The insurance regulator may allow Insurance Marketing Firm (IMF) to charge for marketing expenses.
IRDA has formulated a working group with five members each from life and non-life insurance companies and one IRDA member to explore the possibility of developing a new distribution channel called Insurance Marketing Firm (IMF).
Recently, a committee headed by a former chairman of LIC, NM Govardhan has recommended IRDA to develop IMF in order to increase penetration of insurance in the country.
The decision of constituting the group was taken after a meeting held on January 16 and 17 in which representatives from life and non-life insurance companies were present. One of the members who attended the meeting told Cafemutual that the regulator is considering allowing IMF to charge for marketing expenses from insurers which is currently not allowed for any distribution channel. The regulator is also looking at allowing IMFs to have multiple tie ups just like insurance brokers, he added. He informed that IRDA has recently called upon a meeting of distributors to get their feedback in this matter.
As of now, the insurance broking model allows multiple tie-ups with insurance companies. However, many brokers don’t prefer to sell life insurance to retail customers as it entails heavy marketing expenses. Instead, they focus on selling large ticket size non-life products like group health insurance, motor insurance, liability insurance etc. to corporates. A CEO of a general insurance company said that the current regulations do not allow distribution channels to recover marketing expenses from insurers. “IRDA has to make an amendment in the regulation for permitting this which will take time. Hence, they are considering a new distribution channel which will be allowed to charge for marketing expenses from insurers along with commission.”
Last year, IRDA had imposed fines on many insurance companies and corporate agents like Aviva Life, Max Life, Future Generali Life, Bajaj Allianz, Punjab & Sind Bank and IndusInd Bank for disbursing or receiving higher commission in the form of marketing expenses.
IRDA has said in a circular that it has asked the working group to look into issues like requirement of capital, geographical spread, distribution costs, fit and proper criteria, quality standard, training and recruitment of sales person, process of sales etc. for establishment of IMF.
R Chandrasekaran, Secretary General, General Insurance Council (GIC) told Cafemutual that brainstorming sessions are going on to discuss the structure of IMF. Right now, the regulator is discussing issues like bringing entrepreneur skills, qualified people etc. into IMF.
GN Agarwal, CEO, Future Generali Life Insurance believes that the insurance business has two key components - product and distribution. He says, “After implementing new product guidelines which came into effect from January 1 to make insurance policies more transparent and customer friendly, IRDA has shifted its focus into improvement of distribution channel. This may be a reason for IRDA to consider about introducing IMF.”
The working group includes Rajesh Sud, CEO, Max Life, P Nandgopal, CEO, IndiaFirst, Kshitij Jain, CEO, ING Vysya Life, TR Ramachandran, CEO, Aviva Life, John David Holden, CEO Canara HSBC Life, Yogesh Lohiya, CEO, Iffco-Tokio General, AK Saxena, CMD, Oriental Insurance, Bhargava Dasgupta, CEO, ICICI Lombard General, SS Gopalarathnam, CEO, Cholamandalam MS General, Anuj Gulati, CEO, Religare Health Insurance and Randeep Singh, Sr. Joint Director, IRDA.
The group will submit its report by February 28, 2014, said IRDA.