Challenges Insurance Compnies Are Facing in Developing Tied Agency Distribution Channel

Challenges in developing tied agency channel by insurance companies

Submitted by:

Stuti Vohra MBA IIndSEM

BANASTHALI VIDYAPITH, WISDOM

Company Profile:
SBI Life Insurance, one of the leading insurers in India, is a joint venture between State Bank of India and BNP Paribas Assurance. While State Bank of India (SBI) is India 's largest banking franchise, on the other hand, BNP Paribas Assurance is a unit of the renowned BNP Paribas - one of the leading banks in Eurozone. SBI Life Insurance follows a unique multi-distribution model that encompasses corporate solutions distribution channels, retail agencies, institutional alliances and bancassurance. It also uses the SBI Group as a platform to cross-sell insurance as well as banking product packages like personal loans and housing loans etc. |
SBI Life Insurance, with an authorized capital of ` 2,000 crores and paid-up capital of ` 1,000 crores, has become a substantial player in Indian insurance sector. The access to more than 100 million accounts of SBI has also acted as the driving force behind the success of the company. SBI Life Insurance also has an extensive network of agency channel where more than 68,000 insurance advisors work towards growth of the organization, offering door-to-door insurance solutions to the customers.

In SBI Life Insurance, the State Bank of India holds 74% of the capital share, while BNP Paribas Assurance holds the remaining 26%.
SBI Life Insurance has crafted its name by providing quality insurance services to its wide range of customers. Its ISO 9001:2000 certification speaks for its quality. SBI Life Insurance has also been assigned iAAA rating by the ICRA for its highest claims paying ability. In 2007, it became the first Indian life insurer to get AAA rating from CRISIL. In the next year, Outlook Money NDTV Profit adjudged it as the 'Best Life Insurer - 2008 '. In 2009, SBI Life Insurance achieved the unique distinction to emerge as the global top in terms of Million Dollar Round Table (MDRT) members with 2,677 members.

SBI Life Insurance became the first Life Insurer in India to make profits in the financial year 2005-06. It maintained the same record in the next year as well. In 2007-08, a survey by 'Brand Equity ' rated SBI Life as 'The Most Trusted Private Life Insurer ' In the same year, the company achieved CMMI Level 3 certification to become the first Indian insurer to have that.

PRODUCTS:
PROTECTION PLAN:
Protection Plans are low cost insurance plans which are specially designed to provide full protection & financial stability to insurer’s family in case of any unforeseen events.
SBI Life presents range of attractive protection plans so that a person can continue to celebrate life without worrying about the uncertainities of life. * Pure Protection Products * SBI Life - Swadhan * SBI Life - Shield * Protection cum Savings Products * SBI Life - Scholar II * SBI Life - Shubh Nivesh

SAVINGS PLAN:
One may have plans for his/her loved ones. It makes perfect sense to prepare well in advance with saving plan combined with life insurance cover. SBI Life’s plans will help the person to plan for his/her savings, be it his/her child’s wedding or education, buying a house or dream vacation.

Savings Products * SBI Life-Smart Money Back Insurance * SBI Life-Flexi Smart Insurance * SBI Life-Sanjeevan Supreme * SBI Life-Shubh Nivesh * SBI Life-Saral Life

UNIT LINKED PLAN:
Unit Linked Insurance Plans are long term investment cum protection plans that offer an opportunity of availing market linked returns while providing life insurance protection. Depending on one’s risk appetite,they have the option of choosing from host of funds having varied degree of risk exposure. Flexibility and transparency are some of the other attractive features that make ULIPs an attractive long term investment option. * Unit Lined Products * SBI Life - Horizon II * SBI Life - Unit Plus II * SBI Life - Unit Plus Child Plan * SBI Life - Unit Plus Elite Plan * SBI Life - Smart ULIP * SBI Life - MAHA ANAND

CHILD PLAN: To ensure fulfillment of dreams that one may have for their children, financial planning for their secured future is very important.
SBI Life presents host of child plans so that a person can choose the one that suits them and their child’s needs best. * Child Plan * SBI Life- Scholar II * SBI Life- Smart Scholar.

