The Journal of Insurance Institute of India

Traditional & Modern channels

Critical Analysis of Traditional and Modern Insurance Distribution Channels In India

Abstract
Distribution is a key determinant of success of all insurance companies. It is a combination of different decisions regarding various channels of distribution. An insurer covers the market through various distribution channels like individual agents, corporate agents including bancassurance and insurance brokers. Better channel management is likely to improve channel performance in the long run. It therefore makes sense to look at well balanced, alternate channels of distribution like internet channel, bancassurance, telcassurance, shopassurance etc. The main purpose of this article is to critically examine the insurance distribution channels in India, and to propose innovative alternate channels of distribution which benefit both insurers and consumers. The Indian insurance industry was selected for the study, since multiple channels are common in the distribution of the

Shri Irfan Bashir Doctoral Research Scholar

Department of Management, Pondicherry University - Karaikal Campus, Nehru Nagar, KARAIKAL, Pondicherry State - 609 605. irfanbashir18@gmail.com

Dr. C. Madhavaiah Assistant Professor

Department of Management, Pondicherry University - Karaikal Campus, Nehru Nagar, KARAIKAL, Pondicherry State - 609 605. drcmadhavaiah@gmail.com

various insurance products. The study collected and analysed information on the channel strategies followed by various insurance companies, and channel wise contribution in total insurance business of India. Authors studied attributes of these channels and also carried SWOT analysis for each channel. The paper presents some useful alternate channels for insurers to cover the untapped potential market. This paper provides useful information to practitioners for understanding the essence of alternate channels for distribution of insurance services and gain competitive advantage. Key Words: Indian Insurance, Distribution Channels, Strategy, Performance, SWOT analysis.

Shri J. Rama Krishna Naik Doctoral Research Scholar

Department of Management, Pondicherry University - Karaikal Campus, Nehru Nagar, KARAIKAL, Pondicherry State - 609 605. krishna19ram@gmail.com

Introduction
The Indian insurance industry has experienced various challenges and major structural changes since the

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1990s. Indian insurance industry, for a long period, relied heavily on traditional agency distribution channels. Since the insurance industry was completely under the monopoly of the public sector organizations for decades, there was a slow and rugged growth in the insurance business due to lack of competitive pressures. The Government of India, in 1994, appointed a Committee under the Chairmanship of R. N. Malhotra, former Governor of RBI, to study the need for private participation in the insurance industry. The committee reported that only 22 per cent of the Indian population was insured. Based on the committee report, the Government of India took necessary initiatives to improve the operational efficiency of insurance companies and insurance penetration as well. The year 1999 brought a remarkable change in the Indian insurance sector, as a result of major structural changes like ending of Government monopoly and passing of the Insurance Regulatory and Development Authority (IRDA) bill, relaxing all entry restrictions for private and foreign players to enter into the Indian market. Innovative products, smart marketing and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. The Insurance industry in India experienced substantial growth in terms of numbers, life insurance premium, number of policies and distribution network, after the opening up of the industry to the private sector. Today, there are totally 44 registered players penetrating into insurance business with 22 in life and 21 in general insurance businesses and one national re-insurer (IRDA Report). Distribution channels function as arteries in a marketing network that delivers goods and services to consumers. Today,

The Journal of Insurance Institute of India

distribution is increasingly seen as one of the key marketing variables (Devlin, 1995; Thornton and White, 2001), capable of providing significant competitive advantage, particularly in the service sector where consumer, technological, and regulatory trends have increased competitive pressures markedly. The new era of insurance development in India has seen the entry of international insurers, the proliferation of innovative products and distribution channels, and the raising of supervision standards. Intensified competition, rising agent costs, and product transformation have driven insurers to seek more efficient approaches to operate in the market. Many insurers in India changed their distribution strategies from direct writers to a coexistence of agent-led, broker-led, bank-led and other forms of distribution systems. The main purpose of this article is to critically examine the insurance distribution channels in India, and to propose innovative non-conventional channels of distribution which benefit insurers and consumers. The next section of the article provides an overview of Indian insurance distribution channels, including a SWOT analysis for each channel. In the following section, analysis and discussion about distribution strategies of various insurance companies are provided. Next, customer channel alignment and comparison of various channel attributes, and policy contributions have been discussed. Finally, non-conventional distribution channels are proposed, which is followed by discussion and conclusion.

