DISTRIBUTION
CHANNELS
SOUMENDRA ROY
IMIS
CHANNELS OF DISTRIBUTION IN INSURANCE
In the Insurance Industry, where the competition is going
to tougher due to the advent of the new private insurance
companies, it poses a complex problem to channels the
distribution system.
Development in systems and software technology and
changing social patterns have caused an upheaval in the
traditional distribution methods.
D
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Buyers I Carriers
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The channels of distribution in insurance can be
divided into direct and indirect distribution.
Life insurance generally takes a short, direct
channel, whereas property insurance normally uses
a long, indirect channel with one or more
independent intermediaries involved.
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DIRECT DISTRIBUTION
Life Insurance Companies have their own sales
organization which is generally two-layered but in some
of the companies it is a three – layered organization.
Two – layered sales organization includes:
i. Agents in the front-end
ii. Managers including Asst. Manager, Deputy Managers
etc. in the back-end.
• Three – layered sales organization includes:
i. Agents in the front-end
ii. Supervisors (intermediate level)
iii. Managers in the back-end
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AGENTS
Searching for prospecting customers and
understanding their insurance needs.
Meeting the prospective customers, explaining and
discussing different products of insurance.
Suggesting a suitable policy to the client and
finalizing the sales.
Forwarding the proposals to the company’s office
for acceptance and issuance of policy.
Attending to the requirements, if any, for the
acceptance of those proposals.
Rendering after-sales services, if any, required by
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the customer.
SUPERVISORS
Recruitment of new agents.
Meeting prospective agents.
Recommending them to the management for
appointment as agents.
Providing them with initial training.
Providing guidance to the agents in promoting the
business.
Fixation of business-targets and discussing strategies to
achieve the business targets.
Motivating the agents to realize the objectives.
Supervising the activities of the agents.
6 Helping
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MANAGERS
Distribution of the targets allocated by their Head
Office to the sales units under their jurisdiction.
Segregating the targets between the development
officers and the agent.
Guiding, supervising and controlling the sales
activities.
Review and design of plans and targets.
Motivating the sales force to realize the targets.
Administration of the office to deliver the policies,
issuing receipts for the premia received, granting of
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ADVANTAGES OF TWO LAYERED SALES
ORGANIZATION
Economies of Scale
Easy to organize
Non-duplication of functional responsibilities as there is no
multiplicity of layers.
In view of the effective coordination, control and
supervision by the managers, a two-layered sales
organization has been found to be very effective in
urban and metropolitan areas.
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ADVANTAGES OF THREE-LAYERED SALES
ORGANIZATION
Provides closer and focused supervision particularly when
there are many agents functioning
Facilitates larger and better recruitment of agents
Helps in providing initial training and continuous motivation
A three-layered sales organization has been found to
be not only desirable but also essential in organizing
rural and semi-urban areas where the agency
organization is large. The layer of supervisors
provides a very essential and effective coordination
and a higher level of productivity.
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REASONS FOR DIRECT DISTRIBUTION IN
LIFE INSURANCE
Exercising control over the product
To have control over the sales
promotion and competition
Infrequent purchase of life insurance
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DIRECT WRITING IN PROPERTY – LIABILITY
INSURANCE
In property and liability insurance, independent intermediaries
have been eliminated and the contract is marketed directly from the
insurer to the insured through either exclusive agents or employees
who work on salary and commission.
The exclusive agents solicits prospects, takes care of paperwork and
in general serves as the insurer’s direct contact with the insured.
Insurers who employ this type of distribution are called direct
writers.
Main responsibilities of an exclusive agent:
a. Sell new business
b. Keep in contact with customers
c. Serve as a communication link between the insurer and the
insured
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MASS MERCHANDISING
Mass merchandising, as it has come to be known, is a
method of distributing property-liability insurance
directly to customers through employer payroll
deduction.
Although premiums are usually cheaper because of
various economics in mass merchandising, employers do
not contribute to the premium.
