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Topic : Insurance Intermediaries


Traditionally t!e li"e insurers !a#e $een solely depended on t!e a%ency distri$ution "orce& On t!e contrary t!e %eneral insurance $usiness !as depended totally on t!e de#elopment o""icers&

Insuran ce compa ny

Insuran ce a%ent


T!e scenario !as $een di""erent "or t!e %eneral insurers a no a%ency commission 'as paya$le "or 'ritin% $usinesses more t!an () la*! t!us pro!i$itin% $ro*ers&In t!e emer%in% scenario t!ere 'ill $e t!ree players + t!e $uyers 'ill consist o" consumers employees and employers and t!e carriers or t!e policy issuers 'ill "ocus mainly on li"e and annuities property and casualties !ealt! and ancillaries and t!e critical lin* in t!e system 'ill $e t!e distri$utor& T!ose '!o 'ill pro#ide #alue,added and lo',cost ser#ices 'ill $e t!e sur#i#ors&

Traditional C!annel o" Distri$ution

A%ents Bro*ers

Ne' Distri$utor C!annels

Direct mar*etin% Corporate a%ents Independent Financial Ad#isors Telemar*etin%

-e$site .ar*etin% Retail c!ains Interest mar*etin% Banc assurance


Insurance industry in India !as $een lot o" c!an%es since t!e openin% o" t!e sector "or pri#ate participation& Industry !as 'itnessed entry o" a plet!ora o" companies and is to 'itness many more to "oray& T!ere !as $een a lot o" inno#ation $ot! on t!e products "ront and also on ser#ice "ront&Inno#ation on t!e ser#ice "ront include pro#idin% call Centre "acilities pro#idin% personali1ed "inancial plannin% tools e, ser#icin% o" products and t!e recent one is t!e introduction o" t!ird party administrators& T!e #arious insurance intermediaries "rom t!e consumer2s and mar*eter2s perspecti#e are: 3a4 A%ents 3$4 Bro*ers 3c4 Sur#eyors and 5oss assessors 3d4 T!ird party administrators 3e4 Corporate a%ents T!e Insurance Re%ulatory and De#elopment Aut!ority 3IRDA4 !as "ormulated a code o" conduct "or Insurance Bro*ers and a%ents and prescri$ed strict penalties includin% cancellation o" licenses "or de"ault and manipulation& T!e code o" conduct "ormulated $y IRDA co#ers t!e entire %amut o" acti#ities includin% relations!ip 'it! clients sales practices duty to disclose in"ormation to clients claims ad#ertisin% su$,$ro*ers and remuneration amon% ot!ers&


Sur#eyors and loss assessors are independent pro"essionals appointed $y an insurance company to assess t!e loss or dama%e '!en a claim is noti"ied under a policy issued $y t!em& An insurance sur#eyor must $e duly licensed $y t!e Insurance re%ulatory and de#elopment aut!ority& 5icenses are issued to tec!nically 8uali"ied people '!o are 8uali"ied in insurance su$9ects and are Fello's or Associates o" t!e Insurance Institute o" India or C!artered Insurance Institute o" 5ondon or any ot!er tec!nically 8uali"ied li*e En%ineerin% %raduates or diploma !olders in any disciplines C!artered Accountants 0raduates in .edical Sciences& A sur#eyor a"ter discipline t!e license may $e empanelled $y any or all o" t!e

insurance companies in India& T!e insurance company selects a sur#eyor '!o is 8uali"ied to underta*e t!e assessment o" loss or dama%e in relation to t!e policy issued and also dependin% upon t!e estimated loss in#ol#ed&