of the various insurance products. Data has been collected from IRDA Annual Reports of previous years on insurance distribution channels of 23 insurance companies. Data on distribution channel usage by insurers is difficult to obtain, but what we could obtain does allow us to gain several interesting insights into some of the changes that are occurring. For this study, the data, on the channel strategies followed by various insurance companies, and channel wise contribution in total insurance business of India, have been collected and analysed. Furthermore, the Insurance Regulatory Development Authority of India provided diversity of channels used by insurance companies, such as agents, broker, bancassurance and direct. Authors studied attributes of these channels and also carried out SWOT analysis for each channel.

Overview of Indian Insurance Distribution Channels

Distribution channel is the chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. A distribution channel can include wholesalers,

Research Methodology
The Indian insurance industry was selected for the study, since multiple channels are common in the distribution

The Insurance industry in India experienced substantial growth in terms of numbers, life insurance premium, number of policies and distribution network, after the opening up of the industry to the private sector.

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Traditional & Modern channels

Traditional Insurance Distribution Channels in India
Distribution is a key determinant of success for all insurance companies. It is a combination of decisions regarding channels of distribution. An insurer covers the market through various distribution channels, individual agents, corporate agents including bancassurance and Brokers. These are generally called the traditional channels. In todays scenario, agents continue as the prime channel for insurance distribution in India and almost all the players follow this model primarily. However, with new developments in the consumers behavior, evolution of technology and deregulation, new distribution channels have been developed rapidly in recent years. Individual Agents All insurance companies have an agency building distribution strategy under which they recruit, train, finance, and supervise their agents/advisers. For

Table 1: Insurance Distribution Channels existing in India

Traditional Channels Individual Agents Corporate Agent Broker Work Site Marketing Modern Channels Bancassurance Micro-Insurance Alternative Channels Direct Internet Marketing Telcassurance Shopassurance

retailers, distributors and even the internet. Channels are broken into direct and indirect forms, with a direct channel allowing the consumer to buy the goods/services from the company and an indirect channel allowing the consumer to buy the goods/services from an intermediary. Direct channels are considered shorter than indirect ones. Traditionally, tied agents have been the primary channels for insurance distribution in the Indian market; the public sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. The agents are from various segments in society and collectively cover the entire spectrum of society. The profile of the people who acted as agents suggests they may not have been sufficiently knowledgeable about the different products offered, and may not have sold the best possible product to the client. However, the customer trusted the agent and company. This arrangement worked adequately in the absence of competition. Agents continue to dominate as the prime channel for insurance distribution in India. The other distribution channels adopted by insurers in India are: corporate agents, bancassurance, brokers, microinsurance, worksite marketing, direct internet marketing, telcassurance, and shopassurance. Almost all the new players follow the agency channel. The belief that all these channels will grow and seamlessly integrate to bring in business seems a fallacy. Though new players are

coming in and global marketing practices and ideas are being tested, this has not changed the fundamental structure of the market. Table 1 shows the existing insurance distribution channels in India.

Current Insurance Market Share and Potential Market Growth

Figure 1 below shows high potential growth and clear dominance of individual agents in the distribution network of the Indian insurance industry. Bancassurance and corporate agents show potential signs of growth in the long run. However, worksite and internet channels are unfortunately ignored and falling in left bottom quadrant, showing low market shares and low potential channel growth.

