Project Report on Insurance

PROJECT REPORT “DISTRIBUTION CHANNELS OF INSURANCE SECTOR” In partial of the requirement of Master in Management StudiesConducted by:University of MumbaiThrough:Rizvi Institute of Management Studies & ResearchUnder the Guidance of:Prof. Garima SharmaSubmitted by:Danish ShaikhMMS Marketing (2008-10)

The liberalization followed by growth of the Indian Insurance Industry has opened wide oppurtunities for service & infrastructure sectors. This growth has to be properly channelized. Some of the major challenges which have to be addressed for challenging the growth of Insurance sector are product innovation,Distribution network, Investment management, Customer service and education. The aim of this project is to have an indepth knowledge of the booming Insurance sector in India and to study the various “Distribution Channels in Insurance Sector in relation to Reliance life insurance” which will help in increasing the penetration of Insurance in India and also reduces the cost of Insurers. Firstly the Insurance industry as a whole has been studied with emphasis on various Insurance channels. Then the emerging distribtion channels in Insurance industry have been discussed. Emphasis is given on the new distribution channels which are recently tried in India such as retail stores, telcassurance, and Internet. Finally the recommendations and conclusions on the basis of my understanding and analysis about the Indian insurance sector has been made.

INTRODUCTION Insurance is nothing but a system of spreading the risk of one onto the shoulders of many. While it becomes somewhat impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose.Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-life, provides people with a reasonable degree of security and assurance that they will be protected in the event of a calamity or 1

failure of any sort.Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance. INSURANCE INDEMNIFIES ASSETS & INCOME Every Asset has a value and generates Income to its Owner. There is a normally expected Life-time for the Asset during which time it is expected to perform. If the Asset gets lost earlier, being destroyed or made Non-functional through an Accident or other unfortunate event the Owner is Prejudiced. Insurance helps to reduce CONSEQUENCES of such Adverse Circumstances which are called Risks. INSURANCE IS THE SCIENCE OF SPREADING OF THE RISK It is the system of spreading the losses of an Individual over a group of Individuals INSURANCE IS A METHOD OF SHARING OF FINANCIAL LOSSES Of a few from a common fund formed out of Contribution of the many who are equally exposed to the same loss.What is uncertainty for an Individual becomes a certainty for a Group. This is the basis of All Insurance Operations. Thus insurance convert uncertainties to certainty

THE HISTORY OF INDIAN INSURANCE INDUSTRY Life Insurance In 1818 the British established the first insurance company in India in Calcutta, the Oriental Life Insurance Company. First attempts at regulation of the industry were made with the introduction of the Indian Life Assurance Companies Act in 1912. A number of amendments to this Act were made until the Insurance Act was drawn up in 1938. Noteworthy features in the Act were the power given to the Government to collect statistical information about the insured and the high level of protection the Act gave to the public through regulation and control. When the Act was changed in 1950, this meant far reaching changes in the industry. The extra requirements included a statutory requirement of a certain

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level of equity capital, a ceiling on share holdings in such companies to prevent dominant control (to protect the public from any adversarial policies from one single party), stricter control on investments and, generally, much tighter control. In 1956, the market contained 154 Indian and 16 foreign life insurance companies. Business was heavily concentrated in urban areas and targeted the higher echelons of society. “Unethical practices adopted by some of the players against the interests of the consumers” then led the Indian government to nationalize the industry. In September 1956, nationalization was completed, merging all these companies into the so-called Life Insurance Corporation (LIC). It was felt that “nationalization has lent the industry fairness, solidity, growth and reach.” Some of the important milestones in the life insurance business in India are:1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: The market contained 154 Indian and 16 foreign life insurance companies.

GENERAL INSURANCE

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The General Insurance industry in India dates back to the Industrial Revolution and the subsequent increase in trade across the oceans in the 17th century. As for Life Insurance, the British brought General Insurance to India, and a similar path was followed in the development of this industry. A number of private companies were in existence for years and years until, in 1971, the Indian Government decided that the public interest would be served by nationalizing the industry, merging all the 107 companies into four companies, depending on the sort of business transacted (Marine, Fire, Miscellaneous). These were the National Insurance Company Ltd., the Oriental Insurance Company Ltd., the New India Assurance Company Ltd., and the United India Insurance Company Ltd. located in Calcutta, New Delhi, Bombay and Madras respectively. The General Insurance Corporation (GIC) was set up in 1972 as a ‘holding’ company, having these four companies as its subsidiaries. Some of the important milestones in the general insurance business in India are:1907: The

Indian Mercantile Insurance Ltd . set up, the first company to transact all classes of general insurance business. 1957: General Insurance Council , a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalize the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd

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. GIC incorporated as a company.