/is duties include: In#esti%ate and con"irm t!e cause o" loss& Ad#ise t!e insured to ta*e %ood care o" sal#a%e to miti%ate t!e loss& To ensure t!at insured !as ta*en all necessary steps to contain t!e loss& Assess t!e 8uantum o" loss& Determine t!e lia$ility o" t!e insurers 'it!in t!e "rame'or* o" t!e policy conditions& To act on $e!al" o" t!e insurance company in disposal o" sal#a%e to reali1e ma:imum #alue& T!ou%! t!e sur#eyor is appointed $y t!e insurance companies !e is re8uired to $e impartial and o$9ecti#e in !is assessment "a#ourin% neit!er t!e insurers nor t!e insured !o are t!e t'o parties to t!e contract under a policy& T!is necessitates a !i%! de%ree o" pro"essionalism&Since lon% time t!e %eneral insurance industry 'as su""erin% on account o" satis"action 'it! t!e sur#eyor2s loss assessment report and delay in t!e settlement o" claim& T!ere"ore IRDA !as recently issued re%ulations pertainin% to sur#eyors and loss assessors '!ic! cate%ories on t!e $asis o" t!eir 8uali"ication practical e:perience and past e:periences&


T!ird party administrators are t!e ne' $reed o" intermediaries in t!e !ealt! insurance sector '!ic! "acilitate t!e access o" t!e policy!olders to a net'or* o" !ospitals;nursin% !omes& T!e introduction o" '!om 'ill $ene"it $ot! t!e insured and t!e insurer& TPA2s maintain t!e data$ases o" policy !olders and issue t!em identity cards 'it! uni8ue identi"ication num$ers and !andle all t!e post policy issues includin% claim settlements& T!ey run a <=,!our toll "ree num$er '!ic! can $e accessed "rom any'!ere in t!e country& T!ey !a#e "ull,time medical practitioners under t!eir employment '!o spontaneously ta*e decisions on '!et!er t!e ailment is co#ered under t!e policy&

TPA2s $ene"it $ot! t!e insurer and insured& For insured $etter ser#ices are o$tained and "or insurers t!ey su$stantially reduce t!e administrati#e costs& TPA license is %ranted to companies re%istered under t!e Companies Act (>?@ !a#in% a minimum paid up capital o" Rs& (&)) crores 'it! "orei%n participation not e:ceedin% <@A& 5icense is usually %ranted "or a period o" B years& Earlier t!e insured 'as reim$ursed all t!e !ospitali1ation e:penses $ut 'it! introduction o" TPA2s all t!e !ospitali1ation ser#ices operate2 on cas!less $asis since t!e payment is directly made to t!em&TPA2s are entitled to commission $y insurers on a mutually a%reea$le terms $ut as per t!e IRDA %uidelines it cannot e:ceed (?A o" premium amount& TPA2s !a#e to tie,up 'it! !ospitals '!ic! o""er !ospitali1ation ser#ices& Eac! TPA may tie,up 'it! any num$er o" insurers and li*e'ise eac! insurer can empanel any num$er o" TPA2s&

All t!e records o" medical insurance policies o" an insurer are trans"erred t!e TPA '!o %enerally issue identity cards to all t!e policy!olders '!ic! t!ey !a#e to s!o' to t!e claim policy!older !as to in"orm TPA on <= !our toll "ree line pro#ided $y t!e TPA& On in"ormin% t!e TPA policy!older 'ill $e directed to a !ospital '!ere t!e TPA !as a tied up arran%ement& /o'e#er policy!older 'ill !a#e t!e option to 9oin any ot!er !ospital o" !is c!oice $ut in suc! case payment s!all $e on reim$ursement $asis& TPA issues an aut!ori1ation letter to t!e !ospital "or t!e treatment '!erein t!e TPA 'ill pay "or t!e treatment& TPA 'ill $e trac*in% t!e case o" t!e insured at t!e !ospital and t!e point o" disc!ar%e all t!e $ills 'ill $e sent to TPA& TPA ma*es t!e payment to t!e !ospital and sends all t!e documents necessary "or consideration o" claims alon% 'it! $ills to t!e insurer& Insurer reim$urses t!e TPA&Presently t!e role TPA is con"ined to medical;!ealt! ser#ices& /o'e#er t!eir 9o$ can $e e:tended to: Documentation and policy issuin%& 5e%al ser#ices and claims reco#ery ser#ices under su$ro%ation ri%!ts& Record #eri"ication under ad9ustment policies& .edical e:amination ser#ices "or li"e insurance policies and o#erseas .ediclaim policies&

Co,insurance reco#ery ser#ices "or $ot! premiums and claims& Follo' up o" ser#ices "rom reinsurance companies& Ser#icin% o" motor policies& Inspection and assessment o" ris* prior to issuance o" policy& Ar$itration ser#ices&