Figure: 1 Current Insurance Market Share and Potential Market Growth Figure: 1 Current Insurance Market Share and Potential Market Growth
Low High
Bancassurance
Potential Channel Growth (Medium Term) Corporate Agents

High

Agents

Brokers Direct Worksite Internet

Current market share
Source: Watson Wyatt (2010) Source : Watson Wyatt (2010)

Low

Individual Agents

All insurance companies have an agency building distribution strategy under which they channel for insurance in India. Even today more than 70% of business is carried out

JAN - MAR 2013 was 61the only dist train, finance, and supervise their agents/advisers. For decades, agency

Traditional & Modern channels

decades, agency was the only distribution channel for insurance in India. Even today, more than 70% of the business is carried out through insurance agents. Through an agency, personal contact and relationship can be established with the customer. The system of agents is a major source of both presales and post sales services to customers, since it has a direct relationship with customers. Due to personal contact, it can provide valuable feedback about the need and expectation of consumers. However, it is nowadays considered an old fashioned channel and not fully updated with latest technologies. Brokers Insurance brokers are professionals who assess risk on behalf of a client, advice on mitigation of that risk, identify the optional insurance policy structure, bring together the insured and insurers, and carry out work preparatory to insurance contracts. Brokers represent the customer and will sell the products of more than one company. They seek to determine the best fit for the client and can effectively address the mind block faced by the

The Journal of Insurance Institute of India

The target group may be employees of a particular company, educational institution or any kind if organization.
public about the various companies. The system of brokers is generally applicable in the case of insurance for the high-end and corporate/group segment. Corporate Agents IFAs (Independent Financial Advisors) are authorized agents of insurance companies having tie-ups with more than one insurance company. They are qualified persons or institutions who can provide advice on financial products. Independent financial advisors are commissioned agents whose primary business is the sale of property and casualty insurance for several insurers. IFA assembles different financial products in accordance with customer needs and provide value added products by creating customized

insurance products. Today, IFA show their significant presence as a distribution channel in both life and non-life insurance business. Technically, independent financial advisors who sell insurance policies usually do so as brokers. Worksite Marketing Under this strategy, insurers send team to a target group and explain the products, either individual or group, that are suitable to them at their place of work on a voluntary, payroll-deduction basis. The target group may be employees of a particular company, educational institution or any kind of organisation. Insurance companies will be able to sell insurance products, particularly pension and health plans, through this channel. One possible reason for insufficient development of this channel in India is that employers generally expect some kind of incentive to provide the facilities to the life insurers for making presentations and making arrangements for deduction of premium from salaries. With changes in human resources management policies and compensation packages, group products or work site products do have a definite market that cannot be ignored. Bancassurance Bancassurance in its simplest form is the distribution of insurance products through a banks distribution channel. Insurance companies distinguish bancassurance as a tool for increasing their market penetration and premium turnover. It takes various forms in various countries, depending upon the demography and economic and legislative climate of that country. While bancassurance has become a success story in Europe, it is a relatively new concept in Asia. It was

Figure 2: SWOT Analysis of Agency Distribution Channel

Strengths Well trained staff. In-depth knowledge of the industry. Comprehensive customer insight. Weaknesses A limited number of people inhabiting smalltowns. The high costs of switching current insurance consumers from a competing firm to Height. The struggle to stay ahead on the technological adoption curve in a small, rural community Threats Competition from local brokerages that respond to high superior offerings. A significant slump in the economy that will likely have a correlated effect on the industry. A single of series of huge, unexpected, distressing events that put significant strain on the financial health of the insurance industry as a whole.

Opportunities Participation within a growth industry. Increased sales through an expansion of the current service offerings. As the company continues to grow, the ability to decrease fixed costs over a growing customer base.

