The opening up of the insurance sector to private and foreign players has added life and colour to this sector. The market share that the new players have captured in a short span is remarkable.
However, there are multiple challenges faced by insurance companies, the most critical being distribution and designing of products to suit all segments of the market.
Insurance affects the lives of those who invest in it, so it is essential for the insurance company to maintain good relationships with customers. Insurance is an advisory business and not mere product selling.
The key lies in distribution. The distribution of insurance products has undergone a radical change and multi-channel distribution has become the strongest driver of growth.
Distribution accounts for the largest element in an insurance company’s costs and impacts profitability. It also strongly influences product design, and has a direct impact on the insurance company’s market image. Distribution systems can be broadly classified into two:
» Personal distribution systems, which include channels such as agents, insurance brokerages, bancassurance, and corporate marketing; and
» Direct response distribution systems, when the client purchases the product directly using the Internet, telemarketing, direct mail or call centres.
Most insurance companies in the country have adopted a combination of the above distribution systems to create a multi-channel distribution approach. SBI Life, for instance, has a cost-effective multi-distribution arrangement that includes bancassurance, agency and group corporate channels to cater to the needs of diversified customer segments.
In India, agents have for long been the primary and foremost channels for distribution of insurance. Then came bancassurance, which put insurance in your bank branch. Bancassurance brings life insurance products on par with banking products.
Almost every insurance company has tied up with at least one bank. Because of banks’ widespread branch network, bancassurance makes sense for companies that want to enter the rural pockets without spending a fortune.
One avenue that is still untapped is corporate marketing. With new, employee-friendly policies and a growing number of corporates, this channel could end up being very profitable for insurance companies.
There is a need to encourage and nurture new channels of distribution, in order to utilise existing infrastructure to the optimum extent. Policy measures should encourage insurers to take full responsibility for training and skill-building. There should be self-regulation in distribution, as the market evolves.
Widespread recognition of the need for a qualified and trained sales force to serve increasingly discerning insurance buyers, coupled with the emergence of online and offline insurance education and training initiatives, is changing the range and quality of insurance services and its distribution.
US Roy is MD & CEO, SBI Life Insurance
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