.ost o" t!e li"e insurance companies in India "ollo' t!e traditional route o" mar*etin% t!rou%! a%ents& In case o" pri#ate players t!ey are nomenclature as Insurance Ad#isors;Planners& T!e companies %enerally emp!asi1e on $uildin% a %ood "ield "orce trained to %et people t!in*in% a$out t!eir "amily2s "inancial security and recommend appropriate policies "or t!eir needs& A%ents !a#e traditionally pro#ed to $e !i%!ly success"ul means o" distri$ution o" insurance products& E#ery insurance a%ent !as to o$tain a license "rom IRDA $e"ore conduct o" insurance $usiness and "ollo' a code o" conduct prescri$ed t!ereunder&

Insurance $ro*ers are pro"essional '!o assess t!e speci"ic insurance needs o" t!e client e#aluate t!e ris* and su%%est a suita$le insurance co#er "or t!e clients& IRDA2s Annual Report <))(,)< descri$ed $ro*ers as DInsurance $ro*ers as pro"essionals are e:pected to "ill t!e #oid in terms o" pro#idin% "or speci"ic insurance needs o" t!e client $y assessin% t!e ris* on $e!al" o" t!e client ad#ise on t!e miti%ation o" t!e speci"ied ris* identi"yin% t!e optimal insurance policy structure $rin% to%et!er t!e insured and insurers carry out 'or* preparatory to insurance contracts and '!ere necessary assist in t!e administration and per"ormance o" suc! contracts in particular '!en claims arise&E As per t!e said report DT!e ad#ent o" $ro*ers on t!e scene is li*ely to result in impro#ement in customer ser#ice trans"er o" tec!nolo%y and mana%erial *no',!o' $ene"its to insurance companies t!rou%! increased mar*et penetration and "acilitate increased retention capacities $y optimi1in% reinsurance pro%rammes&EIRDA !as issued %uidelines "or issue o" license and re%ulation o" a""airs to insurance $ro*ers and insurance consultants in <))<& As per t!e said %uidelines t!e $ro*ers are di#ided into "ollo'in% cate%ories: Cate%ory I + Direct 0eneral Insurance $ro*er Cate%ory II + Direct 5i"e Insurance $ro*er Cate%ory III + Reinsurance $ro*er

Cate%ory I6 + Composite $ro*er Cate%ory 6 + Insurance Some o" t!e important pro#isions as contained t!erein are: T!e %uidelines speci"ically pro#ide t!e 8uali"ication no rms and t!eir "unctions "or #arious classes o" $ro*ers& T!e net 'ort! re8uirement "or composite insurance $ro*ers is Rs& <&?) crores 3'it! a cap o" <@A on "orei%n e8uity participation4& For direct $ro*ers and reinsurance $ro*ers it is Rs& ?) la*!s and Rs& <&)) crores respecti#ely& In case o" insurance consultants a $an* %uarantee o" Rs& ?&)) la*!s !as to $e "urnis!ed to IRDA& T!e $ro*era%e is determined $y t!e IRDA in accordance 'it! mar*et practices $ut it cannot e:ceed B)A o" t!e premium& T!is commission s!all $e paid $y t!e $ro*ers to t!e insurers& E#ery $ro*er !as to maintain a sol#ency mar%in + Rs& <? la*!s or ()A o" t!e %ross $ro*era%e and "ees recei#ed in t!e pre#ious year '!ic!e#er is !i%!er& A statement o" sol#ency mar%in "rom t!e auditors s!all $e "urnis!ed $y t!e $ro*er to t!e aut!ority& T!e $ro*ers are to maintain t!e $oo*s o" accounts as prescri$ed and !a#e to su$mit t!e audited "inancial statements and report t!ereon 'it!in @) days "rom t!e end o" t!e accountin% year& T!e records are to $e preser#ed "or at least ? years& T!e $ro*ers !a#e to disclose in"ormation on #arious matters as and '!en it is re8uired $y t!e aut!ority& T!e $ro*ers are also re8uired to "acilitate inspection '!en it is ordered& Unli*e insurance a%ents '!o are retained $y Insurance Companies Bro*ers are retained $y t!e insured and t!ere"ore t!eir primary responsi$ility is to'ards t!e insured& Some o" t!e $ene"its o" introducin% $ro*ers in t!e Indian mar*et are: (a) Improvement in customer service: -it! increased competition insurance $ro*ers !a#e a %reater moti#ation to introduce ne' and inno#ati#e products to $e more responsi#e to consumer needs and to deli#er !i%!er terms 8uality ser#ices& Indian corporates and consumers $ene"its directly in terms o" ser#ice as 'ell as product and policy inno#ation and are conse8uently a$le to secure appropriate insurance co#er more cost e""ecti#ely& (b) Transfer of technology and managerial know-how: Insurance $ro*ers introduce international $est practice in tec!nical s*ills and products trainin% pro%rammes systems and tec!nolo%y and mana%erial tec!ni8ues& Currently t!e a#aila$ility o" trained manpo'er is a ma9or constraint in t!e de#elopment o" t!e

