In a country where life insurance penetration is just 2.76 per cent (ratio of premium to GDP the immediate need is to amplify the reach and enable people to be adequately economically protected and help them also build disciplined saving habits.
In pursuance of increasing the insurance outreach in the country and make it a part of comprehensive financial planning, insurance regulator IRDAI approved the formation of a new distribution channel - Insurance Marketing Firm (IMF). This move is resultant of the NM Govardhan Committee’s report, which suggested that a group of agencies be set up to improve the market penetration of the insurance business and to enable selling of mutual funds, pension plans, stocks, and other financial services by merchandisers under one umbrella.
Tracing the IMF trajectory
IMFs have been designed to function on the ‘distribution model’, having tie-ups with multiple insurers and other financial services providers, a model akin to Independent Financial Advisors (IFA). Expected to be the missing link that helps increase insurance penetration, an IMF is a progressive step towards making the country insurance aware and build a business model that takes the insurance sector forward.
There remain gaps in terms of taking insurance penetration to the masses. The gap as identified is on two levels – a) deficient knowledge of insurance instruments and how insurance helps households being financially protected, and b) Individual insurance agents being allowed to sell products of only one insurer each in life, general and health, and hence the consumer needs to reach out to multiple agents for product choices.
To address these gaps, IRDAI as per Registration of Insurance Marketing Firm Regulations, 2015 (IMF Regulation) was stipulated that offered IMFs the freedom to sell insurance products from two life, two general and two health insurance companies at any point of time.
Conducive regulations to pave the path for progress
Since its inception, Insurance Marketing Firms have seen a gradual increase in their reach across the country. As per a recent report by the Insurance Regulatory and Development Authority of India (IRDAI), there are more than 280 Insurance Marketing Firms active across the country having the option to work with 2 life insurers each. However, at present, 175 IMFs have opted to start their journey with one life insurer each. Of the total number of active IMF’s around 60 plus IMF’s are associated with the Life Insurance Corporation (LIC), around 30 plus with PNB Metlife, around 40 with HDFC Life, around 40 plus associated with Aviva Life Insurance; while more than 150 IMF’s are associated with Max Life Insurance. These exponential numbers go to show the growing acceptance of IMFs in the country, and augur well for a rapid growth of the sector.
Recent amendment to the IMF Regulations allows IMF’s to function in maximum three districts within a state as compared to only one district earlier, of which one has to be an aspirational district (district designated as such by the NITI Aayog, Government of India or any other economically backward district, as may be recognized by the Authority), will surely encourage more IMF’s to enter the fold. With this amendment, IMFs can now take layered risks where they could spread their business outreach across these three districts and offer larger insurance outreach to the consumers.
Another major amendment that come in force allows IMFs applying to launch operations to have a net worth of only Rs 5 lakh, which earlier was Rs10 lakh. This will allow for more IMF’s to reach to economical backward areas and bring a larger customer base into the protection net. The net worth of Rs10 lakh norm was high for tier-II and III cities and this move to reduce net worth requirement will certainly attract more players to opt for IMF license in these districts and thus help in making residents more insurance aware and get into the fold.
Regulatory changes now also allow IMFs to engage with Agriculture Insurance Company of India Ltd. (AIC) and Export Credit Guarantee Corporation Ltd. (ECGC), which is in addition to existing norms allowing them to solicit business for two life, two general and two health insurers. This move allows the IMF’s to now sell crop insurance for non-loaned farmers and combo products along with property, group personal accident, group health, Group Savings Linked Insurance and term insurance policies for Micro, Small and Medium Enterprises (MSME), helping them widen their product gamut and offer relevant products to the customer base.
In line with the umbrella aim of increasing the spread of insurance, the amendment has also allowed for relaxation in the work experience requirement of the IMF’s Principal Officer where if the person has undergone training and examination required for Principal Officer of an insurance broker company / corporate agent / web aggregator, then they shall be exempted from training and examination requirement (if undertaken within a period of five years preceding the date of application) to become the Principal Officer of the Insurance Marketing Firm, thus easing the upskill. This shall help in bringing adept officers with granular insurance expertise to come into the fray and create their own IMF business that will help take insurance penetration across the deeper delves of the country.
The amendment also allows that a life insurance agent with some experience may seamlessly transition into building an IMF business, this move ensures next-level career opportunity for the Principal Officer, agents and the industry at large. Further, subject to Board approved policy of the respective insurers, an agent may also be allowed to continually receive renewal commission benefits despite migrating to or joining an insurance marketing firm. Earlier, an agent had to surrender his insurance agency on upgrading to an IMF, which meant cancellation of renewal commissions; the new regulations now do away with the stipulation thus allowing an IMF partner to increase his delta of earnings and building a larger insurance business.
With the end-user customer being the net-net winner in terms of greater insurance awareness, these positive regulations shall lead towards a larger insurance penetration in the country. Thanks to the advent of Insurance Marketing Firms, the day looks not too distant when the country would improve its protection quotient and be risk-free and prosper in its rightful spirit.
The author is Deputy Managing Director, Max Life Insurance