Intermediaries Remain Key to Improving Insurance Penetration in India

Shanai Ghosh, MD & CEO of Zuno General Insurance and a member of the General Insurance Council, says intermediaries will continue to play an indispensable role in improving insurance penetration, amid Irdai’s proposal for a sharp cut in commission payouts. Ghosh tells Narayanan V why the industry needs a scale-based approach to expenses of management (EoM) limits and why direct-to-consumer (D2C) distribution remains an expensive proposition for many insurers. Edited excerpts: Access is not a problem in the motor insurance industry today. Buying car insurance has become very easy, with customers able to purchase a policy online in minutes through apps or marketplaces. We are also building Bima Sugam and exploring innovative distribution models to reach deeper into the country and serve segments that remain largely uninsured. The challenge is that consumers are not reaching out to buy insurance. This is where distribution needs to step in and take the product to the customer. The industry has made considerable progress, but there is more to be done, particularly in reaching the last mile. The Supreme Court’s suggestion of linking fuel purchases with insurance is a radical solution. The platform has been built on the industry side. We need to explore more innovative ways to establish that last-mile connect. I would also like to engage with various bodies to see how enforcement can be improved. Fundamentally, nobody will disagree with the intent of the reforms. The regulator has put out a comprehensive document backed by substantial data. The challenges it has identified are reasonable and accurately reflect the industry’s concerns. The objective is to improve the overall efficiency of the industry and make insurance more affordable for policyholders. On expenses of management (EoM), some insurers may be more comfortable with the proposals than others. The general insurance industry is not a homogeneous one. Its constituents are at different stages of evolution and operate at different scales. Scale does matter when it comes to expense efficiency. Smaller insurers will have to invest more in people, distribution, technology and brand building to reach the level of larger players. We believe there should be a scale-based approach that is fair to everyone. It could be a sliding scale, similar to the income-tax slabs, where different levels of expenses are allowed for different slabs of business. Such scale-based approaches already exist in other segments of the financial services industry. The regulator’s view is that commissions have increased significantly in certain segments, though not across the board. There may be a rationale for reviewing commissions in those segments. The larger discussion is about the effort involved in distribution and the value it delivers. Intermediaries play an important role in a market like India, where consumers do not necessarily wake up wanting to buy insurance. They still tend to view protection as an expense rather than an investment and, wherever possible, seek to minimise the cost. This is one reason why under-penetration persists despite insurance being mandatory in certain segments and the ease of purchasing policies today. There is, therefore, a clear role for intermediation. The discussion among intermediary bodies is about demonstrating the value they bring and quantifying the effort involved. From the industry’s perspective, we fully recognise the contribution of intermediaries. We need them to improve penetration. At the same time, the regulator’s point that intermediation needs to become more efficient is well made and accepted. We need to find the right balance. These options already exist today. Direct-to-consumer distribution is expensive to build, at least in the near term. It is not necessarily cost-efficient initially and takes time to scale. There will be some rethinking on how distribution can be made more efficient. Reforms should lead to such a rethink, but intermediaries will continue to play an important role. Some insurers may look at direct distribution as an alternative, but it is not necessarily cheaper. It could become more cost-effective once a company achieves a certain scale and customers start coming directly for renewals. However, even renewals in general insurance require effort. Every company is evaluating what the reforms mean for its business, and the impact will vary across insurers. Intermediaries will remain important because India is a market that requires service, advice and guidance. That role is not going away.