Title of the Research Paper

======REVISITING OF DISTRIBUTION CHANNELS FOR INSURANCE PRODUCTS IN CHANGING ENVIRONMENT ======

Dr. E.SHOBHAN BABU M.Com., M. Phil., Ph.D. Associate Professor& P. G. Coordinator Department of P.G. Studies in Commerce, SSA Government First Grade College BELLARY – 583 101 Karnataka Cell:8904826018 email:[email protected]

Miss. AMAL M. Com., M. Phil. Assistant Professor, Department of Commerce SGRCM Govt. Commerce & Management College BELLARY – 583 101 Cell:09980368848 e mail:[email protected] REVISITING OF DISTRIBUTION CHANNELS FOR INSURANCE PRODUCTS IN CHANGING ENVIRONMENT ======ABSTRACT The challenges in distribution of insurance products in the life sector are to be addressed effectively. The insurance product needs to be designed to meet the local needs. Prospective clients need to be briefed about the benefits of products. When there is withdrawal of familiar old products and new products were introduced, intermediaries required time to learn the new products. The product underwriting requirements need to be simplified. However, in the preliminary survey conducted, it is found that the Training Institutes were unable to train the intermediaries in time. There are challenges even faced in the distribution of Micro Insurance products. The Micro Insurance Products are introduced to protect low income people with affordable insurance products to help and recover from common risks with standardized popular insurance products adhering to certain levels of cover, premium and benefit standards. The penetration of insurance industry in rural regions had been relatively lower. Rural population had relatively lower access to information and lacked awareness of insurance products that rendered them “un-insured class” of population. There is great need to educate the rural population in person that requires a high touch service model to be followed. In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major constraint in the development of agriculture insurance in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products. But the efforts made by the Corporation this direction are indeed not adequate. In the light of Insurance Bill allowing Foreign Direct Investment into the Insurance Sector, where the foreign insurance companies will start concentrating on tier I and tier II cities, the need for concentrating on rural areas should be the latest business model for the insurance companies including Life Insurance Corporation. Non-Governmental Organsations and Self Help Groups had been permitted to act as agents to insurance companies in marketing these products. District Cooperative Banks, Regional Rural Banks, the business houses acting as Banking Correspondents would be appointed as Micro Insurance Agents. These individuals and institutions facilitate better penetration of Micro Insurance business. However, the efforts made by the Corporation to tie up with these grass root level institutions are found lacking. Therefore, there is an urgent need to address the issues faced by the insurance industry in general and Life Insurance Corporation with specific. An attempt to explain the emerging trends that would shape the growth and profitability of the insurance industry as well as Life Insurance Corporation is inevitable to meet the new challenges in the near medium term. Key words: Distribution Channels, Micro Insurance, Grass root level and business model. 1. INTRODUCTION

Distribution channels play a significant role in the successful marketing of insurance products. The channels of distribution have their own role in the field of marketing of insurance products. The distribution channels bridge the gap between the insurance companies and the end user of such service. They provide an opportunity to use the services offered by the insurance companies efficiently and economically to safeguard themselves from the life and non life risks. The channels for insurance products mainly cater to the needs of the Government and Non Government employees as well as to the general public irrespective of geographical differentials. In fact the insurance companies’ product range is wide and the customers for such products are widely distributed. The marketing strategy to be adopted by the insurance companies must be suitable to reach the customers in time and explain how the product will be useful to mitigate the risk involved. The insurance companies on a continuous basis will introduce new schemes that are suitable to the policy holders.

Another important concept for the success of insurance companies is discontinuation of some of the previous schemes and alterations to the existing schemes. All such developments that took place should be carried through the distribution channels to the policy holders in time and explained properly. This requires considerable effort by the insurance companies to train the machinery involved in the distribution channels. It is revealed in the preliminary survey that the insurance department is less serious about this aspect and the training needs of those involved in the distribution channels are not met effectively. The problem is little more serious when we speak about the rural areas where many of the sections have been left uncovered even for today.

The distribution channels use to involve a large number of intermediaries in the system. These individuals either employees of the insurance department or the marketing agents perform handling of the schemes and taking them to the door step of the parties those interested in covering their risk. Some of these agents move a step 2. forward and are willing to take the risk and expenses in motivating the policy holders to accept risk coverage in time. The agents many times pay the premium in advance to the new policy holders against their insurance proposals. The intermediaries involved in the distribution channels provide specialized and personalized services to the policy holders. They help in educating the public about the new schemes introduced by the insurance department, promote the sale of new insurance products through word of their mouth communication and also provide pre entry and after entry service to the policy holders. They also make aware about the steps to be taken by the parents or guardians to protect their families from mis happenings like accidents or sudden death. They cultivate the habit of looking into future and to plan for future requirements like children education, daughter’s marriage, parent’s health care and for their own safety after retirement. The intermediaries also help in selection of and designing the suitable scheme at the premium level acceptable to the policy holders. Some of the intermediaries in the distribution channels may go beyond their limits and work as change agents. This is happening in the case of agriculture insurance. The science and technology is being carried literally to the doorsteps of peasants along with insurance products.

Distribution Channel Decision

The decision regarding distribution channels play vital role in planning marketing strategies. The distribution channels decisions would have impact on the size and number of agents to be engaged by the insurance department. Since beginning the insurance department adopted a very simple strategy regarding design of distribution channel. The department never thought of having a complex distribution channel. The department has been bound by the decision taken since long time. Therefore, there is long term commitment towards the decision channel which is most essential feature of effective distribution channel. The frequent changes in the decision regarding distribution channel will through any concern that has distribution channel in difficulties as regard to marketing management. But insurance department has never committed such type of mistake. However, time has come to rethink about distribution channel 3. decision by the insurance department. The changing environment is making the department to redesign the distribution channels to fit the needs of the insurance department.