PENSION PLAN:
Increasing life expectancy rate, rising health care costs, absence of social security system in India and disintegration of joint family system are some of the key reasons that makes retirement planning very critical.
To help people continue celebrating their life post-retirement to the fullest, SBI Life presents an array of pension plans which are simple and innovative. * Pension Products * SBI Life - Horizon II Pension * SBI Life - Unit Plus II Pension * SBI Life - Immediate Annuity
HEALTH PLAN:
Financial planning is incomplete without planning health insurance. Due to today’s hectic lifestyle, improper diet, lack of exercise people are at higher risk of contingencies of untimely serious illnesses. Sudden health problems could have deep hole in one’s pockets. Medical science has advanced by leaps and bounds in the last few decades. There’s a definite need to cover for health insurance to reduce the financial burden. * Health Products * SBI Life- Group Criti9 * SBI Life- Hospital Cash.

GROUP PLANS:
SBI Life offers a wide range of employee benefit solutions which helps organizations to retain, reward and encourage the best talent in the industry. It also provides a host of corporate solutions to both statutory needs as well as voluntary needs of the employers and hence ensures to strengthen the employer -employee relationship in the long run.

* Group Employee Benefit Products * Retirement Solution * SBI Life - CapAssure Gratuity * SBI Life - CapAssure Superannuation * SBI Life - CapAssure Leave Encashment * SBI Life - Dhanrashi * SBI Life - Swarna Jeevan * SBI Life - Swarna Ganga * SBI Life - Kalyan ULIP * Group Protection Plans * SBI Life - Sampoorn Suraksha.

SERVICES:
SBI Life offers a wide range of services to people where not only they can track their account, generate premium online. Also they can now pay your premium online with Electronic Clearing Service (ECS) which is convenient and minimizes time & effort.

INSURANCE INDUSTRY IN INDIA:

India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and variety for their choice. Consumers remain the most important center of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerization of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies At present the distribution channels that are available in the market are listed below. * Direct selling * Corporate agents * Brokers and cooperative societies * Bancassurance * Tied Agency Channel

Direct Selling: In this technological world Internet is also a channel of selling insurance.

Corporate Agents: Corporate agency is a cross selling type of channel. Insurance companies’ tie-up with business houses in other industries to sell insurance either to their employees or their customers. Insurance industry, during the past 2 years has witnessed a number of such strategic tie-ups and alliances. Corporate agents have become a major force to reckon with in distributing insurance products. Such as- Bajaj Allianz tied up with Maruti Udyog and Ford for auto insurance and Tata AIG life has tied up with Tata tea,Khaitan’s Williamson major and bridge foundation for selling rural policies.

Brokers and cooperative societies: Now a day’s different financial institution are selling insurance. These financial institutions are known as brokers. They are taking some underwriting charges from the insurance companies to sell their insurance products.

Bancassurance: : Banks in India are all pervasive, especially the public sector banks. Many insurance companies are selling their products through banks. Companies, which are bank, owned, they are selling their products through their parent bank. The public sector banks, with their vast branch networks, are helpful to insurance companies. This channel of selling insurance is known as Bank assurance.

Tied Agency Channel: A tied agency is one which has entered into an agreement with a particular insurance company to sell only that company 's products.Untied or 'independant ' agents will sell products offered by more than one company.
Tied agents usually get higher commission rates or (in some cases) a small regular salary + commission, but don 't offer customers the same choice as untied ones.A financial services sales representative, authorised to give financial advice on life assurance, pensions and unit trusts, but only allowed to recommend products from his/her employer. Unlike, IFAs, therefore, tied agents cannot be assumed to give impartial advice. Under the Financial Services Act 1986 all financial advisers must tell prospective clients whether they are tied agents or independent so that the client knows what kind of advice he is getting. Tied agents are regulated by the Financial Services Authority (FSA).

