Why Indian Life Insurers Want To Cut Reliance On Dominant Sales Channel
A customer fills up an insurance policy form. (Photographer: Akio Kon/Bloomberg)

Why Indian Life Insurers Want To Cut Reliance On Dominant Sales Channel

Indian life insurers, which derive a chunk of their sales through banks, are increasingly trying to push plans through their own distribution networks.

Sales via bancassurance, or banking channels, of most listed insurers fell in the first six months of the ongoing fiscal, according to their exchange filings. Contribution from other sources rose gradually.

The push for other channels of sales comes as banks are adopting an open architecture or selling products of multiple insurers. That increases competition even as insurers, particularly private companies, hunt for a larger share in a market of 1.3 billion people with low insurance penetration.

Growth opportunities are high, Nidesh Jain, research analyst at Investec India, told BloombergQuint. Cutting reliance on bancassurance is a positive trend as companies have higher bargaining power and better control over their agency and direct channels.

V Viswanand, deputy managing director at Max Life Insurance Co. Ltd., said it’s difficult to build a robust distribution network. That’s why his company is focusing on augmenting all distribution channels, including bancassurance, e-commerce, customer advisory team and insurance marketing firms.

Sales via agency and direct channels of HDFC Life Insurance Co. Ltd., for instance, grew 80 percent and 62 percent, respectively, in the first half of the ongoing fiscal, according to their exchange filings. At SBI Life Insurance Co. Ltd., the sales growth in its other channels of distribution rose 101 percent compared with 24 percent in its bancassurance. ICICI Prudential Life Insurance Co. Ltd. registered a 85 percent sales growth through other channels while bancassurance contracted 6 percent.

The contribution of bancassurance channel to the total premium earned either remained constant or declined for the listed insurers.

HDFC Life said it expects its proprietary channels—agency and direct—to grow at a faster clip on a smaller base. According to Niraj Shah, chief financial officer at the private insurer, the share of proprietary channels in individual annualised premium equivalent has increased from 28 percent in first half of FY19 to 35 percent in the first six months of the ongoing fiscal.

Impact Of Open Architecture

Banks, under the open architecture, can tie up with a maximum of nine insurers—three life, non-life and health insurance firms each. Axis Bank Ltd. and HDFC Bank Ltd. follow the new system. Co-operative and small finance lenders also sell policies of multiple insurers.

Life insurers compete for the same shelf space and insurers with innovative products suited to customer needs would stand to gain, implying a win-win for the customer, the corporate agent and the insurer, Shah of HDFC Life said. The regulator has considered making the open architecture mandatory, he said.

Still, SBI Life and ICICI Prudential continue to have exclusive partnerships with parent lenders State Bank of India and ICICI Bank Ltd.

For HDFC Life, bancassurance partnerships with lenders other than HDFC Bank grew over 30 percent. The insurer said in its annual report for FY19 that its new business growth was muted as HDFC Bank adopted the open architecture structure.

Max Life’s new business growth, too, was hit after its bancassurance partner, Lakshmi Vilas Bank Ltd., opted for the open architecture. The insurer said in its annual report for FY19 that it expects a turnaround in the coming years.

Jain of Investec India said bancassurance-driven insurers could face loss of business from current partnerships because of the open architecture.

Vinod Rajamani, analyst at HSBC Securities, wrote in a recent report that insurers need to diversify their distribution so they’re not overly dependent on banks. Another factor to consider is that the Insurance Regulatory and Development Authority could force banks to enforce open architecture, Rajamani said.

Some insurers, however, don’t perceive it as a threat. The open architecture could potentially be a big boost for insurers that don’t have bancassurance tie-ups, Abhijit Gulanikar, president of business strategy at SBI Life Insurance, told BloombergQuint. Open architecture has offered SBI Life Insurance the possibility of additional tie-ups and the company will use this opportunity to further strengthen our reach, he said.

Large distributors will follow open architecture by creating more options to customers, Viswanand of Max Life Insurance said. “It will be a market reality and if the regulator were to push for mandatory open architecture, there will be opportunities that Max Life too would be keen to explore.”

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