Growth and Business of Indian Insurance Companies

The distribution of insurance products is facing several challenges during these days. In India nearly 24 Insurance Companies are operating. Life insurance industry recorded a premium income of Rs. 2,87,202 crore during 2012-13 as against Rs.2,87,072 crore in the previous financial year registering a growth of 0.05 per cent. The private sector insurers posted 7.38 per cent decline (4.52 per cent decline in previous year) in their premium income, LIC recorded 2.91 per cent growth (0.29 per cent decline in previous year) in total premium underwritten. In the life insurance business India is ranked 10th among the 88 countries, for which data are published by

Swiss Republic. During the first decade of insurance sector liberalization the sector had reported consistent increase in insurance penetration from 25.71 per cent in 2001 to 5.20 per cent in 2009. Since then, the level of penetration had declined and reached 3.96 per cent in 2012. This indicated that during the past three years, the growth in insurance premium is lower than national GDP A similar trend was observed in the level of insurance density which reached the maximum, of $ 64.4 in the year 2010 from the level of $11.5 in 2001. During the year 2012-13, the insurance density was US $ 53.2.

LIFEINSURANCE CORPORATIONS EDGE OVER OTHER INSURANCE COMPANIES

The neo liberalization policies of Indian Government have led to increase in the competition levels of insurance companies. Because of the Indian Government attitude considerable number of foreign insurance companies has been set up offices in India. It can also be noticed that the number of tie ups of these companies with various other Indian registered companies is also increasing at an alarming rate. Insurance business is not an exception to these foreign companies. During the increased competition levels, the existing Indian companies can restrict the entry of such new entrants by

4. concentrating more on the product differentiation. Life Insurance Corporation as a market leader has an edge over other Insurance Companies in India. This is because of the constructive efforts made to create a brand image by the Corporation since its inception. Today many of the employees in the Government and Non-Government sectors prefer to become regular policy holders of the corporation. The general public does believe in the qualitative services of the Corporation. Therefore, there exists buyer’s preference for the products of Life Insurance Corporation. The products of the Corporation have been enjoying a premium in the insurance market. Therefore, product differentiation may be a suitable marketing strategy to be followed by the Corporation to protect themselves from situations of the increasing competition.. The Life Insurance Corporation is also enjoying an absolute cost advantage over the new entrants. LIC has the ability to sell their products at a lower cost than any other private or foreign insurance company. But the success of corporation in selling their products completely depends on the distribution channels. Hence, the corporation has to concentrate on all those strategies which can improve the ability of the distribution channels.

The Government of India is somewhat serious about allowing Foreign Direct Investment in Insurance Sector. But there is lot of protest from the employees not to allow the foreign capital flows into the insurance sector. The argument from the insurance sector employees is that allowing foreign capital into the sector over and above 51 per cent may lead to foreign companies domination in the sector. Allowing foreign companies into the sector may pose several problems to the industry. To protect themselves from foreign insurance companies, the Indian insurance companies should employ continuous efforts to search for innovative products which suit the needs of cross sections of the Indian Community. The Life Insurance Corporation and other insurance companies are still concentrating on the conventional products. The efforts by these companies are indeed not taking the needs of the customers while planning and designing the new products. Therefore, insurance companies should divert their attention in designing new products catering to the needs of individuals and institutions.

Another important area on which the insurance companies should concentrate is to improve the distribution channels and make them effective in reaching the parties in time. The new schemes introduced by these companies from time to time should reach the targeted groups including the rural belt. The companies should take the advantage of tie ups with those institutions and societies or social groups including informal groups which are working at the rural areas to promote the insurance products. Any development in this area would show impact even on foreign insurance companies and help them in improving their business strategies.

Statement of the problem

The challenges in distribution of insurance products in the life sector are to be addressed effectively. The insurance product needs to be designed to meet the local needs. Prospective clients need to be briefed about the benefits of products. When there is withdrawal of familiar old products and new products were introduced, intermediaries required time to learn the new products. The product underwriting requirements need to be simplified. However, in the preliminary survey conducted, it is found that the Training Institutes were unable to train the intermediaries in time.

There are challenges even faced in the distribution of Micro Insurance products. The Micro Insurance Products are introduced to protect low income people with affordable insurance products to help cope with and recover from common risks with standardized popular insurance products adhering to certain levels of cover, premium and benefit standards. The penetration of insurance industry in rural regions had been relatively lower. Rural population had relatively lower access to information and lacked awareness of insurance products that rendered them “un-insured class” of population. There is great need to educate the rural population in person that require a high touch service model to be followed. In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major

constraint in the development of agriculture market in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products. But the efforts made by the Corporation this direction are indeed not adequate.

Non-Governmental Organsations and Self Help Groups had been permitted to act as agents to insurance companies in marketing these products. District Cooperative Banks, Regional Rural Banks, the business houses acting as Banking Correspondents would be appointed as Micro Insurance Agents. These individuals and institutions facilitate better penetration of Micro Insurance business. However, the efforts made by the Corporation to tie up with these grass root level institutions are found lacking. Therefore, there is an urgent need to address the issues faced by the insurance industry in general and Life Insurance Corporation with specific attempt to explain the emerging trends that would shape the growth and profitability of the insurance industry as well as Life Insurance Corporation in the near to medium term. Hence, the study.

Objectives

The present paper is aimed to attain the following objectives:

i. To analyse the state of insurance sector in India.

ii. To address effectively the challenges in the distribution of insurance products in the life sector.

iii. To address the challenges faced in the distribution of Micro Insurance Products ; and iv. To create awareness of insurance products among rural population

Methodology

The present study is based both on primary and secondary data. Survey method is planned to collect information from micro insurance beneficiaries in the Agriculture 7

Sector in the Hyderabad Karnataka Region. The primary data is collected using structured questionnaire. To make the study effective, structured questionnaire is distributed among the sample units. The number of respondents selected were 75 members from both rural and urban areas of the study. The secondary sources of information include the records maintained by the LIC. The Circulars issued from time to time by the LIC in relation to promotion of new products and to create awareness about these products among the agents and existing and prospective policy holders would form major source of information. To elicit information about the awareness of new insurance products personal interviews are held with the policy holders and farmers and public in selected rural areas from each district belonging to Hyderabad Karnataka Region. The officials of LIC are frequently met to keep the information track active. The secondary sources of information also include the IRDA circulars and letters issued to the insurance companies in general and to LIC in particular.

