents in our country is

nearly 50 per cent. The primary cause for this high attrition is the large-scale

poaching in a competitive insurance environment. While agents are an

integral part of the company, the agent attrition causes greater inconvenience

not only to the customers but also to the industry. For life insurers a high rate

of attrition amongst agents is a significant challenge. The high attrition is a

result of a short-term approach. Very often, people who have an immediate

set of references are recruited and licensed as advisors. But, a lesser thought

is given to whether they will consider insurance sales as a long term career

option11.

Further, many agents join the insurance agencyship with enthusiasm

and anxiousness. Once the potential customers such as close relatives,

friends and neighbours are exhausted, meeting the minimum requirement of

bringing insurance business proves very difficult. When the rejection starts,

the new agents have to face hardship and failure. Then, the attrition of agents

begins. Sustenance of agencyship requires constant networking and acquiring

new relationships regularly for his business. This requires a lot of discipline.

11 Shanai Ghosh, ‘Persistency Challenge – The Bottoms-up Approach’, IRDA Journal,September, 2011, p.21.

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Insurance companies believe that adequate training to agents will help in

solving the problems in some measure.

As the agency network is a dominant distribution channel, the life

insurance industry places a very high emphasis on improving knowledge,

productivity and retention of agents. This network plays an important role in

creating awareness, motivating purchase and rendering other important

insurance services. New players also need support of at least a limited

agency or advisory network for their service delivery.

In many cases, the agent had not misinformed the customer, but did

not explain the implications of the policy terms. This results in unethical

practices at the bottom level. The gap between customer needs and their risk

management through insurance can be filled by ethical practices of agents

and other sales personnel.

Traditionally, the life insurance industry depends mostly on the agency

distribution force. Most of the companies follow the traditional route of

marketing through agents. In case of private insurers, their nomenclature is

changed and called insurance advisors. The success of LIC with its agency

network is proved exemplary.

Table 6.3 shows the information on the growth rate and market share

of the number of individual agents of life insurers during the years 2000-01 to

2009-10. The year 2002-03 has an abnormal growth rate in the number of

agents in both the sectors. As the authorities have granted licenses to agents

to operate in the rural areas, there was a significant growth of insurance

business in the country and provided lucrative employment opportunities to

the youth of the country. But, there was a negative growth rate in the number

of agents in 2004-05 due to the reason that the IRDA issued revised

guidelines for licensing of individual agents. Some restrictions were placed by

the regulator on the recruitment of agents and also their on online training. As

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on 31st March, 2010, there were about 30 lakh agents registered with the life

insurers. LIC had over 14 lakhs and the private companies had about 16

lakhs.

Table 6.3

GROWTH RATE AND MARKET SHARE OF THE NUMBER OF INDIVIDUALAGENTS OF LIFE INSURERS DURING 2000-01 TO 2009-10



2000-01 1,12,978 97.63 2,737 2.37 1,15,715 100.00

2001-02 4,42,680(291.83) 92.82 34,222

(1,150.35) 7.18 4,76,902(312.13) 100.00

2002-03 9,47,405(114.02) 91.20 91,397

(167.07) 8.80 10,38,802(117.82) 100.00

2003-04 13,41,597(41.61) 86.18 2,15,220

(135.48) 13.82 15,56,817(49.87) 100.00

2004-05 3,53,634(-73.64) 73.48 1,27,616

(-40.70) 26.52 4,81,250(-69.09) 100.00

2005-06 4,72,002(33.47) 65.42 2,49,478

(95.49) 34.58 7,21,480(49.92) 100.00

2006-07 11,03,047(133.70) 55.34 8,90,152

(256.81) 44.66 19,93,199176.27) 100.00

2007-08 11,93,744(8.22) 47.36 13,26,748

(49.05) 52.64 25,20,492(26.45) 100.00

2008-09 13,44,856(12.66) 45.78 15,92,579

(20.04) 54.22 29,37,435(16.54) 100.00

2009-10 14,02,807(4.31) 47.10 15,75,476

(-1.07) 52.90 29,78,283(1.39) 100.00



274





LICMarket Share


Number of YearsMeanStandard DeviationSkewnessRangeMinimumMaximum

962.91

105.441.29

365.47-73.64291.83

9203.61366.74

2.651191.05-40.70

1150.35

10871475

480461.24-0.39

1289829112978

1402807

10610563

664795.250.69

15898422737

1592579

The above table shows the average percentage of growth rate of

number of individual agents of LIC during 2001-10 which is 62.91. For Private

Sector, it is 203.61. It indicates that the average percentage of growth rate of

individual agents for Private Sector is higher than the LIC. The standard

deviation for LIC is 105.44 whereas Private sector is 366.74. It shows that the

LIC has stability in the appointment of individual agents. The positive

skewness values of LIC and Private Sector are recorded as 1.29 and 2.65

and hence their growth rates are stated positively skewed distributions.

The average number of individual agents of LIC is 871475 and the

Private Sector is 610563. It shows that the Private Sector average market

share is higher than LIC. The standard deviation for LIC is 480461.24

whereas Private Sector is 664795.28. It is meant that both the sectors are

having relatively the same position with regard to their stability in the market

share. A negative skewness value, i.e., -0.39 indicates that the LIC’s market

share is negatively a skewed distribution. A positive skewness value of 0.689

indicates that the Private Sector’s market share is a positively skewed

distribution.

275




Figure B: Line Graph of Market share of LIC and Private Sector


Market Share


LIC Sector LIN 0.502 8.08 0.022 -224693867.90 112473.37

PRIVATE Sector LIN 0.849 45.05 0.000 -405187935.10 202342.81


Year

2010

2009200

8

2007200

6

2005200

4

2003200

2

2001

Number ofInsuranceAgents

20000001750000150000012500001000000750000500000250000

0

LIC

Private Sector

Year

201020092008200720062005200420032002

Growth Rate(Per cent)

14001300120011001000

900800700600500400300200100

0-100-200

LIC

Private Sector

276



LIC (Market Share) = - 224693867.90 + 112473.37*Year


The Y intercept b0 = - 224693867.90 is the fitted trend value reflecting

the predicted mean of the number of individual agents of LIC during

2001-2010.

The slope b1 = 112473.37 indicates that the number of individual

agents are predicted to increase by an average of 112473.37 agents

per year.

The significance value of F (0.022) is smaller than 0.05. Then the




explained by the independent variable (Year) in the regression model.


Private Sector (Market Share) = - 405187935.10 + 202342.81*Year


The Y intercept b0 = - 405187935.10 is the fitted trend value reflecting

the predicted mean of the number of individual agents of Private Sector

during 2001-2010.

The slope b1 = 202342.81 indicates that the number of individual

agents are predicted to increase by an average of 202342.81 individual

agents per year.





277


regression model. Hence, it is clear from the regression analysis that both the

sectors have contributed a significance value which is less than 0.05 and the

‘R’ squared values are close to 1.