Agents: Agents are the primary channels for distribution of insurance.The public and private sector insurance companies have their branches in almost all parts of the country and have attracted local people to become their agents. Today 's insurance agent has to know which product will appeal to the customer, and also know his competitor 's products to be an effective salesman who can sell his company, the product, and himself to the customer. To the average customer, every new company is the same. Perceptions about the public sector companies are also cemented in his mind. So an insurance agent can play an important role to create a good image of company.

A 2011 study by professional services firm Deloitte found that in India 88% of Individual agent sales are produced by the top 25% of agents.

Figure 2 provides our estimates of the current market share of the various distribution channels used by life insurers, and gives our views of how these channels could develop in the future.

LIFE INSURANCE:

Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, either in a lump sum or by other periodical payments, agrees to pay the assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a specified event contingent on the human life.

Life insurance is a contract under which the insurer (Insurance Company) in consideration of a premium paid undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a specified period of time
Whichever is earlier. In case of life insurance, the payment for life insurance policy is certain. The Event insured against is sure to happen only the time of its happening is not known. So life insurance is known as ‘Life
Assurance’. The subject matter of insurance is life of human being. Life insurance provides risk coverage to the life of a person. On death of the person insurance offers protection against loss of income and compensate the titleholders of the policy.

ROLE OF LIFE INSURANCE:

Life insurance as an investment:
Insurance products yield more than any other investment instruments and it also provides added incentives or bonus offered by insurance companies.

Life insurance as risk cover:
Insurance is all about risk cover and protection of life. Insurance provides a unique sense of security that no other forms of invest can provide.

Life insurance as tax planning:
Insurance serves as an excellent tax saving mechanism too.

IMPORTANCE OF LIFE INSURANCE:

Protection against untimely death:
Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

Saving for old age:
After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her

Promotion of savings:
Life insurance encourages people to save money compulsorily. When life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of duration of the policy.

Initiates investments:
Life Insurance Corporation encourages and mobilizes the public savings and canalizes the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings.

Credit worthiness:
Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.

Social Security:
Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

Tax Benefit:
Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.

The number of companies in India in Life Insurance has increased in past years. List of them are mentioned as below:-

Life Insurer in Public Sector 1. Life Insurance Corporation of India

Life Insurers in Private Sector 1. SBI Life Insurance 2. Metlife India Life Insurance 3. ICICI Prudential Life Insurance 4. Bajaj Allianz Life 5. Max New York Life Insurance 6. Sahara Life Insurance 7. Tata AIG Life 8. HDFC Standard Life 9. Birla Sunlife 10. Kotak Life Insurance 11. Aviva Life Insurance 12. Reliance Life Insurance Company Limited - 13. ING Vysya Life Insurance 14. Shriram Life Insurance 15. Bharti AXA Life Insurance Co Ltd 16. Future Generali Life Insurance Co Ltd 17. IDBI Fortis Life Insurance 18. AEGON Religare Life Insurance 19. DLF Pramerica Life Insurance 20. CANARA HSBC Oriental Bank of Commerce LIFEINSURANCE 21. IndiaFirst Life Insurance Company Limited 22. Star Union Dai-ichi Life Insurance Co. Ltd. 23. Sahara India Life Insurance Co, Ltd.

PURPOSE

To find what challenges insurance companies are facing in developing tied agency channel in current scenario and thus providing solutions and suggestions for developing it.

SCOPE

Scope of the project is to suggest changes and improvements after indepth study of the current practices which will be helpful for the insurance companies in developing tied agency distribution channel.

LIMITATIONS

This management research which is being conducted in the insurance field is subjected to the following limitations that would arise during the course of the study:

Confidentiality: - The respondents may not reveal their exact perceptions due to privacy reasons.

