In an attempt to make insurance available to people of the lower income groups in the semi-urban and rural areas, the Finance Minister (FM) – Mr Pranab Mukherjee has urged the insurance regulator – Insurance Regulatory and Development Authority (IRDA) to adopt an appropriate model which can deepen the insurance market (and thereby bring financial inclusion).

Also stressing on the need to enhance market profitability of the insurance companies, Mr Mukherjee advised the insurance regulator to have a holistic approach by putting in place a new business model and not merely adopt aggressive price based competition; since unhealthy competition is matter of concern.

In his view, insurance companies should focus on proper business and distribution mix along with excellence in operation and handling claims. Thus it has been suggested that insurance companies should:

 

• Adopt a granular growth approach and realign resources differentially by channel, product and geography
   
• Strengthen core distribution capabilities
   
• Deeper retention through ‘customers lifecycle management’
   
• Invest in technical excellence and
   
• Drive comprehensive expenses management
   

Above all, Mr Mukherjee also advised the IRDA to promote long-term savings and protection plans keeping in mind the interests’ of the policyholders.

 

Impact on the policyholders in semi-urban and rural areas...

The policyholders in the semi-urban and rural areas may experience better and efficient service from the insurance companies as the measures advised, along with the approach laid down for them is quite robust. Also, by not indulging in price war through variations in premium, the premium amount for a particular type of policy will remain more or less similar thus helping the policyholders in making the choice of buying insurance from a better insurer rather than the one having a lower premium. Also, investments in technical assistance by the insurance companies will result in better and faster service to the policyholders.

 

Our view:

In our opinion the concerns addressed by the Finance Minister to the IRDA board are attempted to deepen the insurance market, which we believe is a right step. The service factor is the key in these semi-urban and rural areas as they are ignored and many a times not given due attention. A second level agency model or sub-agency model will help penetrate the rural areas in a much comprehensive way than otherwise. This is because there are very few incentives for an agent to go in rural areas and serve clients there. Instead the second level agency model is a better fit, as the sub-agent appointed by the main agent will provide service to the policyholders in the rural areas.

Moreover, the sub-agent is most of the times a person from that particular rural area only. This not only saves the cost leading to better expense management but also at the same time helps in job creation in the rural areas which ultimately helps in achieving a much bigger goal of employment creation in the country.

However having assessed the merits of this model (aimed to deepen the insurance market), we think that the insurance regulator should have proper checks and balances in place to see that mis-selling does not occur. Moreover, the IRDA should pull- up insurance companies (by taking punitive measures) if they do not adhere to the insurance contract or promote mis-selling in any way.

 

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Comments
meduri@faneastmercantile.com May 10, 2012 dear all.thanks very much for this service.a very good move to evacuee very rich and very innocent customers who in india never know what good questions to ask life insurance agent or socalled WEALTH/RELATIONSHIP MANAGERS.irda has done nothing sir!nothing sofar.very few people can read a policy benefit illustration before signing any ulips.

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