Figure C: LIC Market Share Regression Plot

Figure D: Private Sector Market Share Regression Plot

The above Regression Plots show that the LIC and Private Sector are

fitted to the linear mathematical model since the figures observed and

collected are closely related to the linear trend values. To reach the linear

mathematical line, both the LIC and Private Sector insurers have to maintain,

Year

2010200920082007200620052004200320022001

Number ofInsuranceAgents

2000000

1500000

1000000

500000

0

-500000

-1000000

Observed

Linear

Year

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

Number ofInsurance Agents

160000015000001400000130000012000001100000100000090000

0800000700000600000500000400000300000200000100000 0

ObservedLinear

278

on an average, an increase in the number of individual agents by 112473 and

202343 respectively per year to maintain stability in business.

The performance of an agent is reflected by his new business

performance. Table 6.4 shows information on the new business performance

by individual agent during 2003-04 to 2009-10. Over the years, there is a

significant shift away from the individual agency channel. This is made

possible because of the emphasis given by the insurers on alternate

channels. The new business premium procured through individual agents has

come down to 79.61 per cent in 2009-10 from 95.32 per cent in 2003-04. But,

the share of individual agents in the new business premium of LIC has come

down marginally from 99.78 per cent in 2003-04 to 97.75 per cent in 2009-10.

It is very clear from the Table that in LIC, the role played by the individual

agents in new business performance is significantly dominating. But, in private

insurance companies, the earlier share of the individual agents in the new

business, at present, is shared by the corporate agents and through direct

selling. But, the private insurers’ share was recorded as 68.80 per cent in

2006-07 due to the reason that the private players have been providing added

value to individual agents as a way to expand the market initially.

Table 6.4NEW BUSINESS PERFORMANCE BY INDIVIDUAL AGENT

DURING 2003-04 TO 2009-10(in Percentage)

Year LIC Private Sector Total2003-04 99.78 60.39 95.322004-05 98.79 59.30 88.652005-06 98.37 59.71 85.672006-07 97.28 68.80 88.622007-08 98.36 59.81 83.752008-09 97.34 54.94 79.572009-10 97.75 50.67 79.61

Source: Compiled from the Annual Reports of IRDA.

279

MDRT

The Million Dollar Round Table (MDRT), an international association of

life insurance and financial services professionals, was established in 1928

and has got members from all over the world.

The MDRT membership has got tremendous value as it helps

insurance advisors and consultants to build trust and bonds with customers,

acquire new capacities and capabilities and also use the MDRT Logo. The

members have good interaction with other high performing insurance agents

across the world and share experiences. But, a high registration fee and low

awareness are the major hurdles to increased membership. Some insurers

sponsor only a few of their top agents by paying the membership fees and

sponsoring the trip to the USA for attending the international convention.

The MDRT qualification is the highest honour for insurance agents and

the qualified agents can participate in the World Conference to be held in the

US in June. The five-day convention is slated for June at California. Though

thousands of agents qualify for the MDRT, a small number of agents attend

the convention every year. They were denied visas for attending the

international convention due to several reasons. Further, the costs are also

too high. The MDRT membership of the insurance agents created an

atmosphere of self-education by the agents and it is an encouraging trend

towards informed selling and marketing methods.

SBI life insurance has been ranked number-1 life insurer across the

globe for the year 2010 by the MDRT members. This is the second

consecutive year in which the company has stopped MDRT. In 2010, SBI life

has 2,904 MDRT members, up from 2,677 in 2009. SBI life is followed by the

US’ New York life and Korea’s Samsung life insurance in the rankings. The

LIC of India is ranked 4th with 1,218 members.

280

BANCASSURANCE

Bancassurance is meant selling insurance products in the banks under

a single window. In 1980, bancassurance started in France and spread its

wings over middle European countries and Asia. Bancassurance, a French

term, simply denotes using banking channels to sell insurance products. By

allying with a bank of good repute, the insurer can improve its own public

image. Bancassurance enables the insurer to establish a relationship early in

customer’s life, as individuals open bank accounts at a much earlier age than

they buy insurance12.

Bancassurance has played an enormous role in India as banks are

offered a fee-based income for selling insurance products in addition to their

responsibility. RBI and IRDA favoured bancassurance channel as many life

insurers are considering commercial banks as their main distribution channel.

This needs smooth flow of information between banks’ customer database

and insurance company. Bancassurance is a combination of banking and

insurance business. Bancassurance communication is expected to tangibly

increase in India. The tie-ups and post-liberalization of insurance companies

have increased its significance13. Private insurers have gained most from the

bancassurance channel which has played a significant role in the manner in

which insurance is sold.

Subsequent to the liberalization of the insurance sector, the IRDA

permitted in 2002 banks to enter the areas of bancassurance. On the

distribution side, a pure distribution tie-up with the bank by the insurance

company is considered as a corporate agent. This corporate agency model

enables the banks to earn higher incomes with very little investments like

12 Sreesha, Ch. and M.A.Joseph, ‘Bancassurance: A Case of SBI Life Insurance’, SouthernEconomist, May 1, 2010, p.21.

13 Ravi Kumar, V.V., ‘The Emerging Structure of Bancassurance in India’, InsuranceChronicle, December, 2005, p.35.

281

time, training and licensing. Hence, it is considered a profitable model for the

banks in India.

Bancassurance is an important distribution channel which is making

significant impact in terms of revenue to the company because this tie-up

ensures efficient distribution and delivery of the product at lower cost. Lower

operation and administrative cost of the insurers in bacassurance in

comparison with other channels was also the other factor for its higher

importance and persistency level. The sale of insurance products by banks is

proved more successful in the case of those banks that have an insurance

wing of their own that are marketing the insurance products.

The motives behind bancassurance vary. For banks, it is a means of

product diversification and a source of additional fee income. Insurance

companies see bancassurance as a tool for increasing their market

penetration and premium turnover. The customer sees bancassurance as a

bonanza in terms of reduced price, high quality products and delivery at

doorsteps. Actually, everybody can be a winner here.14 It would be a win-win

solution for all the stakeholders.

Bancassurance15 distribution, at present, is a well established

distribution phenomenon in the Indian life insurance market. After

liberalization of insurance sector, almost all banks, including private, public,

foreign, co-operative and regional rural banks have taken to distribute life

insurance products. Sales by banks have grown faster than other distribution

channels for private life insurers. The best practices in bancassurance

distribution are developing a long-term relationship between the bank and the

insurer and also evolving a joint ‘bancassurance vision’ and assume

14 Neelamegam, R. and Pushpa Veni, ‘Bancassurance – An Emerging Concept in India’, TheJournal of Insurance Institute of India, Mumbai, January-June, 2008, p.49.

15 The opposite of bancassurance is assurbanking. It is the sale of bank products,manufactured by the insurer’s own bank, through the insurer’s distribution channels. By andlarge, banks have been more active in insurance than the insurance companies intobanking.

282

ownership of the sales process by the bank and the insurer. Under this

distribution channel, the insurer makes use of the vast net worth of the bank

branches and its customer base which is very important raw material for life

insurance business.