Human Error: - The feedback provided by the sources and respondents would be assumed to be correct. But there might have been some biased facts furnished.

Data Inconsistency: - Data gathered from other sources, one assumes to be valid and correct. It is also possible that any incorrect data mentioned, might have been collected and unknowingly might have become part of this study.

System Complexities: - It is impossible to evaluate the effect of one factor in isolation while ignoring the effect of other factors in study.

Time and Cost: - Availability of time and cost is another limitation of this study.

RESEARCH MEHODOLOGY
Data collection

Consists of primary data. Primary data was collected by holding “semi- structured and focused individual interviews” of professionals,houseviwes, bankers,entrepreneurs,army personnel,teachers,accountants,retired personnels.

Type of research

The type of research used for my study was an exploratory research, as the objective of our research was to have in depth understanding of the sales agents.

Thus research methodology is the way on we conducts our research.

Universe - Chandigarh

Unit - SBI Life Insurance Co.

Sample size - 162

Data source - Survey

Method - Convenience Sampling

Instrument - Questionnaire

OBJECTIVES

·Proper understanding and analysis of life insurance industry.

· To know about brand awareness of SBI Life Insurance and customer’s preference about SBI Life Insurance.

· Conduct survey on a sample selected from the entire population and derive opinion on that research.

· To offer suggestions based upon findings.

FINDINGS

The year 2010-11 witnessed 11.38 per cent decrease in the number of individual agents. The number has gone down from 29.78 lakh as on 31st March, 2010 to 26.39 lakh as on 31st March, 2011.

Low commission rate results in insurance advisorship as an unattractive career option.

Slowdown in tied agency business is observed following the IRDA guidelines that came into effect from september 2011.The guidelines stipulate that agents who fail to achieve a persistency rate of 50 per cent will lose their licences.

In an exposure draft on persistency of life insurance policies, the IRDA has suggested a target of 20 policies per year for individual agents and a minimum first year premium income of Rs 150,000.

Two years from now, agents will have to ensure that at least three-fourths of their policies sold in the previous year are renewed to qualify for licence renewal. This regulation will pave way for only serious agents to stay in the business.

A dearth of qualified candidates willing to enter an tied agency career on a full-time basis.

The difficulties in imparting agency training and education in remote parts of the country and the cost of recruiting, training and retraining agents.

In addition, Indian life insurers have been experiencing some of the more common tied agency challenges such as low productivity, high agent turnover, poor persistency, rebating and low case sizes.

Cost of acquiring tied agency has increased.

Other opportunities available in the market.

Mis-selling is bringing bad name to tied agency distribution channel.

Recent IRDA directives which include the declaration and reduction in commissions related to certain products, also form the background. With the working of agents suddenly under scrutiny due to allegations of mis-selling so as to garner a heavy commission, this provides a fertile ground for insights into the selling practices and take remedial actions.

With the assistance of the UK-based Chartered Insurance Institute, the IRDA has also developed more stringent entry exams for agents. These came into effect in October 2011.

It was observed that the agents were more sales centric instead of being a helping hand for the customer.

SUGGESTIONS

Focus on “agent” productivity and profitability to grow channel performance.

Commission rates should be made so as to minimize agents attrition and make insurance advisorship as a good career prospect with high returns.

Product innovation and quick speed-to-market usually leads to increased brand recognition among distributors.

Reward and recognition schemes for the insurance advisors should be increased to minimize their attrition.

Product should be made easy to understand.

Product should have less inherent to risk.

These intermediaries need to be empowered with the right learning, training and sales tools and technology enablers. Coupled with the right product mix, this will help the insurance companies to survive and flourish in this competitive market.

Ens Ensure that staff are competent, suitable and have been given adequate training.

There is a need to set certain minimum standards and requirements for agents and mandate insurers to review the performance of agents periodically.

There are several demands for revamping commission structures in a bid to increase agency income. On the other hand, persistency would ensure regular inflow of income to agents through renewal commission.

