Distribution reforms the key, say insurance CEOs and regulator

In his Budget speech, Finance Minister P Chidambaram proposed liberalising the insurance distribution network by allowing banks to act as brokers. However, chief executives (CEs) in the insurance sector say it would take a long time before this is implemented.

The issue was one among many debated at the Business Standard Insurance Roundtable here. It was attended by CEs of five insurance companies. R K Nair, member, finance and investment represented the Insurance Regulatory and Development Authority.

Emphasising the need for the sector to grow, Nair said, “We are happy with the Budget proposal of letting banks become insurance brokers.”

However, while agreeing that reform of the distribution architecture was important, insurers were not so optimistic about the outcome of the Budget proposal. Amitabh Chaudhry, managing director and chief executive officer, HDFC Life Insurance, said he wasn’t sure why banks would become brokers. “It is not easy for banks to sell products of multiple insurers. They may sell it because they would get more money and not because customers want it. But is there enough money?” he asked.

P Nandagopal, MD & CEO, IndiaFirst Life Insurance, said growth through bancassurance would not happen soon. “The engagement levels required by both parties are high. Hence, big growth via this channel will take some time,” he said. He added most banks were not interested in taking the multi-tier approach, as there wasn’t much of a revenue model.

G Srinivasan, CMD, New India Assurance, said banks had not been investing resources in training people. “Through these reforms, banks would be made more accountable,” he said.

Suresh Mahalingam, MD & CEO, Tata AIA Life Insurance, said for the sector to return to the golden era of 2004-2008, an enabling distribution and profitability was needed. “Opening up bancassurance is a pre-requisite for the industry to grow and it augurs well.”

Banks could sell the good product of one segment of one company, coupled with a product of another segment by another company, said Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance.

“This will help banks to cater to consumers in a better way,” he said. Apart from bancassurance, the other issues discussed included simpler language in insurance policy for a better understanding by customers and easier licensing of agents, by making a differentiation between those selling simple and complex insurance products.

There was a consensus on the need for faster product approval. Srinivasan said the regulator needed to have a process of clearing new products by examining the basic features and letting companies innovate. Dasgupta said the scope of mis-selling was also low, as the product structure was comparatively simpler.

Instead of following the current model of sending out an ‘exposure draft’ to companies and then taking a decision, the insurers called for better collaboration with companies to enable a strong industry-regulator interface.

Irda’s Nair said the performance of India’s insurance should be seen in comparison to other nations. “In comparison to China and Brazil, we are slightly better off. Though penetration in India seems to have fallen, that of the world on an average, has also fallen,” he said. “We can look forward to a better period in the coming year.”