At present, a bank is permitted to tie up with only one insurer each from

the life and non-life segments as a corporate agent. The IRDA is now likely to

take this up to two or more. The panel has recommended allowing each bank

to sell products of at least two life and two non-life insurers. From a bank’s

view point, the proposed move is likely to result in higher fee-based income.

This is a more commercial proposition for banks and insurance companies.

But, IRDA is very critical of banks with regard to welfare of policyholders. The

IRDA came out with draft guidelines for the bancassurance business, under

which insurance companies will be allowed to partner with different Banks and

Non-Banking Financial Companies in different States for selling their

products.

The success of bancassurance in India is that these banks need not

look outside their own captive customer base to sell insurance. Further banks

represent a symbol of faith and trust where the customer puts his hard earned

money. So, the same customer obviously trusts the bank for buying life

insurance16.

The proper implementation of bancassurance still faces some

problems such as poor manpower management, lack of sales culture,

insufficient product promotion and insufficient incentives. Commitment and co-

operation from the top management, understanding demand for new products

and being adjustable to changes, development of necessary skills and

expertise, best utilization of the existing customer base and imparting

16 Nalini Prava Tripathy, ‘Bancassurance in the New Millennium’ in Nalini Prava Tripathy andPrabir Pal, ‘Insurance Theory and Pracitce’, Prentice-Hall of India Private Limited, NewDelhi, 2007, p.145.

283

adequate training to bank people in selling insurance products are the

important contributing factors to the success of bancassurance in India.

A study titled ‘Lapsation and its impact on Indian Life Insurance

Industry’ conducted by the IRDA has revealed that bancassurance channel

has a higher level of persistency among all distribution channels employed by

private insurers. It has 53 per cent persistence rate. The vast reach, trust and

customer loyalty to a particular bank is behind the persistency rate in

bancassurance channel. The study has also revealed that the lapsation rate

was as high as 47 per cent in the life insurance industry.

Table 6.5 highlights information on the new business premium per

corporate agent (banks) during 2003-04 to 2009-10. The percentage share of

corporate agent (banks) in the new business premium increased marginally to

10.60 in 2009-10 as against 1.30 in 2003-04. Amongst other channels, banks

increased their share in new business premium from 10.57 per cent to 24.88

per cent underwritten by private insurers. The LIC has procured their new

business premium through banks marginally up to 1.64 percent from 0.11 per

cent during the period.

Table 6.5NEW BUSINESS PREMIUM PER CORPORATE AGENT

(BANKS) DURING 2003-04 TO 2009-10(in Percentage)

Year LIC Private Sector Total

2003-04 0.11 10.57 1.30

2004-05 0.87 15.42 6.41

2005-06 1.25 16.87 6.38

2006-07 1.24 16.58 5.46

2007-08 1.30 18.89 7.97

2008-09 1.70 20.78 9.69

2009-10 1.64 24.88 10.60


284

BROKERS

IRDA has created a new category of agents called brokers in terms of

IRDA (Insurance Brokers) Regulations, 2002. There are three types of

brokers. A direct broker arranges for the placement of insurance of clients

with insurers. He can be a composite broker also. A re-insurance broker

authorizes to place reinsurance business of insurers with re-insurer. A

composite broker authorizes to handle both direct and reinsurance business.

With the liberalization of the insurance sector, a new link to the present

distribution channel needs to be included i.e., the broker. He is an

intermediary who acts as a consultant to the customer in many areas like

identifying the risk needs of the customers, selecting the best product to meet

the needs of the customer, adopting the latest technology available in the

market, facilitating the consumers in the process of concluding the insurance

contract.

Broking companies are the institutional agencies. The companies

concentrate on the spread of life insurance policies. They work on similar lines

of direct marketing, mostly depending on the data base from referrals. Brokers

are permitted to sell products of more than one insurer. They play a very

important role both in selling life insurance products and also in servicing of

life insurance claims.

The brokers are not merely participating in the price but would need to

make quality submissions to the insurers conveying all the material and non-

material aspects of the risk to be covered. He can contribute more effectively

by collecting all the relevant information that will lead to the underwriter being

able to give an appropriate and fair rate. This will require the broker to

understand the clients’ requirement in totality. They help clients determine

their exposures and structure of their insurance programmes.

285

The role of the broker is to minimize clients’ risks and maximize their

insurance benefits. A broker should be empowered by sharing his pricing

strategy and underwriting requirements. Insurers do it by bringing in rating

closer to point of sales and through co-branded websites.

The agent and the broker are different. The agent acts on behalf of one

insurer and can only sell what his insurer has to offer, whereas broker acts on

behalf of his client. Broker is not tied to an insurer and can arrange the best

protection for customer at a competitive price with any insurer. In fact, broker

uses many insurers for the insurance program of his customer. In a way, he

gives the best and more suitable product to the customer.

Insurance brokers are professionals who assess risk on behalf of a

prospect, advise on the mitigation of that risk. They identify the insurance

policy structure and bring together the insured and insurers. The preparatory

work to insurance contracts is carried out wherever necessary and assistance

provided in the administration and performance of such contracts when claims

arise. With increased competition, insurance brokers have a greater

motivation to introduce new and innovative products, to be more responsive to

consumer needs and to deliver higher terms of quality services. Insurance

brokers introduce best practices in technical skills and products, training

programmes, systems and technology and managerial techniques. Our

country is still in an early stage of insurance of broking business. The players

have just started pushing themselves aggressively and emphasizing their core

strengths.

They have been given a wider array to display their professional

expertise in risk management, consultancy and claims advice to customers.

But, the biggest constraint compelling the brokers to die early is the provision

that brokers are not entitled to receive any fee from insurers other than the

prescribed brokerage. If any additional fee or any other remuneration is paid

286

to the broker by an insurer, it amounts to breach of the Section-42E of the

Insurance Act, 1932. If the fee is not allowed at least in claim consultancy

services, the bubble of success of insurance brokers may burst soon17.

The foremost important job of an insurance broker is to think about the

customer and to guide insurers to develop products that are meaningful and

attractive to the target customers. Broking in insurance will increase range,

mobility, integration and above all utmost good faith among parties in

insurance contract. Brokers need their mindset and expertise to become

accustomed to changing requirements.

Table 6.6 refers to a comparative analysis of the growth rate in the

number of registered brokers involved in insurance business during 2002-03

to 2009-10 between Andhra Pradesh and India. The total number of brokers

in India has been increased to 303 in 2009-10 from 40 in 2002-03, while in

Andhra Pradesh it was raised from 7 to 19 brokers during the period. The

growth rate declined during 2004-05 to 2005-06 in Andhra Pradesh as well as

in the country due to the reason that the Regulator assured the insurance

broking community that it would examine the 5 per cent discount currently

offered by insurers directly in favour of the corporate entities. It was a great

hindrance to the survival of many individual brokers. Brokers are permitted to

sell products of more than one insurer. There is likely to be a trend of

acquisition of small brokers by the larger ones and in the end, only those

brokers who learn the new rules of the game will only survive in future.

Ineffective market discipline is found an issue which is detrimental to the

growth of the insurance market. The total number of brokers in the country is

increased by over 7 times during the period.