The study area is confined to Hyderabad-Karnataka Region. This region is considered as backward region in the Karnataka State. There are five districts included in this region viz., Bellary, Raichur, Gulbarga, Bidar and Bagalkot. On an average the literacy rate in these districts is 57.40 per cent. All these districts have been declared as industrially backward districts. Among these districts agriculture is the primary occupation. Majority of the population ( 80 per cent) in Bellary, Raichur and Gulbarga are still completely depend on agriculture for their lively hood. Considerable percentage of population among these districts uses to migrate to North Karnataka districts in search of employment. Since considerable part of the land in these districts is irrigated there is lot of people with assured income. However, it is found majority of the farmers are remained either uncovered or under covered by the Life Insurance Corporation. Perhaps the reason might be lack of awareness among these farmers to protect themselves from the life and accidents risk coverage. There is communication gap between LIC and rural population in passing of information about the new products launched and products discontinued from time to time .

CHANGING SCENARIO OF INSURANCE INDUSTRY

Declining growth rate of economy, persistent higher inflation and prices and slower rate of household savings impacted the growth of insurance sector in India. Resultantly, the growth rate of premium of life and non-life insurance sectors declined. Post liberalization, traditional agency forces had helped LIC of India to retain market leadership. In spite of the severe competition. more than 50 per cent of the business in insurance field is covered by Life Insurance Corporation. While channels like brokers and corporate agencies were popular with private players in the early phase of liberalization but later on public sector companies realized the significance of these channels and adopted them subsequently. The regulations introduced by the IRDA for Micro and Health Insurance had helped to strengthen the distribution channels. IRDA regulations have brought transparency in the working of insurance companies. It can also be noticed that new distributions channels were not suitable for all products. Therefore, the distribution channels need to be modified depending on the requirements of the clients.

In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major constraint in the development of agriculture market in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products.

There is positive correlation between internet penetration and usage with the performance and activities of insurance companies at various levels – lower customer acquisition costs, improved access to information, product innovation that cater to the needs of the customers and enhanced convenience. Online sales of insurance product had one important distinction – since the customers’ needs and preferences had led to the purchase decision, the customer would ideally have made a properly informed

9 choice. Since the insurers did not have the opportunity to influence the customer’s companies purchase decision the design of the web portal needs to be easy to understand and interactive enough to make the transaction seamless. With nearly 900 million mobile users, prospects of a new channel had emerged for insurance companies.

Importance of Paper less Electronic Records

The new generation is looking at paper less products. The recent trend is that many of the transactions of economic nature are being settled in electronic form. The use of electronic equipment is increased at a rapid rate. Banking, stock market operations and Insurance sectors have achieved 100 per cent computerization. Recently, the IRDA facilitated to present the insurance policies in electronic form in the place of issuing physical certificates. Although in the beginning the policy holders showed resistance but gradually there is a change in the psychology of the policy holders. Now majority of the policy holders prefer to have their policies in dematerialized form in the place of physical certificates. The insurance companies and insurance repository services consultancies revealed that majority of the policy holders have been preferring to have their policies as e-insurance policies.

Repository services have been issued with licenses by IRDA more than one and half year ago. Five repositories came into effect during this period. These repository services include NSDL Data Base management Ltd., Central Insurance Repository Ltd., Shil Projects Ltd., Karvy Insurance repository ltd and Syams Repository services Ltd. In addition to this, all Insurance companies came forward to issue policies in electronic form by entering into agreement with these repository services. According to this any policy holder desires to keep his policies has to open an account with the repository. Further, if policy holder purchases a policy his policy details will appear in the repository account. The policy holder can have details about as many policies as possible from different companies. Moreover, the policy holder can convert all of his policies which were in physical form into electronic form. It is further expected by the industry

10 participants as awareness is increases and e-insurance will find prospects and as many repositories as possible would come up and even as many repository participant would also enter into the field to promote services on behalf of such repositories. Many investors prefer to keep their Fixed Deposit Receipts, share certificates, Insurance policies, National Savings Certificates in physical form rather in electronic form. However, it difficult to change the psychology of investors overnight. Due to lack of knowledge about electronic form of keeping the certificates it is difficult to convince them and they use to demand for physical certificates. If someone says and assures them that keeping such ownership certificates in electronic form does not lead to any difficulty, the investors many a time were not convinced. They use to express doubts regarding the safety of their titles. However, there is change in the young investors thinking. The new generation investors always prefer to keep every ownership title or documents in electronic form. The problem lies with the senior and retired investors. If one is successful in changing the attitude of these people certainly there would be a revolution in the utilization of e documents. As far as banking sector is concerned the progress is universally accepted. But still there are certain sectors where radical changes are still expected. Insurance sector is one such sector where there is excessive reliance on physical certificates. It is estimated that in a short period all the policies issued by the insurance people will be in electronic form only.

RECENT STATISTICS Recent surveys revealed that there is considerable progress in e-insurance accounts. This aspect is also supported by Kyams Repository Services in their notification. There is considerable progress not only in opening of e-insurance accounts but also in the conversion of insurance policy certificates into electronic form. The new Insurance Bill provisions also contain maximum utilization of technology and the issue of insurance policies in electronic form. Therefore, a moral support to this revolution in the insurance sector is made by passing of the Insurance Bill in the Parliament. This has given impetus to the issue of e-insurance policies. This would show a considerable support for the development of Insurance industry and to render better services to the policy holders in the short future. 11

ISSUE OF INSURANCE POLICIES IN ELECTRONIC FORM

There are several advantages in the issue of insurance policies in Electronic Form. The advantages of bringing the changes in the issue procedure will have the following benefits:

i. Irrespective of the number all policies will start appearing in a single repository account.

ii. No need to keep each and every certificate separately as and when they were purchased.

iii. Once the repository account is opened any number of policies purchased subsequently can be included in the account without any difficulty.

iv. There is no risk of losing certificates. Since the policies are in e-form there is no fear that they may lost and there is no need to keep under safe custody.

v. There is every risk of losing the documents whenever a fire broken out or there is a fear of flood or unexpected natural calamity.

vi. The account holders can feel easy in the remittance of premiums on their policies as well as in getting back their survival benefits. The Policy holders can also expect SMS messages and alert about their policies from time to time.

vii. Since all the policy particulars readily available by a simple click on the mouse claims can be easily settled without insisting on submission of various certificates including the insurance policy.

viii. The account holder can get a statement of e-insurance account every year by the repository.