Gender of agents is a relevant feature in the rural context that makes a difference, especially for the female population. Women to whom the customers can relate --e.g., nurses, gram sevikas-- can target the female segment of the population more effectively.

One major concern that emerges from IRDA data is the high per cent of turnover of agents. In 2010-11, while the total number of agents appointed was 7.02 lakh, the number of agents terminated was as high as 10.40 lakh. Firstly, it is a huge drain on the financials of the insurers who spend a lot of money and time on prospecting, appointing and training of these agents.Secondly, the policies procured by these agents are rendered orphan on their termination and thereafter often result into lapsation due of lack of servicing support.Thirdly, the image of the profession of agency too suffers a setback since the public in general and prospective agents in particular perceive it as lacking in stability, thus making it more difficult for insurers to find good agents. It is therefore in the interest of all stakeholders to work at reducing the turnover of agents.

Details of Individual Insurance Agents of SBI Life | Insurer | As on 1st april,2010 | Additions during 2010-2011 | Deletions during 2010-2011 | As on 31stmarch,2011 | SBI Life | 65532 | 43311 | 29215 | 79628 | Industry Total | 2978283 | 701763 | 1040654 | 2639392 |
Source: IRDA Annual Report 2011.

Effective Strategies for Insurance Advisors:

· Insurance advisors should learn how to construct a mental image for success.

· They should learn how to find a proper perspective and how to turn off all the signals that cause people not to buy from them.

· They should also learn how to get and set more appointments.

· Insurance advisors should learn how to convert a new lead into sales.

· They should know how to act when they meet a client for the first time.

· They should learn how the orders in which they explain the types of policies can double one’s income.

· They must take easy steps to avoid delays in issuing policies

QUESTIONNAIRES
For the survey to be done in the fulfillment of requirement of the award of the degree of MBA
Name:
Age:
Address:
Qualification: Contact no.:
Q.1: What are your current earnings per annum? * < 1,50,000 * 1,50,000-3,00,000 * 3,00,000-5,00,000 * >5,00,000
Q.2: Are you a government employee? Yes/No.

Q.3: Would you like to have some added earnings apart from your regular fixed income? Yes/No.
Q.4 Have you heard about SBI life insurance?

Q.5: Any person in your family working as an insurance advisor?

Q.6: How you consider an insurance advisor as a career option?

Q.7: Would you like to be associated with SBI Life insurance?

Q.: Have you heard about SBI life insurance?

Know about SBI life Insurance | Answers | Nos. | No | 45 | Yes | 117 | Grand Total | 162 |

Out of 162 respondents,117 were aware about SBI Life insurance whereas 45 were not aware about it.

Q.: Any person in your family working as an insurance advisor?

Relative as insurance advisor | Answers | Nos. | No | 113 | Yes | 49 | Grand Total | 162 |

Out of 162 respondents,113 have their relatives working as insurance advisor while 49 responded that there is no one working as insurance advisor in their family.

Q.: How you consider an insurance advisor as a career option?

Consideration for insurance advisorship as a career | Answers | Nos. | Average | 14 | Better future | 1 | Better opportunities | 22 | Good career growth | 60 | No comments | 28 | Not good | 31 | Will consider after sometime | 2 | Part time | 6 | Grand Total | 162 |

Out of 162 respondents,14 considered insurance advisor job to be average,
1 considered it to have a better future and 22 to have better opportunities.60 considered insurance advisorship to have good career growth,whereas 2 said that they’ll consider insurance advisor as a career aftersometime.31 considered insurance advisorship as not a good career option,while 28 said they have no viewpoint about the respective career.6 respondents were in favour of taking insurance advisorship as a part time career option.