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Internet & Rural Kiosks are concerned, they have not yet developed their potential in delivering the insurance product.

introduced in India when the insurance industry was opened up for private players. In India, a bank can tie-up with one general insurance and one life insurance Company as mandated by IRDA regulation. People handling insurance sometimes dont know much about the products and once they make customers, they are not much bothered about their customer queries. Moreover, it will be useful for selling only certain lines of products. In India, bancassurance practice is yet to become popular. Figure 3 shows the SWOT analysis of bancassurance channel. Micro Insurance The huge untapped market for insurance is the rural and social sector. Microinsurance is defined as the protection of low income households against specific

perils, in exchange for premium payments proportionate to the likelihood and cost of the risk involved. It provides an opportunity to the insurance companies to meet their social responsibility as well as secure a strong footing in the rural market. The active distribution channels for micro insurance in India are NGOs, MFIs, and SHGs (self-help groups), Micro agents, Cooperative Banks and RRBs (regional rural banks), and Post Offices. The MFIs/NGOs have been identified as main delivery channels by most of the insurance companies. These have a large network, catering to a huge number of clients. However, most of the MFIs have limited ability to process the insurance claims as such they try to customize the insurance product in order to simplify the operational process involved. As far as formal Banks and RRBs, Post Offices and

Alternative Channels
The new alternative channels of distribution are yet to be utilized in full swing. Till now, nearly 86% insurance policies are sold through traditional channels. Exploitation of retailing and other forms of modern channels will definitely bring life insurance business to new heights. 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. Further, all intermediaries cant sell all lines of business profitably in all markets. There should be a clear demarcation in the marketing strategies of the company from this perspective. It is observed that determining the value of alternative distribution channels is a delicate balance. While a seller may provide significant opportunities in the form of an existing client base, installed distribution, capacity or name recognition, buyers will not want to pay for the value they feel they create with their intellectual and technical capital. Presented well, this sort of exercise can unlock significant value on behalf of the seller. Direct Marketing Insurers have also resorted to direct marketing wherein insurance companies get in touch with the customers without the aid of an intermediary. A separate department has been set up and officers were deputed to solicit and administer insurance business. The advantage of this system is the reduction of cost incurred by the agency system. Company owned sales team concept is now employed by

Figure 3: SWOT Analysis of Bancassurance

Strengths Most suitable for personal line products Householders Comprehensive Insurance 2nd largest middle market segment in the world Huge pool of skilled professionals Just needs to be relocated - no extra manpower required at any level A big collection of personal line products already lined up No or little R & D effort required at the outset Opportunities Banks enormous database Homogeneous groups can be churned out of the database to develop and market products Almost all companies have done just distribution of insurance products for nearly 5-10 years before going into risk carrying business RBI & IRDA should have no hesitation in allowing the marriage of banks and insurance companies Weaknesses Internet essential for operating offices Inflexibility of the products Middle Class overburdened-no money left after tax No incentive for the people to go for insurance - Tax Exemption for all bancassurance products required Lack of goodwill by banks as well as insurance companies Tariffs-inflexible Ratings not based on sound actuarial principles Threats

Requires change in approach, thinking & work culture on the part of everybody concerned Resistance to change due to any relocation Lower rate of return on investment Unholy alliances may lead to rate cutting and bancassurance may never break even Lower profits may lead to insolvency or liquidation despite regulatory regime

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a majority of new players and has proved more effective in customer creation and retention. Internet Initially, insurance was seen as a complex product and buyers preferred face-toface interactions with intermediaries. Nowadays, the advantages of technology allows insurers to increase their reach into the market. All insurers have websites through which they provide information about products and services. In India, Internet penetration is still low. Legality of agreements and the pomposity of wordings pose a difficult problem. The insecurity associated with transactions over the net is still an inhibiting factor. Internet has not evolved into a means for direct selling of insurance in the current scenario. In the Indian market, where insurance is sold after considerable persuasion even after face-to-face selling, selling over the net, which must be initiated by the client, would take some more time. Telcassurance Telcassurance is a direct marketing technique common in western countries. Telephones are used to approach buyers and sell them products and services. Telemarketing is becoming more popular

The Journal of Insurance Institute of India

Table 2: Benefits of Alternate Distribution Channels to Customers and Insurance Companies