17 Jagendra Kumar, ‘Success of Indian Insurance Brokers: A Bubble waiting to Burst’, TheJournal of Insurance Institute of India, Mumbai, January-June, 2007, p.14.

287

Table 6.6

GROWTH RATE OF REGISTERED BROKERS OF LIFE INSURERSDURING 2002-03 TO 2009-10 BETWEEN

ANDHRA PRADESH AND INDIA

Year Total Number of Brokers inAndhra Pradesh

Total Number of Brokers inIndia

2002-03 7 40

2003-04 12(71.43)

154(285.00)

2004-05 14(16.67)

195(26.62)

2005-06 15(7.14)

222(13.85)

2006-07 19(26.67)

258(16.22)

2007-08 19(0.00)

281(8.91)

2008-09 19(0.00)

296(5.34)

2009-10 19(0.00)

303(2.36)

Note: Figures in brackets are the annual growth percentagesSource: Compiled from the Annual Reports of IRDA

Table 6.7 gives information on the procurement of new business

premium by brokers during 2003-04 to 2009-10. The share of brokers in the

new business premium of the total industry has increased from 0.05 per cent

in 2003-04 to 1.38 per cent in 2009-10. The private players’ procurement of

new business through brokers has significantly gone up to 3.44 per cent in

2009-10 from 0.31 per cent in 2003-04. On the other hand, it may be

mentioned that the LIC did not procure more than one per cent of business

through this channel.

288

Table 6.7NEW BUSINESS PREMIUM PER BROKER

DURING 2003-04 TO 2009-10(in Percentage)


2003-04 0.02 0.31 0.05

2004-05 0.04 1.23 0.35

2005-06 0.06 0.83 0.31

2006-07 0.34 1.05 0.54

2007-08 0.05 1.5 0.6

2008-09 0.47 2.0 1.11

2009-10 0.09 3.44 1.38


CORPORATE AGENTS

Corporate agents work on similar lines of broking companies but

represent one life and one non-life companies. The corporate agency,

especially a bank seems to hold much promise. But, the full potential of this

distribution channel is yet to be fully tapped.

The corporate agents have the advantage of making use of their vast

network of resources to spread the message of insurance. There is no doubt

that the corporate agents have contributed a great deal to the visibility of

insurance in the country. The number of corporate agents has grown in recent

years. With a good number of locations and wider network of the people

289

assisting them, these entities have a different structure and purpose. They

assist greatly in the spread of insurance through the greater reach of the

institutions.

IRDA has stipulated a minimum tenure of 3 years for corporate agents

agreements with the right to either party to terminate the arrangement based

on a few pre-determined criteria. The bank terminating the relationship would

need to put an alternative system in place to service the insured customer to

the satisfaction of the IRDA.

Some corporate agents are utilizing the services of a large number of

unqualified people without requisite licence or certificate to procure insurance

business by passing on varying levels of commission to them.

The IRDA gets tough with corporate agents and insurers to carryout

inspection on their corporate agents to curb irregularities.

Table 6.8 indicates data on the growth rate and market share of the

number of corporate agents of life insurers during 2000-01 to 2009-10. In the

initial stages of the establishment of private sector units, the regulator has

been given licenses to the corporate agents as a way to develop insurance

business in the sector.

But, during 2005-06 and 2006-07, IRDA issued revised guidelines for

licensing of corporate agents in order to streamline the system of corporate

agents. As a result, the private insurers terminated a large number of

corporate agents as a way to fulfill the new regulations. But, LIC terminated

only a very less number of corporate agents.

The market share of corporate agents of private sector is 82.59 per

cent in 2009-10. The LIC’s share is only 17.41 per cent during the period.

290

Table 6.8

GROWTH RATE AND MARKET SHARE OF CORPORATE AGENTS OFLIFE INSURERS DURING 2000-01 TO 2009-10

Year

LIC Private Sector Total


2000-01 2 33.33 4 66.67 6 100.00

2001-02 20(900.00) 7.27 255

(6,275.00) 92.73 275(4,483.33) 100.00

2002-03 160(700.00) 21.14 597

(134.12) 78.86 757(175.27) 100.00

2003-04 602(276.25) 24.71 1,834

(207.20) 75.29 2,436(221.80) 100.00

2004-05 139(-76.91) 16.97 680

(-62.92) 83.03 819(-66.38) 100.00

2005-06 74(-46.76) 34.26 142

(-79.12) 65.74 216(-73.63) 100.00

2006-07 409(452.70) 17.67 1906

(1242.25) 82.33 2315(971.76) 100.00

2007-08 345(-15.65) 14.29 2,070

(8.60) 85.71 2,415(4.32) 100.00

2008-09 415(20.29) 16.56 2,091

(1.01) 83.44 2,506(3.77) 100.00

2009-10 510(22.89) 17.41 2,420

(15.73) 82.59 2,930(16.92) 100.00



291





LICMarket Share


Number of YearsMeanStandard DeviationVarianceSkewnessRangeMinimumMaximum

9248.09359.96

129574.470.95

976.91-76.91900.00

9860.212071.55

4291331.832.80

6354.12-79.12

6275.00

10267.60

214.92646193.16

0.190600

2602

101199.90943.77

890709.66-0.052416

42420

The above table indicates that the average percentage growth rate of

the number of corporate agents during 2001-10. It is 248.10 for LIC and the

Private Sector is 860.21. It shows that the average number of corporate

agents for Private Sector is higher than the LIC. The standard deviation for

LIC is 359.96 whereas private sector is 2071.55. It shows that LIC is relatively

stable and consistent in the appointment of corporate agents with regard to

growth rate.. The positive skewness values of both the insurers are 0.952 and

2.80 and hence their growth rates are stated positively skewed distributions.

The average number of corporate agents of LIC with regard to market

share is 267.60 and Private Sector is 1199.90. It means that the average

market share of corporate agents for Private Sector is higher than LIC. The

standard deviation for LIC is 214.91 whereas Private Sector is 943.77 during

2001-10. But, LIC has stability with regard to market share. A negative

skewness value i.e., -0.051 indicates that the Private Sector market share is a

negatively skewed distribution. A positive skewness value i.e., 0.190 submits

that the LIC’s market share is a positively skewed distribution.

292




Figure B: Line Graph of Market Share of LIC and Private Sector


Market Share (Dependent Variable)


LIC LIN 0.423 5.86 0.042 -92326 46.17

Private Sector LIN 0.655 15.22 0.005 -504903 252.36


Year

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

Number ofCorporate Agents

3000

2500

2000

1500

1000

500

0

LIC Market Share

Private Sector

Year

2010

2009

2008

2007

2006

2005

2004

2003

2002

GrowthRate (Percent)

7000650060005500500045004000350030002500200015001000500

0-500-

1000

LIC

PrivateSector

293



LIC (Market Share) = - 92326 + 46.17*Year



predicted mean of the number of corporate agents of LIC during 2001-

10.

The slope b1 = 46.17 indicates that the number of corporate agents are

predicted to increase by an average of 46.17 agents per year.





explained by the independent variable(Year) in the regression model.