PRESENT SCENARIO IN THE INSURANCE SECTOR •Insurance agents are the main intermediaries in the Indian insurance market, but with liberalization brokers will be an additional channel for selling insurance products. •Brokers are likely to play a major role in ensuring clients get insurance covers tailor made to suit their requirements at good terms. •Fast growing middle class of 300 million who can afford insurance. •Increasing financial strength of middle class with disposable income. •Narrowing gap between rural and urban populace in terms of access to information and services. •More and more entrepreneurs in traditional and modern business areas. •Increase in number of double income families leading to lifestyles and attitude changes •Growth of rural market is at 4 times of urban markets. •The potential of the Indian insurance market is huge with current life insurance penetration being only 1.9 of the GDP. •Insurance market is set to touch 25 billion by 2010 in India. (It was only 7.2 billion in 98-99 survey. At that time India’s rank in annual premium was 23rd for Life insurance and contribution in GDP was merely 1.4%). Presently it is still lower then develops economy but increased to 2.61% of GDP in 2002. So immense opportunity can’t be ignoring.

MAJOR PLAYERS IN THE INSURANCE INDUSTRY IN INDIA •Life Insurance Corporation of India (LIC)

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Life Insurance Corporation of India (LIC) was established on 1 September 1956 to spread the message of life insurance in the country and mobilise people’s savings for nation-building activities. LIC with its central office in Mumbai and seven zonal offices at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and Bhopal, operates through 100 divisional offices in important cities and 2,048 branch offices. LIC has 5.59 lakh active agents spread over the country.The Corporation also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. LIC is associated with joint ventures abroad in the field of insurance, namely, Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance Company Limited, Kuala Lumpur; and Life Insurance Corporation (International), E.C. Bahrain. It has also entered into an agreement with the Sun Life (UK) for marketing unit linked life insurance and pension policies in U.K.In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US). LIC has even provided insurance cover to five million people living below the poverty line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of global average of 40 per cent. Compounded annual growth rate for Life insurance business has been 19.22 per cent per annum •General Insurance Corporation of India (GIC) The general insurance industry in India was nationalized and a government company known as General Insurance Corporation of India (GIC) was formed by the Central Government in November 1972. With effect from 1 January 1973 the erstwhile 107 Indian and foreign insurers which were operating in the country prior to nationalization, were grouped into four operating companies, namely, (i) National Insurance Company Limited; (ii) New India Assurance Company Limited; (iii) Oriental Insurance Company Limited; and (iv) United India Insurance Company Limited. (However, with effect from Dec'2000, these subsidiaries have been de-linked from the parent company and made as independent insurance companies). All the above four subsidiaries of GIC operate all over the country competing with one another and underwriting various classes of general insurance business except for aviation insurance of national airlines and crop insurance which is handled by the GIC.Besides the domestic market, the industry is presently operating in 17 countries directly through branches or agencies and in 14 countries through subsidiary and associate companies.

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IN ADDITION TO ABOVE STATE INSURERS THE FOLLOWING HAVE BEEN PERMITTED TO ENTER INTO INSURANCE BUSINESS: The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 82 % ( 2004-05). 1. HDFC STANDARD LIFE INSURANCE COMPANY LTD .HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India’s leading housing finance institution and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom. Their cumulative premium income, including the first year premiums and renewal premiums is Rs. 672.3 for the financial year, Apr-Nov 2005. They have managed to cover over 11, 00,000 individuals out of which over 3, 40,000 live have been covered through our group business tie-ups. 2.MAX NEW YORK LIFE INSURANCE CO. LTD. Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global expert in life insurance. With their various Products and Riders, there are more than 400 product combinations to choose from. They have a national presence with a network of 57 offices in 37 cities across India. 3. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and Prudential plc, a leading international financial services group headquartered in the

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United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). The company has a network of about 56,000 advisors; as well as 7 bancassurance and 150 corporate agent tie-ups. 4. OM KOTAK MAHINDRA LIFE INSURANCE CO. LTD. Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak Mahindra Bank Ltd. (KMBL), and Old Mutual plc. 5. BIRLA SUN LIFE INSURANCE COMPANY LTD. Birla Sun Life Insurance Company is a joint venture between Aditya Birla Group and Sun Life financial Services of Canada. 

