Expert Zone

Straight from the Specialists

Slow death for push marketing of insurance?

By Deepak Yohannan
May 10, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Just five of the 23 life insurance companies in India (I have excluded Edelweiss Tokio as they are new entrants) could increase their premium collection in 2011-2012 over the previous year. In fact, none of the top 10 premium collectors of 2010-2011 could increase their sales in 2011-2012. Why so?

It’s strange to put a disclaimer in the middle of an article, but here I must — lower premium collections or sales do not necessarily mean lower profitability. In fact, some insurance companies might have increased their profitability in spite of lower sales and it could even be a conscious strategy.

Mind you, all this is when India is considered an under-insured, under-penetrated life insurance market. So where does the problem really lie? The common reason associated with the drop is the change in regulations and maybe even the pace of change. Frankly, all the regulatory changes in the life insurance sector in the last year have been pro-consumer — the sooner they get implemented, the better it is for the customer. Commissions paid to intermediaries for some products came under the scanner and were reduced and rightly so. And then we saw a large dip in the interest levels of intermediaries to sell those products. Should a product sell only because an intermediary makes a lot of money out of it?

Life insurance in India is a strange beast — it is sold and purchased as a favourable tax-saving tool. To buy it, you have to shell out commission levels unheard of from any financial or non-financial sector intermediary, thereby eroding much of the tax benefit. And all the signals suggest that commission levels will see further dips, thus favouring the customer.

So, then the big question arises — who will be interested in PUSHING the insurance product? Or will the industry create its own innovations and start delivering the PULL? Online term plans definitely did that and it even became cafeteria talk — that was unthinkable a few years ago. Maybe channels like Bancassurance with a lower cost of sourcing will see much larger focus. Maybe new channels with higher volumes and lower commissions would start appearing – it’s not that simple, most would say. But then again, that’s what innovation has to deliver and will.

I think the old way of selling products by heavily incentivising intermediaries is gone. The change is happening and it is happening fast. Consumers are more aware and will ask more questions and are being guided by a phenomenal amount of free and high quality information easily available today.

Do share your views. I think there is enough to disagree on.

(Write to the author at deepak@myinsuranceclub.com)

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