Private Sector (Market Share) = - 504903 + 252.36*Year



predicted mean of number of corporate agents of Private Sector during

2001-10.

The slope b1 = 252.36 indicates that the number of corporate agents

are predicted to increase by an average of 252.36 corporate agents per

year.






294

regression model. It is therefore, to say that both the insurers have a

significance value which is less than 0.05 and the ‘R’ squared values are

close to 1.

Figure C: LIC Market Share of Regression Plot

Figure D: Private Sector Market Share of Regression Plot

The above Regression Plots clearly show that the LIC and Private

Sector are fitted to the linear mathematical model as the observed figures are

closely related to the linear trend values. To fit in the linear mathematical

model, both the insurers have to maintain an increase, on an average, 46.17

and 252.36 corporate agents every year respectively in future to ensure

further sustenance in the development of life insurance business.

Year

2010200920082007200620052004200320022001

Number ofCorporateAgents

3000

2500

2000

1500

1000

500

0

-500

-1000

Observed

Linear

Year

2010200920082007200620052004200320022001

Number ofCorporateAgents

700650600550500450400350300250200150100

500

-50-100

Observed

Linear

295

Table 6.9 shows information on the new business premium per

corporate agent (others) of the life insurance industry during 2003-04 to 2009-

10. The percentage share of corporate agents (others) has increased from

0.86 per cent in 2003-04 to 4.28 per cent in 2009-10. The private insurers

procured their business up to 10.28 per cent from 6.86 per cent during 2003-

04 to 2009-10. But, LIC procured only less than 1 per cent of new business

premium through this channel. It shows clearly that the corporate agents

(others) occupied a very important position and did a lot for developing

insurance business in the private sector.

Table 6.9

NEW BUSINESS PREMIUM PER CORPORATE AGENT(OTHERS*) DURING 2003-04 TO 2009-10

(in Percentage)


2003-04 0.09 6.86 0.86

2004-05 0.30 7.75 2.21

2005-06 0.32 8.92 3.15

2006-07 0.90 8.41 2.96

2007-08 0.29 11.03 4.36

2008-09 0.49 10.92 4.86

2009-10 0.52 10.28 4.28

* Any entity other than banks but licensed as a corporate agentNote: New business premium includes first year premium and singlepremiumSource: Compiled from the Annual Reports of IRDA.

REFERRALS

Referrals are a new concept very similar to getting a prospecting list

and lead to affect sales with customers. It is evident that in addition to bank,

there could be other entities which could act as a referral provider due to the

large database of the number of clients. The referral provider is not a licensed

296

intermediary but can be regulated by the IRDA through approval of the terms

of the agreement between the insurer and the referral provider. A referral tie-

up is an agreement between a bank and an insurer wherein the bank gives a

reference of prospective customers to the insurer. It is part of the

bancassurance.

The insurer would not be allowed to enter into a referral arrangement

with any bank which has been licensed by the IRDA to act as an agent or an

insurance intermediary. The arrangement between bank and insurer should

not be construed to have resulted into an agent-principal relationship between

the bank and insurer. The referral fee paid by the insurer to the bank should

be treated as acquisition cost and should be decided between the parties

under a written agreement. Referral providers promote the penetration of

insurance through provision of good prospecting list and the huge database.

A successful and intelligent insurer has a good number of referrals

under his ambience. The foundation and base for developing referrals are to

like and help people. Sustaining trustworthy relationships with the existing

customers and also potentials influence significantly in creating a good

referral base. Thus, building and developing relationships are very important

in almost all steps developing referral arrangements. The cost effectiveness

and conversion efficiency are also crucial in ensuring the success of referral

arrangements.

The approach of referral gathering is not a system in case of many

insurers. The insurers, generally, may get referrals by asking their customers.

But, by doing this, they are only scratching the surface of a high-quality

referral base. The understanding of the referral process and the way it works

is very necessary for the insurers to implement a total referral gathering

approach. The insurers should not ask for referrals and the referrals must

come to them by customers’ voluntary suggestions.

297

A successful life insurer needs a good number of referrals and the

method of creating a good referral is to like people. The methods of

developing creditable, trusting and fair relationships with the clients and the

insurers’ network of data base are the main factors for creating a good referral

base.

Table 6.10 analyses the information on referrals’ new business of life

insurance during 2003-04 to 2009-10. As the referral tie-ups of the insurers

have been progressing gradually and also very recently, their business

particulars are considered for only 7 years. It is observed from the available

figures that the share of referrals in the new business premium procured by

the private players is significant as compared to LIC. The private insurers

recorded a least 6.25 per cent business in 2004-05 and 9.27 per cent highest

business in 2008-09. LIC did procure business only during two years from

referral tie-ups during the period.

Table 6.10

REFERRALS’ INDIVIDUAL NEW BUSINESSDURING 2003-04 TO 2009-10

(in Percentage)


2003-04 0.00 7.50 0.85

2004-05 0.00 6.25 1.60

2005-06 0.00 7.06 2.32

2006-07 0.24 6.77 2.04

2007-08 0.00 7.79 2.95

2008-09 0.00 9.27 3.90

2009-10 0.18 7.95 3.13


298

MICRO INSURANCE AGENTS

Micro-insurance refers to insurance to the low-income people and a

low-value product. This needs a different design of the distribution strategies

such as premium based on community risk-rating and active involvement of

an intermediary. It is a young financial product. Demand is very strong and

indicative of a well-established insurance market at a later date.

In offering micro-insurance, micro-insurance agents are allowed to

carry out the collection of proposal forms, remittance of premium, settlement

of claims, nominations and policy administration services. The conventional

models may not be able to accomplish the desired target in the area of micro-

insurance. The intermediary may have to do the role of an integrated financial

advisor. 18

The Self-Help Group members get income by way of interest every

year. A part of this amount can be utilized by the members for buying

insurance products because they are prone to various risks.

Table 6.11 shows information on the growth rate and market share of

micro-insurance agents appointed by the life insurers during 2006-07 to 2009-

10. With the notification of IRDA (Micro-insurance) Regulations, 2005 by the

Regulator, there has been a steady growth in the design of products catering

to the needs of the poor and under-privileged. As the concept of micro

insurance agent is new as per the IRDA’s Regulations in 2005, only the

information for four years is considered. The number of micro insurance

agents as on 31st March, 2010 was 8,676, of which 7,906 were for the LIC

and 770 for the private sector companies. The number of micro insurance

agents is increased by 6.62 times in the insurance industry, i.e. 6.42 times in

LIC and 9.75 times in the private sector. It shows a significant increase in the

number of micro insurance agents in the industry. LIC contributed to a greater

18 Arman Oza, “Importance of Delivery Mechanism – Role in Micro-Insurance”, IRDA Journal,December, 2006, p.8.

299

extent to this increase. But, the response with regard to the sale of micro

insurance products by the private sector is not up to the mark. It is marginal

and meant only for fulfilling the regulatory obligations.

