Last Updated on June 25, 2020 by Rajeev Bagra
Like many other businesses before the advent of the internet, face-to-face contact was considered essential in selling a product and insurance no exception with agents bringing a bulk of business for an insurance company. Now, at a time when direct sale of insurance policies by visiting the website of an insurance company or use of comparison websites picking up because of the internet that eliminates intermediaries like agents, the role of agents, especially in cities and towns with audience comfortable using PC, is redefined.
It can no longer be offering and collecting data from customers which can be done by customers themselves through online means. The challenge for agents here is to provide more value-added services by including insurance as part of complete financial planning. This is one of the reasons why Chartered Accountants with IRDA license are in an advantageous position to secure more insurance business because of involvement in preparation of final accounts of clients (statutory auditors are, of course, not allowed to sell insurance policies at the same time to clients under section 144 of the Companies Act, 2013).
Despite big development stories, the fact remains that literacy level in rural India is still low (without going to statistical data). A visit to a small town/village is enough to suggest that a significant section of the population is not in a position to do a research on best insurance products available online and buy by themselves. Microinsurance should continue to be an important theme for farmers, laborers, small retailers, and artisans here.
Consider Met Grameen Ashray from PNB MetLife. This is a pure term microinsurance plan non-par with a minimum premium of Rs. 61, maximum Rs. 1208. Minimum sum assured is Rs. 5000 and maximum Rs. 50000. In the event of a death of the policyholder during the coverage term, the nominee shall receive the chosen sum assured as lump sum. E.g. a person aged 40 years pays Rs. 395 (inclusive of all taxes at the prevailing rates) every year for a protection amount of Rs. 25,000. In case of death during the Coverage Term of 5 years, his nominee gets Rs. 25,000. Although very useful for the rural populace, such term products are difficult to sell because there is a perception (even in an educated community) that if I survive the policy term, I get zero return. This is a dilemma as life insurance is originally meant to cover risk related to unanticipated death (and not a tool of investment) providing financial security to family members, the concept best reflected in term insurance.
Organizing insurance awareness campaign (exhibitions and fairs), meeting face to face should help add value by agents and brokers, something not possible through the direct portal of an insurance company or comparison websites.
In India, Insurance Regulatory Development Authority is the government body regulating the insurance market. Included in the role is “specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents.”
Current regulations by IRDA restrict individuals to act as agent for only one life insurance company at a time (exclusivity clause). This may appear surprising keeping in mind that one of the goals of IRDA is “promoting efficiency in the conduct of insurance business.” If agents are allowed to sell policies of different companies, they can compare different products and suggest ones which they think serve the interest of a client best.
Suppose, I am enrolled as agent for PNB Metlife. What happens if I find a Term Plan from LIC and Money Back Plan from PNB Metlife compelling at the same time for a client? If I put the interest of client first, I end up losing my commission because of suggesting Term Plan from LIC which he gets done through an LIC agent going forward. The other option is to suggest a Term Plan product from PNB Metlife thereby compromising with the noble stand of “client first.”
This fact is indirectly admitted by IRDA when their study note for agents defines brokers: Insurance brokers are allowed to sell products of more than one or many insurance companies. They have the advantage of being able to compare the insurance products of various insurance companies and then offer a plan that best suits the requirements of the customer. The plus with brokers is that they can keep the interest of the customer in mind and offer him the product that best suits him, cutting across company lines.
The remedy then lies in allowing agents to have the right to represent all insurance companies (or a number of companies they choose to apply) by single registration so that they can bring into table benefits of comparison. This feature will also make agents more trustworthy in the eyes of clients as the same should reduce instances of forced selling.
It is not that the issue of exclusivity was not in the mind of regulators. The Report of the Committee on Distribution Channel constituted by IRDA (May 2008) stated: The exclusivity clause in the regulation currently restricts the agent from working with more than one insurance company. In order to provide a comprehensive product range to the consumer with comparison across products, it is proposed that the retail insurance agent be allowed to contract with multiple insurance companies.
Point of Sales Person (POSP) 2016
Becoming an insurance broker is a costly thing. An applicant seeking to become an insurance broker needs to have minimum 50 lakhs of INR as capital (Direct Broker), two hundred lakhs (Reinsurance Broker), and 250 lakhs (Composite Broker) as per IRDA (Insurance Brokers) Regulations, 2002. There is an annual fee of INR 15,000 for direct brokers, INR 35,000 for reinsurance brokers, and INR 50,000 for composite brokers. The remedy can be getting yourself enrolled with programs like Aditya Birla POSP (Point of Sale Person) that helps you sell insurance products from multiple insurance companies because you are working on behalf of a broker.
As per Guidelines on Point of Sales (POS) –Life Insurance Products: An Insurer or an insurance intermediary authorized to solicit and market life insurance business can engage a “Point of Sales Person”. Since broker is an insurance intermediary, by getting engaged under a broker as POSP, you can sell insurance policies of multiple companies.
With reduced educational requirement (class X), it is true that POSPs are not allowed to sell complex insurance policies. But since its introduction, more policies are brought under its ambit.
- Simple to understand
- Stated upfront clearly
- Fixed / pre-defined