insurance $ro*in% $usiness in India and international players can contri$ute !ea#ily in $rid%in% t!is %ap& (c) Benefits to insurance companies: .ost ma9or %lo$al insurance companies spend t!e ma9ority o" t!eir time !andlin% commercial and industrial ris*s& T!ey "ind dealin% 'it! $ro*ers to $e easier and speedier $ecause only t!e intricate points or special re8uirements need detailed discussion& Bro*ers also assist in creatin% insurance a'areness increasin% mar*et penetration and act as a catalyst to increase competition and impro#e customer ser#ice& (d) Foreign e change considerations: Bro*ers ena$le Indian insurers to increase t!eir retention capacities $y applyin% t!eir international reinsurance s*ills in optimi1in% t!eir reinsurance pro%rammes t!ere$y e""ectin% "urt!er sa#in% in "orei%n e:c!an%e out"lo'& In addition t!ey can assist t!e local insurers to de#elop ne' products and accordin%ly increase t!e premium $ase&

Corporate a%ents are a ne' concept recently introduced $y IRDA to "acilitate t!e distri$ution o" insurance products $y t!e corporates& T!e main a%enda to promote corporate a%ents is to "acilitate D$anc assuranceE in India& IRDA report o" <))(,)< e:presses concerns on t!is issue and state t!at in India t!e pu$lic sector $an*s and re%ional rural $an*s and microcredit institutions !a#e 'ide reac! and can !elp "ul"ill t!e $asic o$9ecti#e o" deeper insurance penetration in t!e country& IRDA !as also issued %uidelines "or 5icensin% o" corporate a%ents '!ic! pro#ide "or minimum educational 8uali"ications "or speci"ied persons and practical trainin% re8uirements and code o" conduct&

Banc assurance is a concept t!at !as re'ritten t!e 'ay in '!ic! insurance products are distri$uted in many parts o" t!e 'orld and !as t!e potential to do t!e same in many ot!er mar*ets& By o""erin% a !olistic "inancial ser#ices pac*a%e encompassin% $an*in% insurance lendin% and in#estment products $an*s can ma:imi1e distri$ution o" products to a capti#e customer $ase& In mar*ets '!ere it is "irmly esta$lis!ed $anc assurance c!annels can ta*e an impressi#e mar*et s!are o" ne' li"e $usiness + around ??A in France and $et'een <)A and B)A in many ot!er European countries&

Banc assurance 3a Frenc! term4 is a partners!ip $et'een a li"e insurance

company and $an*in% institution& T!e need 3"or t!e insurance company4 to access a lar%e $ase o" customers and a desire 3on t!e part o" t!e $an*4 to o""er a 'ide ran%e o" "inancial products leads to t!ese partners!ip in di""erent "orms& T!e main tenants o" $anc assurance2s trustin% relations!ip 'it! customers $ranc! name reco%nition

customer pro"ita$ility measurement systems in $an*s cas! mana%ement relations!ip 'it! corporations and t!e "act t!at $anc assurance distri$ution is more cost e""ecti#e t!an traditional distri$ution are some o" t!e *ey attraction o" t!is c!annel& <F pu$lic sector $an*s and (>@ re%ional rural $an*s account "or ><A o" t!e $ranc! net'or* in India&-it! o#er @) ))) $ranc!es o" commercial $an*s and an a#era%e population ser#ed per $ranc! o" (? ))) $anc assurance is e:pected to $e a critical distri$ution strate%y "or t!e insurance companies& In "act t!e net'or* includes BB ))) rural $ranc!es and (= ))) semi,ur$an $ranc!es a$out @)A o" t!e total num$er o" $ranc!es&