Table 6.11

GROWTH RATE AND MARKET SHARE OF MICRO-INSURANCEAGENTS OF LIFE INSURERS DURING 2007-08 TO 2009-10

(in Percentage)


Amount % Amount % Amount %

2006-07 1,232 93.97 79 6.03 1311 100.00

2007-084,166

(238.15)90.88

418(429.11)

9.124,584

(249.65)100.00

2008-096,647

(59.55)91.68

603(44.26)

8.327,250

(58.16)100.00

2009-107,906

(18.94)91.12

770(27.69)

8.888,676

(19.67)100.00



DIRECT MARKETING

Professionally qualified and adequately trained intermediaries will

emerge in insurance as competition is forced upon them. The role played by

agents is likely to be partly replaced by internet and e-commerce. Insurance

being opened up will use all the tools of new technology in its activities19.

19 Avadhani, V.A., ‘Marketing of Financial Services’, Himalaya Publishing House, Mumbai,2008, p.348.

300

Direct marketing is a company owned sales team concept. It is now

employed by a majority of the new players and has proved effective in

customer creation and retention. Under direct marketing, the insurance

products are marketed with little initial costs than the conventional marketing

mechanism. Direct marketing is one of the most successful channels of

distribution. It is a great way to reach a larger number of customers. So the

product should be sold through telemarketing or direct mail.

Telemarketing connotes marketing of insurance products through

telephone, generating leads through calls and forwarding leads to the main

sales team of the company. Under telemarketing, there is no direct contact

between the prospect and the insurance company. Retail chains also indicate

the cross selling of insurance products of different companies at retail outlets.

Internet marketing offers the internet based products of life insurance

to the customers. It also offers other facilities like suggestion of covers for

individuals, premium calculations, policy status and knowledge of new

products.

Table 6.12 shows figures relating to the information on new business

through direct selling by the life insurers during the years 2003-04 to 2009-10.

The share of direct selling procured in the new business premium

underwritten by the private insurers declined from 14.37 per cent in 2003-04

to 1.39 per cent in 2006-07. Later, the share has increased to 10.73 per cent

in 2009-10.

It is observed from the Table that LIC did not procure any business

through this channel. It has yet to make in-roads through this channel of

distribution to procure new individual business. It is understood that total

business procured by this channel belongs only to private life insurers.

301

Table 6.12

DIRECT NEW BUSINESS OF PRIVATE LIFE INSURERSDURING 2003-04 TO 2009-10

(in Percentage)

Year Private sector Total

2003-04 14.37 1.63

2004-05 10.05 2.58

2005-06 6.61 2.17

2006-07 1.39 0.38

2007-08 8.78 3.33

2008-09 11.37 4.76

2009-10 10.73 4.13

Source: Compiled from the Annual Reports of IRDA.MALLS

Mall assurance signifies the sale of insurance products at malls. It is

relatively more cost-efficient as it enables customer acquisition through low-

cost insurance products. Under this model, direct sales teams are involved

with a customer database of different malls. The sales teams convene

meetings with the mall customers and take measures to bring in insurance

business from them. It contributed to around 10 per cent of the insurers’

business. The brand power of the Future Group is leveraged in 170 malls and

mall assurance is a key to the expansion strategy of the Group.

e-SALES

The e-sales platform is an exclusive distribution channel and the

products can be brought only through the website of the company. The

products are to be marketed through online advertising. The customers can

apply online by seeing the advertisements and make payments using credit

cards or net-banking. As this marketing process is completely paperless, the

insurers have to keep the costs very low and making the premiums low. As a

result, the products are more attractive to a large number of customers.

302

MIS-SELLING

Mis-selling is a bane in insurance sector. There is a small section of

insurance agents who involved in such practices. But the problem in

insurance is that the consumer will know and feel the impact of such a mis-

sale only after 10 or 15 years or at the point of surrender or maturity.

Misrepresentation by agent to the customer on product features like

false guarantees on returns, not informing about additional charges etc.,

comes under mis-selling. With mis-selling, some policies are getting lapsed

and leading to surrender. Some policies were penalized with higher charges.

In order to appreciate the ethical values of insurance selling, one has to

accept the principle of utmost good faith. Ethics of undertaking a transparent

life insurance business needs that an insurance company should treat the

consumer in a fair and equitable manner and provide insurance cover at the

best possible premium rates.

Mis-selling is meant selling something which is not required by the

customer. The choice of sum assured, plan and term are all issues

determined by the agent leaving significant scope for mis-selling. Over-selling

and under IRDA has taken serious steps to curb the practices of mis-selling

by -selling are both examples of mis-selling.

IRDA has taken serious steps to curb the practices of mis-selling by

intermediaries. These include regulatory action against erring intermediaries

and also insurers. A Consumer Affairs Department is annexed to the

Regulator to monitor the customer complaints with regard to mis-selling. The

regulator is planning to formulate some additional disclosure norms to check

mis-selling of products by agents.

There is a lot that needs to be done to gain the confidence of the

average policyholder in order that the large number of consumer complaints is

reduced to the barest minimum. Financial products should not be sold on the

303

basis of emotional or celebrity appeal. This would also amount to mis-

selling.20

THE REGULATOR

The insurance regulator constituted a committee to examine the

functioning of the different distribution channels for insurance products in

2007. The terms of reference of the committee are to review the system of

licensing of the corporate agents, their qualifications, examine in detail the

commission structure and recommend necessary additional channels. The

committee recommended that since life insurance companies have a wider

reach to the customers, they may be permitted to distribute health insurance

products also. The committee felt that there was a need for improving the

distribution network of the life insurance companies.

The Swaroop Committee on investor awareness and potential had also

clearly mentioned that insurance policies need to remove the bias towards

selling policy only with the highest commission. The committee recommended

that the commission should not exceed 15 per cent of the premium. The

industry needs to move to a rational commission model which will improve

persistency ratios in addition to benefit the long-term interest of the

policyholders.

The initiatives by IRDA to permit banks, corporate agents and brokers

to operate in the Indian Market have created enormous possibilities. The

linking of each segment of customers to appropriate distribute channel is

important as the middle and upper middle class urban and city customers are

well-informed and have access to modern technology like web, telemarketing

and internet marketing.

20 Rajesh Khandelwal, “Visualizing Beyond Business Targets - In the Service of theCustomer”, IRDA Journal, October, 2010, pp.32-33.

304

The new guidelines on ULIPs present an opportunity for positive

changes in insurance industry. The low-cost distributors and new distribution

initiatives have emerged in the Indian life insurance market. Other channels,

like bancassurance and online marketing which involved low-cost distribution

ensured a quality sales process. But, the success of the market-centered

products like ULIPs in the life insurance market requires the distributor to be

refreshed with the latest development taking place both domestically and also

international in life insurance sector.

DISTRIBUTION COSTS

The life insurers have been on a drive to control expenses to cut costs

which are in the form of rationalization of offices, employees and agents. This

is in consonance to the Regulator’s stringent regulations on management of

expenses. With reduction of commission on ULIPs, the distributors have lost

interest in selling the products. The number of people engaged in selling

these products has not only gone down but also their productivity due to the

volatile equity market.