Benefits to Insurers Lesser procurement cost Easy access of customer base Known customer and therefore easy risk assessment Channel diversification Increase in market penetration Increase in volume of business Extensive customer reach Benefits to Customers Low premium because of reduced distribution cost Convenient in payment Conveniently getting all financial needs under one roof Double assurance/credibility Easy and automatic renewal Getting better service Refined quality products

due to many reasons such as fuel shortage, lack of parking facilities for vehicles, lack of time for working people to shop outdoor, etc. The idea is also being tried in some of Indias metropolitan cities. In India, many companies are advertising their products on special television programmes and are accepting orders from viewers. Some companies agree to accept orders from viewers and accept payment by debiting their credit cards. As far as service industries in India are concerned, telemarketing is in its infancy. Insurance companies like ICICI and HDFC are trying out this method and of late, LIC has also joined the fray. One must note that telemarketing can have an opposite effect for marketers as many people dont like to receive unwanted calls. Now, in the US, software is also available to filter out such unwanted calls.

Shoppassurance (Multi-Company Service Centres) Another innovative distribution channel that could be used is the nonfinancial organizations. The Indian retail market is the most fragmented in the world and at present, organized retail channel is around 3% of total retail business. But the organized sector is expected to grow at a rate of around 30% per annum. With this huge growth rate of the retail sector, it can become a viable distribution channel for life insurance products. In the life segment, group creditor insurance may be the most suitable product for this channel. However, repeat business or renewal business cannot be assured in this system. Scope of retail business in life insurance is limited as compared to nonlife insurance.

Table: 3: Summary of Distribution Channel Strategy Followed by Various Insurance Companies

Channel Companies Aegon Religare Aviva Bajaj Allianz Bharti AXA Birla Sunlife Canara HSBC DLF Pramerica Future Generali Individual Agents P P P P P O P P Corporate Agents P P P P P P O O Bancassurance O P P P P P P P Brokers P P P P P O O O Direct Selling P P P P P P P P

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P P P P P P P P P P P P O P P O P P P O P P P P O P O P P P P P P P P P P P P O P P O P P P P P P P P P P P O P P O P P

HDFC Standard ICICI Prudential IDBI Federal IndiaFirst ING Vysya Kotak Mahindra Max NewYork MetLife Reliance Life Sahara SBI Life Shriram Star Union Dai-Ichi TATA AIG LIC

P P P P P P P P P P P P P P P

This includes enhanced operations to Figure 4 illustrates the relationship of support a multiproduct, multi-channel distribution channels to segments of distribution model that complements an select customers and demonstrates Star Union Dai-Ichi x x x insurers revenue objectives and profit distribution targets based on the TATA AIG margins. Insurance companies support distributors predisposition to attract LIC complicated distribution processes and retain individual customers in those and must continuously plan, manage, wealth tiers. For insurers to realize the Figure 4 illustrates the relationship of distribution to segments of select customers and evaluate, and adjust support and services highest value from distribution, they must channels to accommodate demands from their improve operations and agent based demonstrates distribution targets based on the distributors predisposition to attract and retain partners. Support forhighest distribution from support for keyin distribution segments. individual customers those wealth tiers. For insurers to realize the value from
distribution they must improve operations and agent based support for key distribution segments.

a flexible and cost-effective technology environment, allows insurers the leeway to readily adopt new distribution channels and adjust services without creating a profit margin imbalance. Table 4 shows the key channel attributes of the various distribution channels. It shows that for insurers to minimize cost and deliver value to customers they should be more focused towards internet, Shoppassurance and Telcassurance. These channels offer a cost advantage and high avenues of growth. The multi-channel

Figure: 4 Distribution Channels Aligned to Target the Various Customer Segments in Indian Insurance Sector

HNI

-Private wealth managers -Registered Investment Advisors

Affluent

- Brokers

Model market

-Banks

Mass Market

-Call centers -Internet -Direct mail

Wealth Tier/ investable assets This includes enhanced operations to support a multiproduct, multi-channel distribution model that compliments an insurers revenue objectives and profit margins. Insurance companies support complicated distribution processes and must continuously plan, manage, evaluate, and adjust support and services to accommodate demands from their partners. Support for distribution from a flexible and cost-effective technology environment allows insurers the

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.