CHANNELS OF DISTRIBUTION

CONVENTIONAL CHANNELS (Insurance Agents, Development Officers, Brokers and Insurance Consultants)

NEW CHANNELS

BANK ASSURANCE CHANNEL DIRECT MARKETING

CHIEF LIFE INSURANCE ADVISOR

MICRO INSURANCE

HEALTH INSURANCE

Non-Governmen Self Help Groups Micro –Finance Institutions

Chart 1: The Distribution Channel

INSURNCE AT THE GRASS ROOT LEVEL

In India the number of people accepting agriculture as their primary occupation has been reducing at an alarming rate because of uncertain monsoon. This is a phenomenon particularly found in south India as failure of rain on a continuous basis for the past five years period. The income levels of people particularly in these regions have fallen to the greatest extent leaving many villagers below the poverty line. The rural population with low income is incapable of paying the premium on a regular basis. Hardly these people can pay the premium initially but subsequently majority of them discontinue their contributions to their policies. This would never help any insurance company either in the private sector or in public sector to survive for long term. Therefore, the most important aspect to be considered by the respective Governments is to improve the income levels of these rural groups.

FINDINGS

The present study is carried out to observe the changes that are to be brought in the distribution channels. In the light of observations made the following findings are noticed:

 It is found that there is a need to consider pace of Direct Marketing in the light of agents demand.

 Awareness is lacking about the products of insurance companies and their role in reducing life risks.

 There is need to appoint personnel to get the details about the insured and uninsured class specifically from rural and remote regions.

 No machinery is being found in gathering technical data about income levels of rural farmers.

 Considerable improvement is found in the expenditure levels of rural population in the study region.

14  No information is circulated to the rural regions when ever new product is introduced by the corporations.

 Even there is no communication about the withdrawal of old insurance products.

 The agents are not imparted training intime about the new products.

 There is lack of interest among the agents to take up sales and canvas about the new insurance products.

 Still majority of Agents are concentrating only on sale of conventional policies like Endowment and Money Back Policies.

 The agents preferred to sell always conventional products than new products defeating the very purpose of introducing new products.

 Much devotion is not found by Life Insurance Corporation in the development of micro insurance at the rural base.

 There are still several channels at the grass root left untapped by the Corporation.

 No proper agreements have been made by the Corporation with the Grameen Banks, Co operative Banks, Self Help Groups and other agencies working in the rural areas for sale of insurance policies.

RECOMMENDATIONS

 If not total discontinuation, at least Life Insurance Corporation should reduce their stake in Direct Marketing so as to enable the agents to work with full commitment.

 Awareness camps must be organized whenever new products are introduced or old products are withdrawn.  Attempts should be made to increase the income levels of farmers by encouraging them to undertake horticulture where they can expect a minimum of Rs.50,000 profit per acre.

 Encouragement for drip irrigation, construction of peculation tanks,

promotion lift irrigation culture will not only increase the confidence

levels of farmers but also their risk coverage through paying premium on a regular basis.

 Collection of data regarding uninsured and under insured at rural belt by appointing young unemployed graduates would help in not improving business but also create employment opportunities.

 Micro insurance development should be the latest business model for Life Insurance Corporation.

 Various Self Help Groups Team Leaders should be appointed as Business Development Officers by organizing training programmes.

 All those Service Organisations working in rural areas must be brought into the business network by entering into agreements with them under the control of Village Development Officers or other Block Level Officer as the case may be.

 Agents must be motivated to attend the training programmes as and when they are organized and they must be insisted to promote new products by concentrating less on conventional policies.

CONCLUSION

The Insurance Bill that is accepted by both the houses of parliament might have taken certain important considerations before giving acceptance. Foreign companies which will be issued licenses would start concentrating mainly on the metropolitan cities for their business. The target groups for these companies would never be the rural population or farmers. Even if it is made in the Insurance Bill mandatory to render the services in the rural areas, these companies will never accept to go to the rural masses for business. If the Government is prepared to penalise these companies, in case if they do not serve the rural India, the foreign companies may even prepare to pay the penalties but never prefer to approach the rural belt. This would be a fact and clear policy of foreign companies as it is already proven in other sectors where foreign direct investment is allowed. Therefore, it would become compulsory for Indian

Insurance Companies to reach the rural masses for their business. Hence, there is an urgent need for all the insurance companies including the Life Insurance Corporation to reconstitute their channels of distribution for marketing their products. They should think over about bringing a business model which would throw light much on the rural areas. For this, Life Insurance Corporation has to pay maximum attention in developing Micro Insurance. To achieve this, the Indian insurance companies should reach the rural masses as early as possible with every seriousness than ever before.

References:

1.Rao, K.R.M. (2005), Services Marketing , Pearson Education, New Delhi.

2. Shankar R., (2006), Services Marketing: The Indian Perspective, Text and Readings , Excel Books, New Delhi.

3.Malhotra, N.K.(2002) Marketing Research and Applied Orientation, Third Edition, New Delhi, India, Pearson Education Asia.

4.Balachandran, S., (2006) Life Insurance (Revised) Insurance Institute of India, Mumbai.

5.www.LIC India. Com. 17

ANNEXURES Table 1: Impact on Insurance Business after entering into agreements at the grass root level functioning agencies ------Response No. of respondents Percentage to total

Yes 53 70.67 No 18 24.00 No idea 04 05.33 ------Total 75 100.00 Source: Field source

Table No: 2 Discontunuation of Direct Marketing ------Response No. of respondents Percentage to total

Yes 65 86.67 No 08 10.67 No idea 02 02.67 ------Total 75 100.00 Source: Field Survey

Table No:3 Awareness and Information about introduction of New Products ------Response No. of respondents Percentage to total

Aware of 11 14.67 Not Aware of 59 78.67 Not communicated 05 06.67 ------Total 75 100.00 Source: Field Survey

Table No:4 Awareness and information about Discontinuation of Old Products Response No. of respondents Percentage to total

Aware of 02 02.67 Not Aware of 67 89.33 Not communicated 06 08.00 ------Total 75 100.00 ------Source: Field Survey 18

