Non-bank promoted life insurers frights go down in biz

The business of non-bank promoted life insurance companies is probable to be most hit by the new IRDA regulations mandating insurers to consistently distribute unit-linked insurance policy (ULIP) charges over 5 years.

This is because insurance companies will have to option to cutting down distributor commissions, which could decrease the motivation of individual agents to sell ULIPs. While most of the big banks have their own insurance companies, these players do not have big banks as banc assurance partners to sell their policies.

?The new changes may quick part-time agents, who constitute almost 70(%) per cent of the industry's agency force, to stop selling ULIPs. Even corporate agents totally selling insurance may stop doing so. Banks will continue to sell the products because for them it is not a core action. With the new guidelines, around 40-50(%) per cent of the business is at risk,? said Mr V. Srinivasan, Chief Financial Officer, Bharti Axa Life Insurance.

While 20-25(%) per cent of the industry's business comes through the bancassurance route, 50(%) per cent comes from the agency channel, with the remaining coming via corporate agents, brokers and direct marketing.

?First year commissions are going to come downward by 20-40(%) per cent. It will not be as lucrative for agents to sell as before. They will have to look at volumes rather than commission,? said Mr T.R Ramachandran, Chief Executive Officer and Managing Director, Aviva Life Insurance.

The commission structure cannot maintain an agent's income and because of this the agency channel will suffer badly, said Mr Kamesh Goyal, Country Manager and CEO, Bajaj Allianz Life Insurance.

Non-bank promoted companies rely more on the agency channel and tie-ups with corporate agents, brokers and direct marketing channels for distribution. This is because with most of the big banks setting up their own insurance companies, life insurance companies had to look for other distribution channels. According to the Insurance Regulatory and Development Authority regulations, banks can sell policies of only one life and non-life insurer. IRDA had set up a group to explore the option of leasing banks sell policies of multiple insurers. The final report is still awaited.

Companies are hoping that the insurance regulator will soon allow banks to sell policies of multiple insurers. ?There is a case for open architecture. Now that all the charges are capped and products have become transparent, it will become simpler for banks to sell products of different insurers,? said Mr Ramachandran.

Aviva Life, being one of the earlier entrants has a strong bancassurance channel with tie-ups with banks like IndusInd Bank, Punjab and Sind Bank and DBS. The bancassurance channel contributes around 50(%) per cent of the total business for the company.

?This is the appropriate time for the banking sector to be opened up. For second generation entrants, there are no banks left to tie up with. The existing players who have a bancassurance tie-up are in a beneficial position while putting late entrants like Bharti Axa at a disadvantageous position?, said Mr Srinivasan.