Ever since the President gave his nod to the ordinance on the Insurance Bill, the industry has been euphoric. The sector, which grew rapidly after nationalisation and, more so, after it was opened to the private sector in 2000, is now in turmoil due to unabated mis-selling.
Premiums have become the metric to assess performance. This is evident from LIC’s focus on single premium, which accounts for 60% of the behemoth’s business. For the private sector, single premium accounts for around 30% of the total premium. Most private insurers have replicated LIC’s distribution model, going with the same products. The chunk of the business continues to be garnered by agents, who have been quitting thick and fast.
While the regulator has come out strongly to protect consumer interest, it now needs to focus on the security of lives. Insurance requires simplicity in evolution and distribution of products. To stay ahead of the curve, the industry will have to reinvent itself in terms of agency and servicing.
It needs to relook at its priorities in bringing security for people at an affordable cost.
The high cost of distribution calls for a total revamp of the agency profession, instead of a blind selection of candidates. The industry need to refine the selection process. As it is difficult to train people, selections based on a scientific approach can prove to be more productive. The industry needs to identify those with strong interpersonal skills and the passion to serve people.
The high attrition of agency makes it highly expensive. Unfortunately, the industry has not found it expedient to record the costs involved in its books, notwithstanding the fact that profits can be indeterminate without assessing the impact of the cost of each input. The access to business analytics should have made the task easy.
Agency regulations need to be reoriented to make selling easy and sustainable. There should be an internship at the college level to assess its acceptability. The candidates identified can be allowed apprenticeship to sell simple products based on risk-like term insurance. The volumes should take care of earnings. After all, Public Provident Fund was a runaway success on even 1% commission to agents.
After training and working for a few months, agents can graduate to endowment products and unit-linked insurance products (Ulips). In fact, Ulips have been exploited by both agents and companies, transfer as they do risk to consumers. It is prudent to sell Ulips only to those who have some exposure to the stock market.
Agents need to act as financial advisors and they should acquire the capacity to deliver. Financial literacy campaigns, awards and sponsorship of events in educational institutions will create a favourable impact. Substantial micro insurance needs have been taken care of by the Jan Dhan Yojana. However, the payment of insurance premium can be allowed as an expense under CSR for marketing micro-insurance to identified groups by suitable amendments.
Empowering customers through technology
Several services are available at the click of a button. The Interactive Voice Response system of insurers will give details on policy status, due date, loan and surrender value. As a result, intervention by agents can be minimised. E-governance should enable outsourcing such activities to generate employment, and the Digital India campaign can give a fillip. Mobile apps can be developed to boost efficiency. The industry has been lacking in training modules on websites.
By RR Grover
The author is director, Amity School of Insurance, Banking & Actuarial Science and former chief of marketing, LIC