Table No: 5 Benefits of Reconstitution of Channels of Distribution

Response Life Insurance Private and Foreign Insurance Corporation Companies ------Yes No Yes No

Increase in Business 75 0 5 70 (100.00) (0.0) (6.67) (93.33)

Low Premium 70 5 5 70 (93.33) (6.67) (6.67) (93.33)

Increase in Employment 75 0 38 37 (100.00) (0.0) (50.67) (49.33) Infrastructure And Technology Utilization 30 45 48 27 (40.00) (60.00) (64.00) (36.00) Figures in parentheses indicate percentages Source: Field Survey 19

Title of the Research Paper

======REVISITING OF DISTRIBUTION CHANNELS FOR INSURANCE PRODUCTS IN CHANGING ENVIRONMENT ======

By Dr. E.SHOBHAN BABU M.Com., M. Phil., Ph.D. Associate Professor& P. G. Coordinator Department of P.G. Studies in Commerce, SSA Government First Grade College BELLARY – 583 101 Karnataka Cell:8904826018 email:[email protected]

Miss. AMAL M. Com., M. Phil. Assistant Professor, Department of Commerce SGRCM Govt. Commerce & Management College BELLARY – 583 101 Cell:09980368848 e mail:[email protected]

REVISITING OF DISTRIBUTION CHANNELS FOR INSURANCE PRODUCTS IN CHANGING ENVIRONMENT ======ABSTRACT The challenges in distribution of insurance products in the life sector are to be addressed effectively. The insurance product needs to be designed to meet the local needs. Prospective clients need to be briefed about the benefits of products. When there is withdrawal of familiar old products and new products were introduced, intermediaries required time to learn the new products. The product underwriting requirements need to be simplified. However, in the preliminary survey conducted, it is found that the Training Institutes were unable to train the intermediaries in time. There are challenges even faced in the distribution of Micro Insurance products. The Micro Insurance Products are introduced to protect low income people with affordable insurance products to help and recover from common risks with standardized popular insurance products adhering to certain levels of cover, premium and benefit standards. The penetration of insurance industry in rural regions had been relatively lower. Rural population had relatively lower access to information and lacked awareness of insurance products that rendered them “un-insured class” of population. There is great need to educate the rural population in person that requires a high touch service model to be followed. In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major constraint in the development of agriculture insurance in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products. But the efforts made by the Corporation this direction are indeed not adequate. In the light of Insurance Bill allowing Foreign Direct Investment into the Insurance Sector, where the foreign insurance companies will start concentrating on tier I and tier II cities, the need for concentrating on rural areas should be the latest business model for the insurance companies including Life Insurance Corporation. Non-Governmental Organsations and Self Help Groups had been permitted to act as agents to insurance companies in marketing these products. District Cooperative Banks, Regional Rural Banks, the business houses acting as Banking Correspondents would be appointed as Micro Insurance Agents. These individuals and institutions facilitate better penetration of Micro Insurance business. However, the efforts made by the Corporation to tie up with these grass root level institutions are found lacking. Therefore, there is an urgent need to address the issues faced by the insurance industry in general and Life Insurance Corporation with specific. An attempt to explain the emerging trends that would shape the growth and profitability of the insurance industry as well as Life Insurance Corporation is inevitable to meet the new challenges in the near medium term. Key words: Distribution Channels, Micro Insurance, Grass root level and business model. 7.

INTRODUCTION

Distribution channels play a significant role in the successful marketing of insurance products. The channels of distribution have their own role in the field of marketing of insurance products. The distribution channels bridge the gap between the insurance companies and the end user of such service. They provide an opportunity to use the services offered by the insurance companies efficiently and economically to safeguard themselves from the life and non life risks. The channels for insurance products mainly cater to the needs of the Government and Non Government employees as well as to the general public irrespective of geographical differentials. In fact the insurance companies’ product range is wide and the customers for such products are widely distributed. The marketing strategy to be adopted by the insurance companies must be suitable to reach the customers in time and explain how the product will be useful to mitigate the risk involved. The insurance companies on a continuous basis will introduce new schemes that are suitable to the policy holders. Another important concept for the success of insurance companies is discontinuation of some of the previous schemes and alterations to the existing schemes. All such developments that took place should be carried through the distribution channels to the policy holders in time and explained properly. This requires considerable effort by the insurance companies to train the machinery involved in the distribution channels. It is revealed in the preliminary survey that the insurance department is less serious about this aspect and the training needs of those involved in the distribution channels are not met effectively. The problem is little more serious when we speak about the rural areas where many of the sections have been left uncovered even for today.

The distribution channels use to involve a large number of intermediaries in the system. These individuals either employees of the insurance department or the marketing agents perform handling of the schemes and taking them to the door step of the parties those interested in covering their risk. Some of these agents move a step

8. forward and are willing to take the risk and expenses in motivating the policy holders to accept risk coverage in time. The agents many times pay the premium in advance to the new policy holders against their insurance proposals. The intermediaries involved in the distribution channels provide specialized and personalized services to the policy holders. They help in educating the public about the new schemes introduced by the insurance department, promote the sale of new insurance products through word of their mouth communication and also provide pre entry and after entry service to the policy holders. They also make aware about the steps to be taken by the parents or guardians to protect their families from mis happenings like accidents or sudden death. They cultivate the habit of looking into future and to plan for future requirements like children education, daughter’s marriage, parent’s health care and for their own safety after retirement. The intermediaries also help in selection of and designing the suitable scheme at the premium level acceptable to the policy holders. Some of the intermediaries in the distribution channels may go beyond their limits and work as change agents. This is happening in the case of agriculture insurance. The science and technology is being carried literally to the doorsteps of peasants along with insurance products.

Distribution Channel Decision

The decision regarding distribution channels play vital role in planning marketing strategies. The distribution channels decisions would have impact on the size and number of agents to be engaged by the insurance department. Since beginning the insurance department adopted a very simple strategy regarding design of distribution channel. The department never thought of having a complex distribution channel. The department has been bound by the decision taken since long time. Therefore, there is long term commitment towards the decision channel which is most essential feature of effective distribution channel. The frequent changes in the decision regarding distribution channel will through any concern that has distribution channel in difficulties as regard to marketing management. But insurance department has never committed such type of mistake. However, time has come to rethink about distribution channel

9. decision by the insurance department. The changing environment is making the department to redesign the distribution channels to fit the needs of the insurance department.