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Table 4: Summary of Key Attributes of Various Distribution Channels
Type of channel Agency Work Site Marketing Micro-Insurance Bancassurance Direct Sales/Marketing Virtual sales (internet) Shoppassurance Telcassurance Cost

The Journal of Insurance Institute of India

Table 4 shows the key channel attributes of the various distribution channels. It shows that for
Accessibility Efficiency Reach they should Security Performance insurers to minimize Profitability cost and deliver value to customers be more focused towards Low Medium Average Lowmix of innovative High Low avenues of growth. The multi-channel strategies with channels can prove to High High in a fierce Average High be a potential game changer competitive environment. Medium Medium Medium Low Average High Average Average

Medium internet, High Medium Average These Medium Medium High and high Shoppassurance and Telcassurance. channels offer a cost advantage High Low Medium Low Very low Medium Low

Figure 5: Total Premium Contributions of Various Channels of Distribution During 2011 Medium High Average Low Average Average Table 4 shows the key channel attributes of the various distribution channels. It shows that for
insurers to minimize and deliver value to customers they should be more focused towards 2% cost 2% Low High High High High High internet, Shoppassurance and Telcassurance. These channels offer a cost advantage and high
Very high Very high High High Medium High

4% High High High Low avenues of growth. High The multi-channel strategies with mix of innovative channels High can prove to 13% be a potential game changer in a fierce competitive environment. Individual Agents (65665.52)

(11062.63) Figure 5: Total Premium Contributions of Banks Various Channels of Distribution strategies with mix of innovative channels Figure 5: Total Premium Contributions of Various Channels of Distribution During 2011 During 2011 Corporate Agents (2957.75) can prove to be a potential game changer Brokers (1471.80) in a fierce competitive environment.
2% 2%

Direct Selling (2016.32)

From figure 5, it is obious that individual 4% 79% agents dominate in terms of both 13% Individual Agents (65665.52) premium collection, as well as new Banks (11062.63) business generation. Bancassurance is Corporate Agents (2957.75) the second major contributor to premium From figure 5 it is obious that individual agents dominate in terms of both premium collection Brokers (1471.80) collection followed by corporate agents. Selling (2016.32) However, in terms of new businessand as well as new business generation. Bancassurance is Direct second major contributor to premium 79% generation, corporate agents stand at collection followed by corporate agents. However in terms of new business generation corporate second after individual agents, followed agents stand at second after individual agents, followed by bancassurance. by bancassurance. As evident from figure 6 that Insurers From figure 5 it 6: is New obious that individual agents dominate in terms of bothof premium collection Figure Policies Contribution by Varied Channels Distribution and customers are heavily dependent Figure 6: New Policies Contribution by Varied Channels of Distribution from 2008 to 2011 from to 2011 and as well as 2008 new business generation. Bancassurance is second major contributor to premium on Individual Agency channel, hence is a dominant channel, which serves as collection followed by corporate agents. However in terms of new business generation corporate
100% a major contributor to new insurance agents stand at second after individual agents, followed by bancassurance. 2.26 3.41 4.8 policies. Bancassurance though not 1.06 well developed, has shown considerable 95% 4.03 3.92 increase in new policy and premium. 3.73 Figure 6: New Policies Contribution by Varied Channels of Distribution from 2008 to 2011 Direct Selling Direct selling channel contribution has 90% 6.21 Brokers 7.18 5.5 gone down rather than picking up as Banks expected. It is evident that optimum 100% 85% 2.26 3.41 Corporate Agents utilization of alternative channels of 4.8 1.06 Individual Agents distribution is needed, which would 86.44 95% 4.03 85.38 80% 84.66 3.92 3.73 provide a competitive edge for the Direct Selling 90% insurers. It is apparent that multiple 6.21 75% Brokers 7.18 5.5 distribution channels will help an 2008-09 2009-2010 2010-11 Banks 85% insurance company to offer a range of
Corporate Agents Individual Agents 80% 85.38 84.66 86.44