Independents agents have generally opposed the
adoption of such plans because many agents depend on
individually issued personal-lines of business for their
livelihood.
Mass merchandising plans to threaten the growth of
their
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markets.
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INDIRECT DISTRIBUTION: INDEPENDENT
AGENTS
An autonomous, local intermediary in the property
insurance business and deals with the final
consumer of insurance.
Represents more than one insurer.
They are supplied with forms and has the
authority to write a policy and deliver it to the
insured.
They have a right of access to customer file and to
solicit renewal of policies.
They work on a commission basis and may or may
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not have the responsibility of collecting premia.
BROKERS
Broker is a person who acts on the authority of his
principal and obtains business at the best possible
terms.
They are not bound to offer only one company’s
terms to their clients, and they scout in the hope of
getting the best contract and at the best possible
prices.
The brokers do not at any time accept risks on
their own account, and therefore, are not parties to
the contract of insurance.
Their main
Soumendra objective is to receive commission
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TYPES OF BROKERS
Direct Insurance Reinsurance Brokers
Brokers
• Direct Life Insurance • International Brokers
Brokers • Treaty Brokers
• Mortgage Brokers • Facultative Brokers
• Pension Brokers
• Unit Link Brokers
• Accident and Sickness
Disability Brokers
• Group Insurance
Brokers
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TIED AGENCY
A ‘tied agent’ as an insurance agent who enters into:
an agreement or arrangement with an insurance
undertaking which restricts in any way the agent’s
freedom to refer proposals of insurance of any other
insurance undertaking other than the insurance
undertaking with whom the agency entered into that
agreement or arrangement
The main consequence of a tied agency arrangement is
that the insurance company is deemed to be responsible
for ‘any act or omission of its tied agent in respect of
any matter relating to a contract of insurance offered by
that Insurance Company ….. as if the tied agent was an
employee of that Insurance Company.
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CORPORATE AGENTS
Corporate Agents is a new concept recently
introduced by IRDA to facilitate the distribution of
insurance products by the corporate.
The main agenda to promote corporate agents is to
facilitate “Bancassurance” in India.
Public sector banks, Regional Rural banks and
microcredit institutions have wide reach and can help
fulfil the basic objective of deeper insurance
penetration in the country.
IRDA has issued guidelines for the Corporate Agents
which provide for minimum educational requirements
for specified persons, practical training requirements
and
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code
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conduct.
IMIS 06/21/2022
e - Insurance
Another subject making rounds vigorosly is “Electronic
Commerce in the Insurance Industry”.
‘Internet Insurance’ is therefore likely to dominate the
emerging insurance market, though it may take some more
time.
Although consumers expressed interest in on-line sales and
customer service, many nevertheless resist conducting
insurance transactions on-line because they
i. Prefer more personal attention
ii. Are concerned about privacy and security
iii. Think that existing methods for transacting insurance on-line
are too complicated
The Internet will significantly enhance the efficiency of
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insurance markets and institutions benefit consumers by
One possible positive externality of the Internet may be that by
helping to make insurance more affordable, more insurance
will be purchased.
If the regulatory system cooperates and allow the private
market to pass these transaction costs savings on to consumers,
insurance will be able to more fully live up to its potential as a
mechanism for not only funding the costs of accidents but also
of providing society with adequate safety incentives.
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SHOP OR MALLASSURANCE
The concept of selling insurance products together with retail
products is termed as ‘Shopassurance’.
The model was first deployed in the UK by retailers like Tesco,
Marks & Spencer, who are offering insurance products to their
customers.
In India, this model was introduced first by Bharti AXA Life.
The company started it with assistance from its group
companies Bharti Retail and Fieldfresh Foods Ltd.
It was believed that with this integrated sales model, Fieldfresh
and Bharti Retail would not only reach the urban customers but
also make themselves accessible to the rural markets.
A similar but indigenous and branded version of Shopassurance
is Mallassurance, a shopassurance format recently introduced by
Future Generali.
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The primary area where they differ is the kind of business they
Thank You ???
ANY
DOUBT
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