Growth and Business of Indian Insurance Companies

The distribution of insurance products is facing several challenges during these days. In India nearly 24 Insurance Companies are operating. Life insurance industry recorded a premium income of Rs. 2,87,202 crore during 2012-13 as against Rs.2,87,072 crore in the previous financial year registering a growth of 0.05 per cent. The private sector insurers posted 7.38 per cent decline (4.52 per cent decline in previous year) in their premium income, LIC recorded 2.91 per cent growth (0.29 per cent decline in previous year) in total premium underwritten. In the life insurance business India is ranked 10th among the 88 countries, for which data are published by Swiss Republic. During the first decade of insurance sector liberalization the sector had reported consistent increase in insurance penetration from 25.71 per cent in 2001 to 5.20 per cent in 2009. Since then, the level of penetration had declined and reached 3.96 per cent in 2012. This indicated that during the past three years, the growth in insurance premium is lower than national GDP A similar trend was observed in the level of insurance density which reached the maximum, of $ 64.4 in the year 2010 from the level of $11.5 in 2001. During the year 2012-13, the insurance density was US $ 53.2.

LIFEINSURANCE CORPORATIONS EDGE OVER OTHER INSURANCE COMPANIES

The neo liberalization policies of Indian Government have led to increase in the competition levels of insurance companies. Because of the Indian Government attitude considerable number of foreign insurance companies has been set up offices in India. It can also be noticed that the number of tie ups of these companies with various other Indian registered companies is also increasing at an alarming rate. Insurance business is not an exception to these foreign companies. During the increased competition levels, the existing Indian companies can restrict the entry of such new entrants by

10. concentrating more on the product differentiation. Life Insurance Corporation as a market leader has an edge over other Insurance Companies in India. This is because of the constructive efforts made to create a brand image by the Corporation since its inception. Today many of the employees in the Government and Non-Government sectors prefer to become regular policy holders of the corporation. The general public does believe in the qualitative services of the Corporation. Therefore, there exists buyer’s preference for the products of Life Insurance Corporation. The products of the Corporation have been enjoying a premium in the insurance market. Therefore, product differentiation may be a suitable marketing strategy to be followed by the Corporation to protect themselves from situations of the increasing competition.. The Life Insurance Corporation is also enjoying an absolute cost advantage over the new entrants. LIC has the ability to sell their products at a lower cost than any other private or foreign insurance company. But the success of corporation in selling their products completely depends on the distribution channels. Hence, the corporation has to concentrate on all those strategies which can improve the ability of the distribution channels.

The Government of India is somewhat serious about allowing Foreign Direct Investment in Insurance Sector. But there is lot of protest from the employees not to allow the foreign capital flows into the insurance sector. The argument from the insurance sector employees is that allowing foreign capital into the sector over and above 51 per cent may lead to foreign companies domination in the sector. Allowing foreign companies into the sector may pose several problems to the industry. To protect themselves from foreign insurance companies, the Indian insurance companies should employ continuous efforts to search for innovative products which suit the needs of cross sections of the Indian Community. The Life Insurance Corporation and other insurance companies are still concentrating on the conventional products. The efforts by these companies are indeed not taking the needs of the customers while planning and designing the new products. Therefore, insurance companies should divert their attention in designing new products catering to the needs of individuals and institutions.

Another important area on which the insurance companies should concentrate is to improve the distribution channels and make them effective in reaching the parties in time. The new schemes introduced by these companies from time to time should reach the targeted groups including the rural belt. The companies should take the advantage of tie ups with those institutions and societies or social groups including informal groups which are working at the rural areas to promote the insurance products. Any development in this area would show impact even on foreign insurance companies and help them in improving their business strategies.

Statement of the problem

The challenges in distribution of insurance products in the life sector are to be addressed effectively. The insurance product needs to be designed to meet the local needs. Prospective clients need to be briefed about the benefits of products. When there is withdrawal of familiar old products and new products were introduced, intermediaries required time to learn the new products. The product underwriting requirements need to be simplified. However, in the preliminary survey conducted, it is found that the Training Institutes were unable to train the intermediaries in time.

There are challenges even faced in the distribution of Micro Insurance products. The Micro Insurance Products are introduced to protect low income people with affordable insurance products to help cope with and recover from common risks with standardized popular insurance products adhering to certain levels of cover, premium and benefit standards. The penetration of insurance industry in rural regions had been relatively lower. Rural population had relatively lower access to information and lacked awareness of insurance products that rendered them “un-insured class” of population. There is great need to educate the rural population in person that require a high touch service model to be followed.

In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major

constraint in the development of agriculture market in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products. But the efforts made by the Corporation this direction are indeed not adequate.

Non-Governmental Organsations and Self Help Groups had been permitted to act as agents to insurance companies in marketing these products. District Cooperative Banks, Regional Rural Banks, the business houses acting as Banking Correspondents would be appointed as Micro Insurance Agents. These individuals and institutions facilitate better penetration of Micro Insurance business. However, the efforts made by the Corporation to tie up with these grass root level institutions are found lacking. Therefore, there is an urgent need to address the issues faced by the insurance industry in general and Life Insurance Corporation with specific attempt to explain the emerging trends that would shape the growth and profitability of the insurance industry as well as Life Insurance Corporation in the near to medium term. Hence, the study.

Objectives

The present paper is aimed to attain the following objectives:

v. To analyse the state of insurance sector in India.

vi. To address effectively the challenges in the distribution of insurance products in the life sector.

vii. To address the challenges faced in the distribution of Micro Insurance Products ; and

viii. To create awareness of insurance products among rural population

Methodology

The present study is based both on primary and secondary data. Survey method is planned to collect information from micro insurance beneficiaries in the Agriculture 7

Sector in the Hyderabad Karnataka Region. The primary data is collected using structured questionnaire. To make the study effective, structured questionnaire is distributed among the sample units. The number of respondents selected were 75 members from both rural and urban areas of the study. The secondary sources of information include the records maintained by the LIC. The Circulars issued from time to time by the LIC in relation to promotion of new products and to create awareness about these products among the agents and existing and prospective policy holders would form major source of information. To elicit information about the awareness of new insurance products personal interviews are held with the policy holders and farmers and public in selected rural areas from each district belonging to Hyderabad Karnataka Region. The officials of LIC are frequently met to keep the information track active. The secondary sources of information also include the IRDA circulars and letters issued to the insurance companies in general and to LIC in particular.