TATA AIG LIFE INSURANCE COMPANY LTD.

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SBI LIFE INSURANCE COMPANY LIMITED

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ING VYSYA LIFE INSURANCE COMPANY PRIVATE LIMITED

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ALLIANZ BAJAJ LIFE INSURANCE COMPANY LTD.

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METLIFE INDIA INSURANCE COMPANY PVT. LTD.

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AMP SANMAR ASSURANCE COMPANY LTD.

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DABUR CGU LIFE INSURANCE COMPANY PVT. LTD

1.ROYAL SUDRAM ALLIANCE INSURANCE COMPANY LIMITED this joint venture bringing together Royal & Sun Alliance Insurance and Sundaram Finance Limited started its operations from March 2001. The company is Head Quartered at Chennai, and has two Regional Offices, one at Mumbai and another one at New Delhi. 2. BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED

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Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited and Allianz AG of Germany. Both enjoy a reputation of expertise, stability and strength. Bajaj Allianz General Insurance received the Insurance Regulatory and Development Authority (IRDA) certificate of Registration (R3) on May 2nd, 2001 to conduct General Insurance business (including Health Insurance business) in India. The Company has an authorized and paid up capital of Rs 110 crores. Bajaj Auto holds 74% and the remaining 26% is held by Allianz, AG, and Germany. 3. ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED ICICI Lombard General Insurance Company Limited is a joint venture between ICICI Bank Limited and the US-based $ 26 billion Fairfax Financial Holdings Limited. ICICI Bank is India's second largest bank; while Fairfax Financial Holdings is a diversified financial corporate engaged in general insurance, reinsurance, insurance claims management and investment management.Lombard Canada Ltd, a group company of Fairfax Financial Holdings Limited, is one of Canada's oldest property and casualty insurers. ICICI Lombard General Insurance Company received regulatory approvals to commence general insurance business in August 2001. 4. CHOLAMANDALAM GENERAL INSURANCE COMPANY LTD. Cholamandalam MS General Insurance Company Limited (Chola-MS) is a joint venture of the Murugappa Group & Mitsui Sumitomo. Chola-MS commenced operations in October 2002 and has issued more than 1.4 lakh policies in its first calendar year of operations. The company has a pan-Indian presence with offices in Chennai, Hyderabad, Bangalore, Kochi, Coimbatore, Mumbai, Pune, Indore, Ahmedabad, Delhi, Chandigarh, Kolkata and Vizag.

5. TATA AIG GENERAL INSURANCE COMPANY LTD. Tata AIG General Insurance Company Ltd. is a joint venture company, formed from the Tata Group and American International Group, Inc. (AIG). Tata AIG combines the strength and integrity of the Tata Group with AIG's international expertise and financial strength. The Tata Group holds 74 per cent stake in the two insurance ventures while AIG holds the balance 26 per cent stake.Tata AIG General Insurance Company, which started its operations in India on January 22, 2001, offers the complete range

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of insurance for automobile, home, personal accident, travel, energy, marine, property and casualty, as well as several specialized financial lines. 6. RELIANCE GENERAL INSURANCE COMPANY LIMITED. 7. IFFCO TOKIO GENERAL INSURANCE CO. LTD 8. EXPORT CREDIT GUARANTEE CORPORATION LTD. 9. HDFC-CHUBB GENERAL INSURANCE CO. LTD.

MARKET SHARE OF TOP 10 INSURANCE COMPANIES: •LIC (Life Insurance Corporation of India) still remains the largest life insurance company accounting for 64% market share. Its share, however, has dropped from 74% a year before, mainly owing to entry of private players with innovative products and better sales force. •ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company in India. It experienced growth of 58% in new business premium, accounting for increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07. •Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after LIC) in number of policies sold in 2007-08, with total market share of 7.36%. •SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked 6th in 200708. New premium collection for the company was Rs 4,792.66 crore in 2007-08, an increase of 87% over last year. •Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business premium and 4th in number of new policies sold in 2007-08. •HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY 2007-08, registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 th among the insurance companies and 5th amongst the private players.