Consideration for insurance advisorship as career income groupwise | Comments | <1.5lk | <1.5lk | >1.5lk | >1.5lk | >2lk | >3lk | >3.5lk | >5lk | Total | Neutral | 4 | | 4 | | 2 | 2 | | 2 | 14 | Better opportunities | 2 | | 11 | | 1 | 7 | | 2 | 32 | Good career growth | 11 | | 25 | | 1 | 15 | | 6 | 58 | No comments | 7 | 1 | 9 | 1 | | 7 | | 3 | 28 | Not attractive | 1 | | 10 | | 3 | 11 | 1 | 5 | 31 | Will consider | | | 1 | | | | | 1 | 2 | Part time | | | 2 | | | 3 | | 1 | 6 | Total | 25 | 1 | 62 | 1 | 7 | 45 | 1 | 20 | 162 |

Q.: Would you like to be associated with SBI Life insurance? Grand Total | 162 |
Out of 162 respondents, 76 were not willing to join SBI Life Insurance as a career advisor,whereas 35 wanted to join SBI Life. 51 were not willing to join SBI Life at present. | Q.: Desire to earn extra than the current income? Desire to earn extra than current income | Answers | Nos. | No | 61 | Yes | 101 | Grand Total | 162 |
Out of 162 respondents,101 wanted to earn extra than their current income whereas remaining 61 were not willing to earn extra than their current income. CONCLUSION * Life insurance sector shows a lot of potential in terms of growth and development. * In a market like India, where sale of insurance product is more agent driven, the agent should be more sensitive towards the needs of a client rather than mere sale of a product. * There is a pressing need to come up with alternate distribution channels in coordination with the existing ones so as to serve the diverse customer base of the country in a better way. * There is a lot of scope for further development in the services and products as offered by Life Insurance industry Reference & Bibliographya. Internet Resources www.sbilife.com www.irdaindia.org www.wikipedia.orghttp://www.investopedia.com/terms/d/distribution-channel.asp#axzz1yyBel23Dhttp://www.bimadeals.com/insurance/sbi-life-insurance/http://www.irdaindia.org/iac/distributionchannels.pdfwww.google.co.inhttp://www.investopedia.comhttp://www.sbilife.co.in/sbilife/images/File/documents/disclosures/2010_Q4/L-5_expenses_Mar11.pdfhttp://www.bimabazaar.comhttp://www.financialdiscovery.net/Articles/life_insurance_glossary.htmb. External Agencies Various IRDA reports pertaining to the subject matter. Various news articles were also referred wherein subject experts have expressed their opinion.IRDA. (2011, MARCH 10). Retrieved APRIL 26, 2011, from IRDA.Sadhav, H. (2009). Life Insurance In India-Opportunities,Challenges and Strategic Perspective. Sage.Report by Deloitte consulting.Kenneth Black Jr, H. D. (2009). life and health insurance (13th ed.). prentice hall international inc. | | | | | | | | | | | |

Bibliography: . Internet Resources www.sbilife.com www.irdaindia.org www.wikipedia.orghttp://www.investopedia.com/terms/d/distribution-channel.asp#axzz1yyBel23Dhttp://www.bimadeals.com/insurance/sbi-life-insurance/http://www.irdaindia.org/iac/distributionchannels.pdfwww.google.co.inhttp://www.investopedia.comhttp://www.sbilife.co.in/sbilife/images/File/documents/disclosures/2010_Q4/L-5_expenses_Mar11.pdfhttp://www.bimabazaar.comhttp://www.financialdiscovery.net/Articles/life_insurance_glossary.htmb. External Agencies Various IRDA reports pertaining to the subject matter. Various news articles were also referred wherein subject experts have expressed their opinion.IRDA. (2011, MARCH 10). Retrieved APRIL 26, 2011, from IRDA.Sadhav, H. (2009). Life Insurance In India-Opportunities,Challenges and Strategic Perspective. Sage.Report by Deloitte consulting.Kenneth Black Jr, H. D. (2009). life and health insurance (13th ed.). prentice hall international inc. | | | | | | | | | | | |