The new norms on ULIPs resulted in a withdrawal of more than 270

products from the market and the life insurance business was also made

sluggish. Consequently, a massive downsizing of the workforce and

infrastructure was affected. Self-regulation will lighten the monitoring load on

the IRDA even as the members of the industry become more responsible in

their conduct. 21

Distribution costs are a type of transaction cost which reflect the fact

that without incurring these costs, it is impossible for the insurers to ensure

agents to work in their interests. The high commission percentage ratios are

partly influenced by the excessive strains taken by the private insurers for

expanding their market in the initial years.

21 Mony, S.V., “Seek Sustainable Solutions”, IRDA Journal, December, 2003, p.28.

305

Higher levels of compensation packages are given to the distributors

by the private insurers for developing their business potential at that time. It is

given the kind of sustained activity which an insurance agent has to

undertake. The number of times he has to meet a prospect before a sale can

be concluded and the kind of post-sale service which he has to provide for an

insurance holder. The remuneration is not excessive in the sense that there

can’t be a lower cost method of distribution than this.

Table 6.13 shows the commission expenses as a percentage to the

premium underwritten by the life insurers during the years 2000-01 to 2009-

10. It may be found from the Table that there is a gradual decline in the ratios

with regard to both public and sector units.

The IRDA’s new regulations on ULIPs and its other regulatory

measures have made the commission rates at which the agents and other

distributors are paid have declined. Further, there is a also cap on the

commission charges payable to them. Hence, over the ten-year period, the

ratios of LIC between commission expenses and premium underwritten have

come down from 9.08 per cent to 6.52.

Private players have also reduced the ratio from 18.45 per cent to 7.63

per cent. With regard to aggregates i.e. both public and private players, the

ratio has decreased from 9.09 per cent to 6.85. This shows a healthy trend

and also a favourable atmosphere which leads to a positive development in

the industry.

306

Table 6.13

COMMISSION EXPENSES AS A PERCENTAGE TO PREMIUMUNDERWRITTEN BY THE LIFE INSURERS

DURING 2000-01 TO 2009-10(Rs. in crores)


Commission PremiumUnderwritten

Percent(%) Commission Premium

UnderwrittenPercent

(%) Commission PremiumUnderwritten

Percent(%)

2000-01 3169.39 34892.02 9.08 1.19 6.45 18.45 3170.58 34898.47 9.09

2001-02 4519.32 49821.91 9.07 49.09 272.55 18.01 4568.41 50094.46 9.12

2002-03 5015.08 54628.49 9.18 153.03 1119.06 13.67 5168.10 55747.55 9.27

2003-04 5742.92 63533.43 9.04 415.42 3120.33 13.31 6158.34 66,653.76 9.24

2004-05 6249.74 75127.29 8.32 854.73 7727.51 11.06 7104.47 82854.80 8.57

2005-06 7100.19 90792.22 7.82 1543.11 15083.54 10.23 8643.30 105875.76 8.16

2006-07 9173.58 127822.84 7.18 3109.65 28242.48 11.01 12283.23 156065.32 7.87

2007-08 9614.69 149789.99 6.42 5089.61 51561.42 9.87 14704.30 201351.41 7.30

2008-09 10055.09 157288.04 6.39 5477.27 64497.43 8.49 15532.36 221785.47 7.00

2009-10 12132.56 186077.31 6.52 6052.75 79373.06 7.63 18185.31 265450.37 6.85



A. LIC

i. Mean and Standard Deviation

Particulars LICCommission

LICPremium

Underwritten

Number of YearsMeanStandard Deviation

107277.26

2856

1098977.35

52475

307

The above table presents information on the average Commission

expenses spent by LIC. The amount spent on commission, on an average, is

stood at Rs 7277.27 crores and premium underwritten is Rs 98977.35 crores per

year. The standard deviation of commission expenses by LIC is Rs 2588.59

crores and premium underwritten is Rs 52474.99 crores during 2001-10.

Figure A: LIC Scatter Plotii. Correlation

The above table shows that the correlation coefficient for LIC premium

underwritten and commission expenses is 0.992. Since 0.992 is relatively

close to 1, this indicates that LIC premium underwritten and commission

expenses are positively correlated. The significance level is small i.e.,0.000. It

is less than 0.01. Hence, the correlation is significant at 1% level of

significance and the two variables are linearly related.

1 .992**. .000

10 10.992 ** 1.000 .

10 10

ParticularsPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N

LIC Commission

LIC PremiumUnderwritten

LICCommission

LIC PremiumUnderwritten

Correlation is significant at the 0.01 level (2-tailed).**.

Premium Underwritten (Rs in Crores)

200000

18000016000

0

14000012000

0

1000008000

0

600004000

0

20000

Commission(Rs in crores)

14000

12000

10000

8000

6000

4000

2000

308

iii. Regression Analysis

1934.201 269.135 7.187 .000

5.398E-02 .002 .992 22.222 .000

(Constant)LIC PremiumUnderwritten

Model1

B Std. ErrorUnstandardized Coefficients

Beta

StandardizedCoefficients

t Sig.

.992a .984 .982 382.41661Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), LIC Premium Underwrittena.

The linear trend forecasting equation is

Commission Expenses = 1934.20 + 0.0539* Premium Underwritten


The Y intercept b0 = 1934.20 is the fitted trend value reflecting the

predicted mean of commission expenses (Rs in Crores) of LIC during

2001-10.

The slope b1 = 0.0539 indicates that the commission expenses are

predicted to increase by an average of 0.0539 crores of rupees per

year.

The above table displays R, R squared, adjusted R squared, and the

standard error. R, the multiple correlation coefficient, is the correlation

between the observed and predicted values of the dependent variable

(commission). Larger value of R (0.984) indicates stronger relationship. R

squared (0.984) is the proportion of variation in the dependent variable

(commission expenses) explained by the independent variable (Premium

underwritten) in the regression model.

309

Figure B: LIC Commission and Premium Underwritten Regression Plot

B. Private Sector

i. Mean and Standard Deviation

ParticularsPrivate Sector

Commission

Private Sector

Premium Underwritten

Number of Years

Mean

Standard Deviation

10

2274.59

2444.57

10

25100.38

29653.97

The above table provides information on the average commission

expenses spent by Private Sector. It is Rs 2274.59 crores and the premium

underwritten is Rs 25100.38 crores. The standard deviation of commission

expenses is Rs 2444.57 crores and premium underwritten is Rs 29653.96

crores during 2001-2010.


200000

180000

160000

140000

120000

100000

80000

60000

40000

20000


14000

12000

10000

8000

6000

4000

2000

Observed

Linear

310

Figure C: Private Sector Scatter Plotii. Correlation

The above table gives information on correlation coefficient for private

sector commission expenses and premium underwritten 0.988. Since 0.988 is

relatively close to 1, this indicates that the Private Sector premium

underwritten and commission expenses are positively correlated. The

significance level is small 0.00 (less than 0.01). Hence, the correlation is

significant at 1% level of significance and the two variables are linearly

related.

1 .988 **. .000

10 10.988 ** 1.000 .