Need "or Banc assurance

T!e traditional c!annels o" insurance are $ecomin% costlier and o$solete $y t!e day in India& T!e commission paid to t!e a%ents ran%es "rom ?A,()A o" annual premium t!rou%!out t!e len%t! o" t!e underlyin% policy& In contrast t!e $an*in% c!annels 'ill cost 9ust around <)A "or one time reducin% t!e $urden "or t!e insurance companies& Declinin% producti#ity o" t!e insurance a%ents and !eatin% competition '!ere t!e insurers are "indin% it increasin%ly di""icult to maintain t!eir mar*et s!are !as also made a stron% case "or Banc assurance& T!e a#aila$ility o" !u%e customer data$ase at t!e $an*s !a#e ena$led insurers to desi%n products t!at "it t!e c!oice ran%e o" t!e customers increasin% its popularity t!us accentuate t!e need "or $ans assurance& Also "rom $an*er2s perspecti#e t!ere are se#eral reasons '!y $an*s s!ould seriously consider Banc assurance t!e most important o" '!ic! is increased return on assets 3ROA4& One o" t!e $est 'ays to increase ROA assumin% a constant asset $ase is t!rou%! "ee income& Ban*s t!at $uild "ee income can co#er more o" t!eir operatin% e:penses and one 'ay to $uild "ee income is t!rou%! t!e sale o" insurance products& Ban*s t!at e""ecti#ely cross,sell "inancial product can le#era%e t!eir distri$ution and processin% capa$ilities "or pro"ita$le operatin% e:pense ratios&By le#era%in% t!eir stren%t!s and "inancin% 'ays to o#ercome t!eir 'ays to o#ercome t!eir 'ea*nesses $an*s could c!an%e t!e "ace o" insurance distri$ution& Sale o" personal line insurance products t!rou%! $an*s meets an important set o" consumer needs& .ost lar%e retail $an*s en%ender a %reat deal o" trust in $road se%ments o" consumes '!ic! t!ey can le#era%e in sellin% t!em personal line insurance products& In addition a $an*2s $ranc! net'or* allo's t!e "ace to "ace contact t!at is so important in t!e sale o" personal insurance& Anot!er ad#anta%e $an*s !a#e o#er traditional insurance distri$utors is t!e lo'er cost per sales lead made possi$le $y t!eir si1a$le loyal customer $ase& Ban*s also en9oy si%ni"icant $rand a'areness 'it!in t!eir %eo%rap!ic re%ions a%ain pro#idin% "or a lo'er per,cost '!en ad#ertisin% t!rou%! print radio and;or tele#ision& Ban*s t!at ma*e t!e most o" t!ese ad#anta%es are a$le to penetrate t!eir customer $ase and mar*ets "or a$o#e,a#era%e mar*et s!are& Ot!er $an* stren%t!s are t!eir mar*etin% and processin% capa$ilities& Ban*s !a#e e:tensi#e e:perience in mar*etin% to $ot! e:istin% customers 3"or retention and cross sellin%4 and noncustomers 3"or ac8uisition and a'areness4& T!ey also !a#e access to multiple

communication c!annels suc! as statement inserts direct mail AT.s telemar*etin% etc& Ban*2s pro"iciency in usin% tec!nolo%y !as resulted in impro#ements in transaction processin% and customer ser#ice&By success"ully minin% t!eir customer data$ase le#era%in% t!eir reputation and Gdistri$ution systems2 3$ranc! p!one and mail4 to ma*e appointments and utili1in% Gsales tec!ni8ues2 and products tailored to t!e middle mar*et European $an*s !a#e more t!an dou$led t!e con#ersion rates o" insurance leads into sales and !a#e increased sales producti#ity to a ratio '!ic! is more t!an enou%! to ma*e $anc assurance a !i%!ly pro"ita$le proposition&