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•Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to 2.11% in 200708. The company moved to the 7th position in 2007-08 from 8th a year before, pushing down Max New York Life insurance company. •Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total new business generated was Rs 641.83 crore as against Rs 387.51 crore. The company was pushed down to the 8th position from 7th in 2007-08. •Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company reported growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19% in 2007-08. Last year the company doubled its branch network to 150 from 74. •Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08 from 9th last year. It has presence in more than 3,000 locations across India via 221 branches and close to 40 bancassurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs 344 crore. With the fresh investment, total paid-up capital of the insurer would go up to Rs 1,348.8 crore

MARKETING OF INSURANCE IN INDIA Insurance is in a manner of speaking the last frontier in the financial sector to open. It is also a sector, which leads to benefits across the full spectrum, from the individual who now have wider choices, to the economy, which see increased savings, to the infrastructure sector, which can look forward to long term funding being available. In an under-insured economy, newer channels of distribution have to be utilized to intensify the reach of insurance both in urban and rural markets. This will create huge employment opportunities not only within insurance companies but also as agents and consultants of insurance companies. Marketing Mix Policies Different companies can choose to position themselves differently and hence the Marketing Mix is different. However, there are certain common characteristics that one can cull out from the possible strategies that companies adopt.

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Product: The development of flexible products to suit individual requirements is what will differentiate the winners from the also-rans. The key to success is in providing insurance solutions, not standardized insurance products. The concept of riders/optional benefits has already been a huge innovation brought about by the new players, which has led to customization of products for individual needs. However, companies may differentiate themselves on the basis of product segments that they choose to focus on and excel in. Place: Different companies may however choose different channels and different geographies to focus on. The channel options are - tied agency force, corporate agents and brokers and this is an area where different companies will make different choices. Many companies like HDFC Standard Life are focusing on all channels whereas companies like Max New York Life are focusing on the tied agency force only. Customer interface will be a key challenge for life insurance companies and includes every that interaction that the customer has with the company, such as sales, new business underwriting, policy servicing, premium payments, claim processing and so on. Technology can play a crucial role in delivering the highest standards of service set by the company and it will be imperative for any serious player to excel in all of these. Price: Price is a relevant differentiator only in two segments - pure term insurance and in pure annuities. Here too, service delivery and financial strength will need to be present at a minimum acceptable level for price to be a relevant differentiator. In case of savings oriented products, long-term returns generated are more relevant than just the price of the product. A focus on generating good investment performance and keeping a tight control on costs help in generating good long-term maturity value for customers. Norms have been laid down on all of these by IRDA and adhering to these while delivering good returns will be a challenge. Promotion and Advertising: The level of demand is latent and will have to be activated considerably. The market needs to be developed. Greater awareness of insurance and the need to have it as a protection tool rather than as a tax planning measure needs to be appreciated by the Indian people. Various communication tools

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including advertising, direct marketing and road shows contribute to all this and different companies take different approaches on these. Process: Cashless settlement: One of the most defining and customer-friendly changes that we’ve seen in recent years relates to the way claims settlements are made. The advent of the third-party administrator (TPA) regime has facilitated the transition to the hugely convenient era of cashless settlement of health and auto insurance claims. TPAs are entities who process claims on behalf of insurers: the IRDA licenses them after it is satisfied that they have the financial strength, the trained manpower, the infrastructure and the skills to undertake this activity. Likewise, with auto insurance, the TPA ties up with garages and authorized service centers for cashless settlement of auto insurance claims. Lower premiums: The spirit of competition and the broadening of the risk experience of insurance companies have contributed to a fall in premiums over the years. That’s because, other things being equal, an insurer who covers the lives just of 10 people bears a higher risk than an insurer who covers the lives of, say, 100 people. Further, a broader base will provide greater efficiencies on costs such as distribution, management and claims. A broad basing of the mortality experience, therefore, gives insurers the elbowroom to compete by lowering premiums, and that trend is expected to continue.