10 10

Particulars

Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N

Private SectorCommission

Private SectorPremium Underwritten

Private SectorCommission

Private SectorPremium

Underwritten

Correlation is significant at the 0.01 level (2-tailed).**.


80000

70000

60000

50000

40000

30000

20000

10000

0-10000


7000

6000

5000

4000

3000

2000

1000

0

-1000

311

iii. Regression Analysis

230.902 171.988 1.343 .216

8.142E-02 .005 .988 17.848 .000

(Constant)Private SectorPremium Underwritten

Model1

B Std. ErrorUnstandardized Coefficients

Beta

StandardizedCoefficients

t Sig.

.988a .976 .972 405.82294Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), Private Sector PremiumUnderwritten

a.

The linear trend regression equation is

Commission Expenses = 230.90 + 0.0814 * Premium Underwritten


The Y intercept b0 = 230.9 is the fitted trend value reflecting the

predicted mean of commission expenses (Rs in Crores) of Private

Sector during 2001-10.

The slope b1 = 0.0814 indicates that the commission expenses are

predicted to increase by an average of 0.0814 crores of rupees per

year.

Figure D: Private Sector Regression Plot

Premium Underwritten (Rs incrores)

100000

80000

60000

40000

20000

0-20000


7000

6000

5000

4000

3000

2000

1000

0

-1000

Observed

Linear

312

The above Regression Plots of both LIC and Private Sector are fit to

the linear mathematical model since the observed figures are close to the

trend values. Their significance values are less than 0.05 and ‘R’ squared

values are close to 1. Hence, in order to meet the linear mathematical line

requirement, on an average, LIC has to increase its spending by Rs.5.39

lakhs and the Private Sector by Rs.8.14 lakhs per annum towards commission

expenses.

CHANNEL PERFORMANCE

The performance of distribution channels is measured by the new

business premium collected by each channel. The share of different channels

in new business premium for LIC, private sector companies and also the

industry taken together is given in the Table.

Table 6.14 gives information on the new business premium collected

by different intermediaries in LIC during 2003-04 to 2009-10. The new

business premium collected through individual agents has come down to

97.57 per cent in 2009-10 from 99.78 per cent reported in 2003-04. This is

because of the dominating and most prominent role of insurance agents in

LIC which occupies the major share of total business. The shares of other

channels have been gradually increasing since last seven years. But, this

increase is very marginal. It shows that almost the total business of the LIC is

procured by the individual agents and the new business premium is also

collected through the agents themselves. The role played by other

intermediaries is insignificant and marginal.

313

Table 6.14

NEW BUSINESS PERFORMANCE OF INTERMEDIARIES IN LICDURING 2003-04 TO 2009-10

(in Percentage)

Year Individualagents

Corporate AgentsBrokers Referrals Total

Banks Others

2003-04 99.78 0.11 0.09 0.02 0.00 100.00

2004-05 98.79 0.87 0.3 0.04 0.00 100.00

2005-06 98.37 1.25 0.32 0.06 0.00 100.00

2006-07 97.28 1.24 0.9 0.34 0.24 100.00

2007-08 98.36 1.3 0.29 0.05 0.00 100.00

2008-09 97.34 1.7 0.49 0.47 0.03 100.00

2009-10 97.75 1.64 0.52 0.09 0.18 100.00

Note: New business premium includes first year premium and singlePremiumFrom 2008 onwards, referrals’ business has not considered in totalbusiness.


Table 6.15 refers to the information on the new business performance

of intermediaries in the private sector during 2003-04 to 2009-10. The share

of agents is about 60 per cent of the premium for private sector insurers in

2003-04. It is observed that their share has gone down to 50.67 per cent in

2009-10 which shows that other channels like banks and other corporate

agents have increased their shares in the total new business premium. Banks

have shown a good growth in terms of the share. This is almost more than

doubled. It shows that bancassurance played a very important and active role

in promoting and developing insurance business of the private sector. The

corporate agents (others), direct selling, referrals and brokers are the other

channels which contribute their mite in the development of the insurance

business of private players.

314

Table 6.15

NEW BUSINESS PERFORMANCE OF INTERMEDIARIESIN PRIVATE SECTOR DURING 2003-04 TO 2009-10

(in Percentage)

Year Individualagents

Corporate AgentsBrokers Direct

Selling Referrals TotalBanks Others

2003-04 60.39 10.57 6.86 0.31 14.37 7.50 100.00

2004-05 59.30 15.42 7.75 1.23 10.05 6.25 100.00

2005-06 59.71 16.87 8.92 0.83 6.61 7.06 100.00

2006-07 65.80 16.58 8.41 1.05 1.39 6.77 100.00

2007-08 59.81 18.89 11.03 1.50 8.77 7.79 100.00

2008-09 54.94 20.78 10.92 2.00 11.36 9.27 100.00

2009-10 50.67 24.88 10.28 3.44 10.73 7.95 100.00

Note: i) New business premium includes first year premium and singlePremium

ii) From 2008 onwards, referrals’ business is not included in totalbusiness


Table 6.16 gives information on the percentage share of different

distribution channels in the total insurance business of the industry as a

whole. It is clear from the Table that the individual agents’ share in the total

insurance business has declined from 95.32 per cent in 2003-04 to 79.61 per

cent in 2009-10. Despite a decline in their share, the individual agents

contributed a lot for the development of life insurance business in our country.

Afterwards, the corporate agents (banks) contributed to over one-tenth of the

insurance business. Other distribution channels like corporate agents (others),

direct selling, referrals and brokers contributed to the insurance business of

the industry during this period. Their total share in the industry’s business is

around 10 per cent.

315

Table 6.16

NEW BUSINESS PERFORMANCE OF INTERMEDIARIESIN TOTAL INDUSTRY DURING 2003-04 TO 2009-10

(in Percentage)

Year Individual agents

Corporate AgentsBrokers Direct

Selling Referrals TotalBanks Others

2003-04 95.32 1.30 0.86 0.05 1.63 0.84 100.00

2004-05 88.65 4.61 2.21 0.35 2.58 1.60 100.00

2005-06 85.67 6.38 3.15 0.31 2.17 2.32 100.00

2006-07 88.62 5.46 2.96 0.54 0.38 2.04 100.00

2007-08 83.75 7.97 4.36 0.60 3.32 2.95 100.00

2008-09 79.57 9.69 4.86 1.11 4.77 3.90 100.00

2009-10 79.61 10.6 4.28 1.38 4.13 3.13 100.00Note: i) New business premium includes first year premium and single

Premiumii) From 2008 onwards, referrals’ business is not included in total business


To conclude, an important challenge before the insurance industry is to

promote more effective distribution channel to meet the new generation

demand. The distribution of products in the emerging market is

characteristically different because of the information explosion and the

adoption of latest technology. Emergence of financial conglomerates,

universal banking and integration of financial services has changed the

geometry of financial products. Efforts of insurance companies should be to

promote institutional intermediaries like corporate agents and brokers who will

provide a new dimension to distribution channel.

chapter – vi insurance marketing and distribution...

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