As evident from figure 6 that Insurers and customers are heavily dependent on Individual
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Agency channel,75% hence is a dominant channel, which serve as a major contributor to new insurance policies. Bancassurance though not well developed, has shown considerable increase
2008-09 2009-2010 2010-11

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Traditional & Modern channels

shows a huge growth rate of the retail pharmacy sector, which can be turned into a viable distribution channel for life insurance products. In the life segment, group creditor insurance may be the most suitable product for this channel. Selling Life Insurance through Anganwadi Workers This channel will offer a great opportunity to the insurance companies, to meet their social responsibility as well as to secure a strong footing in the rural market. A total of 11.71 lakh anganwadi workers including workers of mini-AWCs and 10.97 lakh AWHs workers are serving in rural India. The huge untapped market for insurance is the rural and social sector. Selling insurance through Electricity Department, Petroleum Gas Agencies, and Cable/DTH Operators Insurance companies can tie up with the electricity department, to provide protection against fire insurance, caused by electricity. A small monthly premium can be charged along with the electricity bill to cover for the fire insurance. Likewise, a tie up with petroleum gas agencies by insurers, with a collection of small monthly premiums, can provide protection against fire caused due to leakage of petroleum gas. Since these services are contractual in nature, they offer a good match for selling of insurance products. Cable and DTH operators can be used for selling all insurance products. Discussion and Conclusion The insurance marketplace is undergoing a transformation that may finally lead to significant changes in how consumers purchase insurance products. With about 200 million middle class households, India shows a better potential for the insurance industry. A variety of distribution channels

Table 5: Proposed Innovative Alternative Channels for Selling Insurance Products

Life insurance Products Selling through Pharmaceutical Agencies Selling through Anganwadi workers Non-life insurance Products Selling through Electricity Department Selling through Petroleum Gas Agencies Selling through Cable/DTH Operators

contact points to the customer, thereby increasing the chances of success and profitability. A substantial amount of new business came through the corporate channel. However, with the passage of time, the regulator observed the need for further regulation and passed new licensing norms in 2010, vide IRDA licensing of Corporate Agent Amendment regulations 2010 along with guidelines IRDA/LCE/093/06/2010 dated 10.03.2010

and circular No. IRDA/CAGTS/CIR/ LCE/093/06/2010 dated 07.06.2010. These regulatory changes took the wind out of the Corporate Agency Channel and the number of corporate agents reduced from 2,930 as on 31.03.2010 to 2,165 as on 31.03.2010, showing a decline of 26 %. The new business procured through the channel decreased from 7.18 % to 6.21 % (IRDA annual report, 2010-2011). Table 5 shows proposed innovative alternative channels for selling life and non-life insurance products. These channels can offer benefits to both insurers and participating agency/worker, to expand their business. However, with new developments in changing consumers behavior, it is the right time to introduce new innovative distribution channels in insurance environment. A brief discussion of the above proposed channels follows. Selling Life Insurance through Pharmaceutical Agencies A simple tie up with pharmaceutical agencies will help insurers to tap the huge potential market at a very low cost. Pharmaceutical agents can be utilized to sell life insurance products, through their well bulit network and contacts. The Indian pharmacy market is the most fragmented in the world and at present, organized pharmacy channel is around 6% of total retail pharmacy business. But the organized sector is expected to grow at a rate of around 25-35% per annum. This

A small monthly premium can be charged along with the electricity bill to cover for the fire insurance. Likewise a tie up with petroleum gas agencies by insurers, with a collection of small monthly premiums, can provide protection against fire caused due to leakage of petroleum gas.