Premium payment flexibility: Insurers have imparted certain flexibility to premium payment options in order to address this concern. For instance, one now have the option to pay your premiums upfront, which is then carried forward for the tenure of the policy. The yearly premiums are drawn from the initial corpus. Insurers have also introduced the concept of ‘automatic cover maintenance’ to protect your policy from lapsing owing to your omission to pay your premium on time. Under this, in the event of your not paying the premium, the insurer dips into your investment account to the extent of the premium. Of course, this comes with an in-built drawback: your investment portion diminishes year on year to the extent of the amount paid to cover your risk. Physical Evidence:

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This can play a significant role for marketing in the Indian scenario. Since Internet users are comparatively lesser than countries such as US, the offline mode will be preferred in India. Although the distribution model is largely agent-based, wherever the customer is in contact with the company, this factor can play a significant role in luring the customer. People: The most important factor that materializes sales and maintains customer relationships on a long-term basis is this factor. No matter what distribution strategy a company adopts, customer relationship has to be taken care of in order to maintain the customer base on a long-term basis.

DISTRIBUTION CHANNELS IN INSURANCE SECTOR:An insurance cover is an intangible product evidenced by a written contract known as the ‘policy’. Insurers market various insurance covers either directly or through various distribution Channels— individual agents, corporate agents (including Bancassurance) and Brokers. The marketer in the distribution network is in direct interface with the prospect and the customer.Life insurance products are sold through individual agents and many of them have this as their only career occupation. General insurance products are sold through individual agents, corporate agents and brokers.Distribution channels such as agents are licensed by the IRDA. To get an agency license, one has to have certain minimum qualifications; practical training in insurance subjects and pass an examination conducted by the Insurance Institute of India.IRDA regulations on licensing of agents/brokers lay down the code of conduct for individual agents, corporate agents and brokers. A separate note on the code of conduct is appended to this note.Thus it is seen that the dos and don’ts for these intermediaries are given clearly at the point of sale as well as in the event of a claim. Service does not end with the customer receiving his document; it in fact only begins here. After sales service is as important or even more important – like when a refund has to be made or when a claim has to be made.One of the issues that is of great concern affecting professionalism in insurance activities is resorting rebating by intermediaries. Rebating is prohibited as per Section 41 of the Insurance Act, 1938 and the public are advised not to deal with intermediaries offering rebate of any kind.

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Rebating means a share of commission receivable by the agent/broker is given to the prospect/client. This is done to attract the client in the purchase of insurance contract by offering cash. Competition among agents/brokers is so cut-throat, some agents indulge in such unethical practices. Public are advised not to ask for any prohibited rebates in premium since commission payment to an agent is the only income for some to take care of their families. Similarly, agents are also advised not to indulge in such practices which could cause them loss of agency income. Why there is need for alternate distribution channels? 1. To increase insurance penetration in the country. 2.To differentiate on basis of customer service. To retain and attract new customers soas to expand business 3. To increase insurance awareness and knowledge among people. 4. To satisfy the needs of more demanding customers. 5. To improve cost efficiency in insurance distribution. 6. What determines choice of distribution channel for an insurance company? 7. Where are the customers? 8. What is target customer profile? 9. Which product (linked, traditional, term etc.) can be sold through distribution channel? 10. Which channel provides best buying experience and value to target customer segment? 11. The customer preferences vary by market segment like geography, age, income, life style etc, and market characteristics change over time. THE EMERGENCE OF NEW DISTRIBUTION CHANNELS: There was a time when captive agents wrote the bulk of an insurance company’s business. But increasingly people are buying insurance products from independent producers and institutional channels such as banks, broker-dealers, IFAs and wire houses. In a way, this is good news for insurance companies. Managing a captive agency force is an expensive business. Studies estimate that insurance companies invest anywhere between $65,000 and $200,000 in training each agent. This investment often does not deliver the desired return because there is a great deal of attrition among agents. Besides training, there are huge operational overheads attached to maintaining a captive force.Independent