Banc assurance .odels

Distri$ution Alliance + In t!is model t!e insurance company ties up 'it! t!e $an* "or distri$ution o" insurance products& Hoint #enture $et'een insurer and $an* + T!is type o" partners!ip $rin%s a $an* 'it! a 'ell,de#eloped customer data$ase to%et!er 'it! a lar%e li"e insurer 'it! stron% product and c!annel e:perience to de#elop a po'er"ul ne' distri$ution model& In t!is type o" #enture t!e $an* pro#ides t!e lead and its reputation and $rand name '!ile t!e insurer $rin%s products and under'ritin% and ser#icin% e:pertise& T!e partners com$ine t!eir indi#idual e:pertise to "or%e a $est practice $anc assurance operation 'it! tailored products tailored distri$ution and lead %eneration mec!anism& T!is model may $e applied to SBI 5i"e Insurance& It !as access to some ((F million !olders o" term deposits t!rou%! (= ))) $ranc!es o" t!e State Ban* o" India 3SBI4 '!ic! ser#e as a ready plat"orm and a ready distri$ution c!annel& Ot!er players suc! as IN0 6ysya are also loo*in% at t!is option& T!ey see* to set,up $ranc!es in many main cities mo#in% %radually into t!e semi,ur$an and rural areas& 5e#era%ed li"e distri$ution: Under t!is model t!e li"e insurance company ta*es t!e lead in partners!ip '!ile se#eral $an*s act as corporate a%ents to pro#ide access to middlemar*et leads& 5e#era%ed $an* distri$ution: Under le#era%ed $an* dist ri$ution it is t!e $an* t!at ta*es t!e lead as in t!e partners!ip '!ile t!e li"e insurance companies supply products "or its $anc assurance e""orts& T!is model calls "or a lar%e $an* 'it! a ran%e o" e""ecti#e distri$ution c!annels 3$ranc!es AT.s mail p!ones4&Eac! model !as its o'n particular ad#anta%es !o'e#er t!ey all s!are common "eatures '!ic! can create competiti#e ad#anta%e: En!anced customer ser#ice + pro#idin% con#enience simplicity and #alue in a Done stopE en#ironment& 5e#era%e o" e:istin% assets + suc! as #alua$le o"ten #ast customer data$ases&

.ore income + %enerated "rom an increase in o#erall product sales and $etter customer retention& 0reater producti#ity + a $anc assurance sales person2s producti#ity !as $een measured to $e ??A !i%!er t!an t!e a%ency e8ui#alent& Iuality sales culture + t!at is customer dri#en& Impro#ed sta"" retention + !i%!er le#els o" satis"action amon% sales sta"" t!rou%! %ood trainin% and remuneration sc!emes& Cross,sellin% opportunities + stren%t!enin% customer relations!ip mana%ement&Cey issues to $e addressed to ma*e $anc assurance success"ul are: Bot! t!e $an* and insurance company need to impro#e e""ecti#eness o" t!e Sales c!annels $y identi"yin% and %ainin% access to tar%et customers addin% pus! to mar*et pull trainin% o" sales sta"" di""erentiatin% per"ormance "rom competition and controllin% cost per unit sold& Product needs to $e Tailored to meet t!e need o" t!e customer $ase and "or ne' distri$ution c!annels& Communication needs to $e streamlined to address any culture issues $et'een t!e $an* sta"" and t!e insurance sta""& Similarly di""erences in compensation structures need to $e !andled sensiti#ely $e"ore t!ese start a""ectin% t!e moral o" t!e $ranc! sta""& Traditional processes need to $e redesi%ned not only to ta*e ad#anta%e o" t!e ne' tec!nolo%y $ut also to a""ect a streamlined system $et'een $an* and t!e insurance company& Tec!nolo%y can $e used to put e""ecti#e use in sales support "unction sta"" trainin% smoot!er processin% and online inte%rated in"ormation system& In"ormation system needs to $e re#ie'ed and per"ormance measurement parameters need to $e specially adapted to $anc assurance& S*ills need to $e de#eloped and reallocation o" assets and resources + "inancial and !uman may also $e re8uired $et'een t!e $an* and insurance company&