The study area is confined to Hyderabad-Karnataka Region. This region is considered as backward region in the Karnataka State. There are five districts included in this region viz., Bellary, Raichur, Gulbarga, Bidar and Bagalkot. On an average the literacy rate in these districts is 57.40 per cent. All these districts have been declared as industrially backward districts. Among these districts agriculture is the primary occupation. Majority of the population ( 80 per cent) in Bellary, Raichur and Gulbarga are still completely depend on agriculture for their lively hood. Considerable percentage of population among these districts uses to migrate to North Karnataka districts in search of employment. Since considerable part of the land in these districts is irrigated there is lot of people with assured income. However, it is found majority of the farmers are remained either uncovered or under covered by the Life Insurance Corporation. Perhaps the reason might be lack of awareness among these farmers to protect themselves from the life and accidents risk coverage. There is communication gap between LIC and rural population in passing of information about the new products launched and products discontinued from time to time .

CHANGING SCENARIO OF INSURANCE INDUSTRY

Declining growth rate of economy, persistent higher inflation and prices and slower rate of household savings impacted the growth of insurance sector in India. Resultantly, the growth rate of premium of life and non-life insurance sectors declined. Post liberalization, traditional agency forces had helped LIC of India to retain market leadership. In spite of the severe competition. more than 50 per cent of the business in insurance field is covered by Life Insurance Corporation. While channels like brokers and corporate agencies were popular with private players in the early phase of liberalization but later on public sector companies realized the significance of these channels and adopted them subsequently. The regulations introduced by the IRDA for Micro and Health Insurance had helped to strengthen the distribution channels. IRDA regulations have brought transparency in the working of insurance companies. It can also be noticed that new distributions channels were not suitable for all products. Therefore, the distribution channels need to be modified depending on the requirements of the clients.

In a vast country like India the complexities of agriculture insurance are to be tackled efficiently. The agriculture insurance market is suffering with several important problems. Non availability of technical data at the grass root level is a major constraint in the development of agriculture market in India. The new distribution channels did not have the network to reach rural areas to distribute the insurance products. The claim management is becoming a difficult task because of the uncertainties in climate. A multi system channel would help in the distribution of the products.

There is positive correlation between internet penetration and usage with the performance and activities of insurance companies at various levels – lower customer acquisition costs, improved access to information, product innovation that cater to the needs of the customers and enhanced convenience. Online sales of insurance product had one important distinction – since the customers’ needs and preferences had led to the purchase decision, the customer would ideally have made a properly informed

9 choice. Since the insurers did not have the opportunity to influence the customer’s companies purchase decision the design of the web portal needs to be easy to understand and interactive enough to make the transaction seamless. With nearly 900 million mobile users, prospects of a new channel had emerged for insurance companies.

Importance of Paper less Electronic Records The new generation is looking at paper less products. The recent trend is that many of the transactions of economic nature are being settled in electronic form. The use of electronic equipment is increased at a rapid rate. Banking, stock market operations and Insurance sectors have achieved 100 per cent computerization. Recently, the IRDA facilitated to present the insurance policies in electronic form in the place of issuing physical certificates. Although in the beginning the policy holders showed resistance but gradually there is a change in the psychology of the policy holders. Now majority of the policy holders prefer to have their policies in dematerialized form in the place of physical certificates. The insurance companies and insurance repository services consultancies revealed that majority of the policy holders have been preferring to have their policies as e-insurance policies.

Repository services have been issued with licenses by IRDA more than one and half year ago. Five repositories came into effect during this period. These repository services include NSDL Data Base management Ltd., Central Insurance Repository Ltd., Shil Projects Ltd., Karvy Insurance repository ltd and Syams Repository services Ltd. In addition to this, all Insurance companies came forward to issue policies in electronic form by entering into agreement with these repository services. According to this any policy holder desires to keep his policies has to open an account with the repository. Further, if policy holder purchases a policy his policy details will appear in the repository account. The policy holder can have details about as many policies as possible from different companies. Moreover, the policy holder can convert all of his policies which were in physical form into electronic form. It is further expected by the industry

10 participants as awareness is increases and e-insurance will find prospects and as many repositories as possible would come up and even as many repository participant would also enter into the field to promote services on behalf of such repositories. Many investors prefer to keep their Fixed Deposit Receipts, share certificates, Insurance policies, National Savings Certificates in physical form rather in electronic form. However, it difficult to change the psychology of investors overnight. Due to lack of knowledge about electronic form of keeping the certificates it is difficult to convince them and they use to demand for physical certificates. If someone says and assures them that keeping such ownership certificates in electronic form does not lead to any difficulty, the investors many a time were not convinced. They use to express doubts regarding the safety of their titles. However, there is change in the young investors thinking. The new generation investors always prefer to keep every ownership title or documents in electronic form. The problem lies with the senior and retired investors. If one is successful in changing the attitude of these people certainly there would be a revolution in the utilization of e documents. As far as banking sector is concerned the progress is universally accepted. But still there are certain sectors where radical changes are still expected. Insurance sector is one such sector where there is excessive reliance on physical certificates. It is estimated that in a short period all the policies issued by the insurance people will be in electronic form only.