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producers and institutional channels are likely to bring new efficiencies into the distribution framework and corner a larger percentage of the policies written. For instance, banks and large broker-dealers already have huge networks in place, existing relationships with customers and brand equity. If insurance companies are able to position themselves as preferred partners with these channels, they could quickly increase their market share and at the same time bring down their cost per business acquisition. THE CONSUMER IS EVOLVING AND SO ARE HIS NEEDS: The way consumers look at insurance products today is completely different from how they looked at them a few years ago. Insurance products are no longer about just covering risks and lives. Since the 1980s insurance in many markets has increasingly become a wealth-management product. Consumers are seeking variety and customizability in their investment portfolios. The demographics are also in favor of insurance companies. The average lifespan is increasing and so are standards of living. This is creating demand for products that not only offer protection but also double up as investments. Insurance companies have an opportunity to bring innovation into their product mix. They can gain a competitive advantage by quickly launching innovative products that are aligned with evolving consumer needs. To do this, insurance companies must be able to understand consumer needs better and have agile systems that let them launch products quickly. To capitalize on these opportunities, however, insurance companies must get closer to the customer by expanding their distribution network. They have to incorporate new and alternative channels, arm the sales forces with effective sales tools and position themselves as preferred partners with their channels.In most markets, except Asia, insurance carriers generate more than 80% of their business through alternative distribution channels such as bancassurance, broker-dealers, wire houses and IFAs. The key challenge for insurers is to attract and retain these distribution channels by: • Making it easy for channels to do business with them • Providing good and quick underwriting support • Delivering differentiated service to top performers. • Providing proactive service • Launching incentive plans and contests • Managing commissions in a more efficient manner in a marketplace where products are increasingly becoming commoditized, the big differentiator that insurers can offer their channels is ease of doing business.

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Ins urance companies can position themselves as preferred providers by delivering on key areas such as: • New business and underwriting support • Marketing and sales support • Underwriting speed • Client services • Commission rate -at how insurance companies can streamline their distribution networks, address the business and technological challenges and capitalize on the opportunities.

Changes in distribution pattern of Life Insurance after IRDA came into existence. “MULTIPLE CHANNELS” BANKS CORPORATES BROKERS TELEMARKETING/WORK-SITE MKTG. INTERNET 6. OTHER DISTRIBUTION CHANNELOther distribution channels that have promise are •

Department stores

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Post offices

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Retail chain

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. Basically, these channels provide the convenient features and simple underwriting. These channels can also be used to generate leads for a more complex sale. 7. INVISIBLE INSURER In this model, the insurance company or its representative is not the entity marketing the products. The insurance cover is sold by an automobile /credit card company as an add-on product leveraging the brand of the retailer. The risk is carried by the insurance company, which underwrites it. . Products like creditor insurance, automobile insurance, and credit card related insurance could be distributed using this channel. This model can be adopted in all market segments for the lines of business mentioned. It is already prevalent in some areas like credit card insurance and crop insurance for agricultural loans. The new players are also attempting this model.

Essence

The success of marketing insurance depends on understanding the social and cultural needs of the target population, and matching the market segment with the suitable intermediary segment. In addition a major segment of the Indian population has low disposable income, meaning that every penny won will be obtained after a lot of persuasion and the expected value for money is high. All intermediaries can't sell all lines of business profitably in all markets. There should be clear demarcation in the marketing strategies of the company from this perspective. Clients should also receive price differentials for using different channels. This is not a new concept, as the Public sector Property & Casualty companies are giving discounts in lieu of agency commission. The channel composition should not be homogeneous but should reflect the larger society. For example: •Agents from different economic, social strata and different age and gender. •Bancassurers ranging from multinational banks to micro credit lending agencies. •Brokers stretching from corporates to NGOs to milk co-operatives

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These intermediaries need to be empowered with the right learning, training and sales tools and technology enablers. Coupled with the right product mix, this will help the insurers to survive and flourish in this competitive market. The players have started exploring new channels of distribution just the way the developed economies have done it in the past. Some of the new channels of distribution are marketing through a dedicated (a) Sales force (tied agents),(b) Corporate agents (DSA like),(c) Bancassurance,(d) Work-site marketing,(e) Independent financial advisors (individual qualified agents) telemarketing (DM),(f) Retail chains,(g) Internet, (h) NGOs,(i) Brokers etc.The mantra is innovation and diversification. Distribution is more crucial for the life insurer, which needs to have a mass retail base to minimize the chances of being adversely affected by any casualty.The companies are using different models each model has its pros and cons, the bancassurance model is cost-effective and is also quite efficient for market penetration. This is for the simple reason that since the banking and insurance industry share a common target of financial services customers, the existing customer base of banks can be targeted rather than building a new one. Private players are currently following various permutations and combinations of the above mentioned distribution strategies and trying to grab the market share in the country.

Distribution channels preferred by consumers Many People still rely on traditional means to get Insurance Policies i.e. Agent though they are also tapping on new means like Banks & Cell phone.

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