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are currently used in this market place and some insurers utilize a combination of distribution channels. The number of channels utilised can have significant implications in a set of fundamental channel outcomes. Therefore, it is of extreme importance for decision-makers to understand how different channel performance dimensions behave with the number of channels, so that they can make better-informed decisions. In addition, enlightening the relationship between channel performance and the number of channels can also identify areas to which managers should be particularly attentive. The multi channel strategy is very appealing and provides benefits, namely sales growth and a more balanced sources of strength; they have to be balanced against some of its drawbacks, which may include lower profitability and a less reliable service. Better channel management is likely to improve channel performance in the long run. It therefore makes sense to look at well balanced, alternate channels of distribution like internet channel, bancassurance, telecassurance, shopassurance etc. While an agent is still required in this setting, this person typically does not meet with the insured.

The Journal of Insurance Institute of India

A strategy of partnering with multiple corporations such as electricity division, petroleum gas suppliers, Anganwadi Workers, Pharmaceutical Agencies, cable operators etc,
Prior to the advent of the Internet, most purchasers of insurance products used traditional agent-led distribution channels such as direct writers or independent agents. Given its reliance on traditional channels, the insurance marketplace has only recently begun to reflect this broader growth in electronic channels. The Internet was expected to have a major negative impact on the traditional agent-led distribution channel. However, consumers have not shown a marked preference for purchasing insurance product via the Internet. Currently, less than two % of insurance products are purchased via the Internet. Insurers have to devise strategies for attracting potential customer base towards these cost effective channels. Their strategy

may eventually lead to significant changes in how consumers purchase insurance products. Although less frequently used, company-led distribution channels through mediums such as direct mail or telephone call centers have seen increasing growth. Of the various distribution channels, bancassurance offers the insurance companies a basket full of benefits. Indian insurance distribution system has to modify itself with the passage of time, by introducing more innovative distribution channels to the grab huge untapped market. The additional benefit of using an alternate innovative channel is, ease of offering a customized product. However, insurers need to be aware of the risks in the structuring of their distribution through alternate channels, because ultimately, they dont control the access to the customer. A strategy of partnering with multiple corporations such as electricity division, petroleum gas suppliers, Anganwadi workers, pharmaceutical agencies, cable operators etc., will broaden the distribution and eliminate the risk of losing an entire channel. Insurers need to be well positioned with multi-channel strategies and products, to capitalize on these opportunities.

References:
1. Alternative insurance distribution models in Asia Pacific, Deloitte
2. The Emergence of Alternative Distribution in India, Towers Watson 3. Devlin, J.F. (2001), Consumer Evaluation and Competitive Advantage in Retail Financial Services: A Research Agenda, European Journal of Marketing, Vol. 35 No. 5/6, pp. 639-60. 4. IRDA Annual Report for the year 2008-2009. 5. IRDA Annual Report for the year 2009-2010. 6. IRDA Annual Report for the year 2010-2011. 7. Neha Singhvi and Prachi Bhatt (2008), Distribution Channels in Life Insurance, Bimaquest - Vol. VIII, Issue I, pp. 24-30. 8. Parakala, V.S. Naga Raja Rao. (2004). Alternative channels of Insurance Distribution in India.Paper presented at 6th Global Conference of Actuaries. 9. Sreedevi Lakshmikutty and Sridharan Baskar, Insurance Distribution in India - A Perspective, Domain Competency Group (Insurance), Infosys Technologies Limited. 10. Thornton, J. and White, L. (2001), Customer Orientations and Usage of Financial Distribution Channels, Journal of Services Marketing, Vol. 15 No. 3, pp. 168-85. 11. Watson Wyatt (2010), Indian Insurance Sector: Stepping in to the Next Decade of the Growth, Confederation of Indian Industry, Annual Survey Report - September, 2010.

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