RECENT STATISTICS

Recent surveys revealed that there is considerable progress in e-insurance accounts. This aspect is also supported by Kyams Repository Services in their notification. There is considerable progress not only in opening of e-insurance accounts but also in the conversion of insurance policy certificates into electronic form. The new Insurance Bill provisions also contain maximum utilization of technology and the issue of insurance policies in electronic form. Therefore, a moral support to this revolution in the insurance sector is made by passing of the Insurance Bill in the Parliament. This has given impetus to the issue of e-insurance policies. This would show a considerable support for the development of Insurance industry and to render better services to the policy holders in the short future. 11

ISSUE OF INSURANCE POLICIES IN ELECTRONIC FORM

There are several advantages in the issue of insurance policies in Electronic Form. The advantages of bringing the changes in the issue procedure will have the following benefits: ix. Irrespective of the number all policies will start appearing in a single repository account.

x. No need to keep each and every certificate separately as and when they were purchased.

xi. Once the repository account is opened any number of policies purchased subsequently can be included in the account without any difficulty.

xii. There is no risk of losing certificates. Since the policies are in e-form there is no fear that they may lost and there is no need to keep under safe custody.

xiii. There is every risk of losing the documents whenever a fire broken out or there is a fear of flood or unexpected natural calamity.

xiv. The account holders can feel easy in the remittance of premiums on their policies as well as in getting back their survival benefits. The Policy holders can also expect SMS messages and alert about their policies from time to time.

xv. Since all the policy particulars readily available by a simple click on the mouse claims can be easily settled without insisting on submission of various certificates including the insurance policy.

xvi. The account holder can get a statement of e-insurance account every year by the repository.

CHANNELS OF DISTRIBUTION CONVENTIONAL CHANNELS (Insurance Agents, Development Officers, Brokers and Insurance Consultants)

NEW CHANNELS

BANK ASSURANCE CHANNEL

DIRECT MARKETING

CHIEF LIFE INSURANCE ADVISOR

MICRO INSURANCE

HEALTH INSURANCE Non-Governmen Self Help Groups Micro –Finance Institutions

Chart 1: The Distribution Channel

INSURNCE AT THE GRASS ROOT LEVEL

In India the number of people accepting agriculture as their primary occupation has been reducing at an alarming rate because of uncertain monsoon. This is a phenomenon particularly found in south India as failure of rain on a continuous basis for the past five years period. The income levels of people particularly in these regions have fallen to the greatest extent leaving many villagers below the poverty line. The rural population with low income is incapable of paying the premium on a regular basis. Hardly these people can pay the premium initially but subsequently majority of them discontinue their contributions to their policies. This would never help any insurance company either in the private sector or in public sector to survive for long term. Therefore, the most important aspect to be considered by the respective Governments is to improve the income levels of these rural groups.

FINDINGS

The present study is carried out to observe the changes that are to be brought in the distribution channels. In the light of observations made the following findings are noticed:

 It is found that there is a need to consider pace of Direct Marketing in the light of agents demand.  Awareness is lacking about the products of insurance companies and their role in reducing life risks.

 There is need to appoint personnel to get the details about the insured and uninsured class specifically from rural and remote regions.

 No machinery is being found in gathering technical data about income levels of rural farmers.

 Considerable improvement is found in the expenditure levels of rural population in the study region.

 No information is circulated to the rural regions when ever new product is introduced by the corporations.

 Even there is no communication about the withdrawal of old insurance products.

 The agents are not imparted training intime about the new products.

 There is lack of interest among the agents to take up sales and canvas about the new insurance products.

 Still majority of Agents are concentrating only on sale of conventional policies like Endowment and Money Back Policies.

 The agents preferred to sell always conventional products than new products defeating the very purpose of introducing new products.

 Much devotion is not found by Life Insurance Corporation in the development of micro insurance at the rural base.  There are still several channels at the grass root left untapped by the Corporation.

 No proper agreements have been made by the Corporation with the Grameen Banks, Co operative Banks, Self Help Groups and other agencies working in the rural areas for sale of insurance policies.

RECOMMENDATIONS

 If not total discontinuation, at least Life Insurance Corporation should reduce their stake in Direct Marketing so as to enable the agents to work with full commitment.

 Awareness camps must be organized whenever new products are introduced or old products are withdrawn.

 Attempts should be made to increase the income levels of farmers by encouraging them to undertake horticulture where they can expect a minimum of Rs.50,000 profit per acre.

 Encouragement for drip irrigation, construction of peculation tanks,

promotion lift irrigation culture will not only increase the confidence

levels of farmers but also their risk coverage through paying premium on a regular basis.

 Collection of data regarding uninsured and under insured at rural belt by appointing young unemployed graduates would help in not improving business but also create employment opportunities.

 Micro insurance development should be the latest business model for Life Insurance Corporation.  Various Self Help Groups Team Leaders should be appointed as Business Development Officers by organizing training programmes.

 All those Service Organisations working in rural areas must be brought into the business network by entering into agreements with them under the control of Village Development Officers or other Block Level Officer as the case may be.

 Agents must be motivated to attend the training programmes as and when they are organized and they must be insisted to promote new products by concentrating less on conventional policies.

CONCLUSION

The Insurance Bill that is accepted by both the houses of parliament might have taken certain important considerations before giving acceptance. Foreign companies which will be issued licenses would start concentrating mainly on the metropolitan cities for their business. The target groups for these companies would never be the rural population or farmers. Even if it is made in the Insurance Bill mandatory to render the services in the rural areas, these companies will never accept to go to the rural masses for business. If the Government is prepared to penalise these companies, in case if they do not serve the rural India, the foreign companies may even prepare to pay the penalties but never prefer to approach the rural belt. This would be a fact and clear policy of foreign companies as it is already proven in other sectors where foreign direct investment is allowed. Therefore, it would become compulsory for Indian

Insurance Companies to reach the rural masses for their business. Hence, there is an urgent need for all the insurance companies including the Life Insurance Corporation to reconstitute their channels of distribution for marketing their products. They should think over about bringing a business model which would throw light much on the rural areas. For this, Life Insurance Corporation has to pay maximum attention in developing Micro Insurance. To achieve this, the Indian insurance companies should reach the rural masses as early as possible with every seriousness than ever before.

References:

1.Rao, K.R.M. (2005), Services Marketing , Pearson Education, New Delhi.

2. Shankar R., (2006), Services Marketing: The Indian Perspective, Text and Readings , Excel Books, New Delhi.

3.Malhotra, N.K.(2002) Marketing Research and Applied Orientation, Third Edition, New Delhi, India, Pearson Education Asia.

4.Balachandran, S., (2006) Life Insurance (Revised) Insurance Institute of India, Mumbai.

5.www.LIC India. Com.