With policies online now, insurance to go the travel way

As the insurance industry was growing, all companies in order to be a part of that growth story needed to add agents. Their first target was chartered accountants and  financial planners, which were very few, then post office agents, then retirees and housewives, who were looking for part-time employment. After that anyone who networks with regular customer base like doctors, lawyers, etc and finally a few bright individuals who did not secure a stable job. However, as the demand soared, the quality started to suffer and everyone from property brokers to shopkeepers were roped in as agents. The commission was good --  the products back then offered a base commission of 35-40% of first year premium, plus a large number of incentives for a little business. Housewives were lured with mixer-grinders to steam irons and a few others with foreign holidays. Money was good and insurance industry became a big employer, which offered business equivalent rewards without any capital investment.

The industry was getting built on incentives for distributors rather than offering better products to consumers, and product payouts started to soar not only in commission but also as add-on incentives being given to motivate agents. And consumers had to suffer, considering that business was being built on better remuneration for the agent.

I won’t say insurance agent is not a good profession, neither will I say it’s not rewarding. In fact, it’s a very difficult job to do; you need to have a resilient nature because you need to try a number of times before a customer buys from you. Commonly known training practice in insurance suggests an agent needs to connect with 40 customers, meet five for a detailed product presentation and finally one will buy a policy. Currently on an average, agent productivity is 2.5 to 3 policies a month, which means he would have connected with 120 customers every month to sell three policies. If the average ticket size of these policies is Rs20,000 then he will make Rs8,000 at 40% commission and Rs24,000 a month income. But the big reason long-term professional agents remain in the business is not the first-year commission but the regular small trail commission which they usually get around 3% of the first year premium, which means in a 10-year window, an agent will earn Rs13,400 on every Rs20,000 policy, but which still only means a monthly income of Rs40,200 per month.

Since the last couple of years the regulator took cognizance of this and introduced a slew of norms and guidelines to remove people who were bringing bad repute to the profession. Insurance companies took the cue and gave the customer to buy these policies directly or online through them, thus helping customers to save on commission. This was also prompted when the regulator and insurers noticed that agent were not forthcoming to sell better products like term insurance and the new unit linked insurance policies (Ulips), which today have highly reduced commission and offer better returns to customers, but were still seeking to sell only products with higher margins.

Till early 2007, Ulip agents were very reluctant to sell them --  it was a complicated product, involved calculations, returns, equity funds, etc, which the agents were not very comfortable with. But the companies that pushed these products offered better margins and incentives, markets were doing well and the high commission and charges were camouflaged by a performing stock market.

But as market fell, taking product returns with it, these products came under scanner and the insurance sector regulator came out with new Ulip guidelines in September 2010. The guidelines made the product more transparent and restricted charges and commission. With average Ulip commissions falling from 40% to 7%, agents stopped selling these products. A product, which became much better for the consumer due to regulations completely,‘stopped selling’. From 60% of the industry, it reduced to less than 20% almost overnight.

In my belief while the agent model will survive for consumers who want physical assistance and who are willing to pay the additional amount for service. But eventually masses will need to go online for getting better empowered and buying better consumer centric products at lower costs. What happened to travel agents with makemytrip & yatra will also happen to insurance agents.

The writer is chief marketing officer at Policybazaar.com, an insurance portal and aggregator