Insurance products may soon be sold over the net, phone

14/May/2008
You may soon be able meet all your insurance needs online. Web-based selling and tele-marketing of all insurance policies could be a realty if the insurance regulator accepts the recommendations of an expert committee on distribution channels for insurance products.

The panel has recommended new sales channels for retail insurance products with safeguards such as provision of encryption to protect the target person’s privacy or a voice record of sales call. Tele-marketing agencies should follow the norms laid down by the telecom and insurance regulators, the panel said. Direct marketing channels for insurance products are popular in Australia, Korea, Japan, China, Indonesia, the UK, among others. The distribution channels here include agency, corporate agency, bancassurance, referrals and direct sales. New channels will enable insurers to increase insurance penetration.

Although insurance companies sell some products online, they are not able to sell all products on the net as existing laws require a signed proposal form. For instance in marine cargo insurance, which is governed under a separate act, the proposal form is treated as the basis of a contract.

The committee was mandated to assess the functioning of these channels, factoring in view constraints faced by general insurance agents, including low-ticket size, fixed commission rates and restrictions on selling products of more than one insurer. It has made a slew of recommendations, including differential commission, pricing and product structure for various channels to give flexibility to insurers and reducing the capital required for a corporate agent from Rs 15 lakh to Rs 1 lakh, among others. It has also suggested allowing banks and financial service companies — with group companies that have a separate management and an independent line of business — to have different corporate agencies. The net-worth criteria would be over Rs 10 crore.

Currently, banks are barred from setting up a broking company. The panel reckons that safeguards need to be provided in the form of a minimum capital of Rs 1 crore to ensure that such group companies have not been floated for backdoor entry into broking. But it has voted against multiple tie-ups of a corporate agent with an insurer. This could be a big dampener for banks that were hoping to sell products of several insurers. Banks had argued that they offer products of multiple mutual funds and hence, should be allowed to sell insurance products of multiple companies. The panel has recommended considering a model akin to Independent Financial Advisors (IFA) in the future.

It has also made out a case for a change in the definition of corporate agents to include an institution or an organization other than a person. The panel has proposed calling referral providers as introducers like in the UK. The UK model of introducer envisages the introduction of customers to insurance products. But the sale has to be concluded by an insurer.

Banks should not have referral arrangement with more than one life insurer and one non-life insurer. These recommendations, if implemented, would require changes in the Corporate Agents Regulations 2002.

Broadening the definition of a micro-insurance agency to include rural kiosks and other rural distribution networks also features in the recommendations. Micro-insurance agents should be allowed to work with multiple insurers.

Source: www.insuremagic.com