10 Chapter 6

CHAPTER – VI
INSURANCE MARKETING AND DISTRIBUTION
INTRODUCTION
The life insurance industry in India has a great potential to develop. It

can develop only if it accepts the problems and challenges and makes use of
the significant opportunities available in the country. Particularly, the
marketing strategy of insurance companies ultimately leads to a change
aimed at merger and consolidation, the efficiency of the insurance system and
also wider and efficient coverage. Marketing of life insurance service is
considered a difficult area to be seen. It is also a more challenging
phenomenon in India. The insurance selling process is required to be
transparent and create educative value to the prospects. Only a professional
approach to the marketing programs will serve the purpose of dealing
positively with the consumers.
Insurance is a business of sacrifice. This is mainly due to the fact that

the sacrifice of the customer by way of paying premium is real and present.
The benefits of insurance are recovered after a long period and hence it is not
attractive to people. Insurance is like sand when it is bought and gold when it
is realized. Given a choice, people would postpone the decision to buy
insurance as they do not realize its benefit at the time it is offered. They have
to be convinced1.
Insurance marketing must be considered as a positive trend by the

consumers since it develops the habit of buying insurance products to protect
the health of their families and also their assets at a future date. The
strategies of insurance marketing are to be designed in such a way that they
attract the different sections of the society by identifying the need of the
1
Neelam C.Gulati, ‘Principles of Insurance Management’, Excel Books, New Delhi, 2007,
p.257.
254
prospects and also the designing of the suitability of the product. The
marketing strategies should be designed for maximization of insurance gains
to the customers rather than minimization of insurance risk. It needs larger
investment of both time and effort besides talented marketing personnel as it
is a difficult job to undertake.
The marketing of life insurance is universally considered a matter of

highest priority at all levels in different institutions. New marketing methods
occupy a significant place among top management intelligentia. These include
an aggregation of the salesmanship of the marketing personnel and the
professional approach to the marketing problems by the top management. It
should contemplate the concept of insurance positively by convincing the
customers to make their life happier. Buying insurance by a customer needs
to be a matter of their longevity. The insured will be understood through
marketing that life is not about how many years he lives but about how he
lives is of paramount importance.
There is no product differentiation in insurance business. One company

offers today may be offered by some other company tomorrow. To reduce the
level of competition among insurance companies, the insurers have to stand
efficiently in the area of communicating their products early to the customers
through insurance marketing.
The liberalization of Indian life insurance sector has created many

changes in the market place. This results in massive inflow of foreign brands
and also a revolutionary change in the consumer behavior. These changes
require a movement of the insurance sector from production-driven marketing
to the professional marketing. The market development taken place by
liberalization results in many changes in the intermediary role of the
distribution channels. The insurance arena has been shifted to a market-
oriented environment and hence the insurance system has been adjusted to
255
the new changes and also major challenges of insurance distribution. Focus
on the distribution channel is an important pre-requisite to an efficient sale of
insurance product.
The Indian insurance industry has been strongly growing for the last
few years. To ensure improved penetration of insurance, the distribution
system of insurance has to be more focused. And also the well established
training and educational organizations should play a significant role in
educating and motivating people. This provides good opportunities to improve
the delivery mechanism and also tap the vast market. Marketing requires
intriguing creative implying updating knowledge on the markets with global
perspective which calls for availability of enough right data or information at
the hands of the operating offices. It needs appropriate comprehension of
markets2.
Insurance selling should not be regarded as a mere act of selling

insurance policies. But, it must be regarded by the policyholders as a habit of
buying insurance policies to protect the health and assets of their families at a
later date. Hence, the goal of distribution management is to maximize sales,
attract maximum market share, tap new markets, find out the customer needs
and preferences and above all promote customer satisfaction.
ROLE OF DISTRIBUTION
Distribution of insurance products and efficient service delivery has

been an important element of insurance business. The development taken
place in the insurance sector is made possible only with the efficient role
played by the distributors in delivering insurance products. A significant
feature of the complete process of distribution and service delivery of
insurance product is that the multiple distribution channels have yielded many
service benefits not only to the company but also to customers. The process
2
Satish S.V. ‘Life Insurance Marketing – A Phenomenon’, Southern Economist, February
15, 2009, p.37.
256
of channel diversification and expansion has accelerated in India since
insurance liberalization. Many insurers have intensified their efforts for
establishing and developing cost-efficient and result-oriented distribution
strategies.
Due to the emerging convergence and globalization, the entire

insurance industry is undergoing rapid changes. The lower middle class
customers are more concerned with savings and consequent tax planning and
hence rely on insurance. Brokers, agents, direct agents and bancassurance
offer good services to these customers. The rural and semi-urban customers
are generally the average working class population. They can afford to save a
little amount. They have little knowledge of insurance. Only agents can reach
these customers.
The corporate customers and institutional investors are interested in

liability insurance, group insurance and healthcare insurance. They are largely
situated in metropolitan centers and cities. They required altogether a different
distribution strategy. Most of these customers are cost-conscious and well-
informed. Corporate agents, brokers and direct marketing are ideally suitable
to attract these customers.
Consequently from a single channel industry i.e., the individual agent,

the industry, at present, has embraced a few well established channels and
continues to experiment with a few more. In the light of severe competition
amongst insurers, the new distribution strategies require complete
professionalism and flexibility towards facing marketing challenges. A well-
trained and plain-speaking distributor has the ability to be the best brand
ambassador for any insurance player. Market expansion, consumer loyalty,
consumer preferences and competition amongst life insurers will initiate
innovations in the distribution segment. This ensures good capacities and
capabilities on the part of distributors so that there are no practices of mis-
257
selling and misrepresentation of the facts. Although there is discernible
difference in the marketing styles of the present day insurers, a great
qualitative improvement is yet to be perceived. The marketing initiatives of the
new companies have certainly helped to enhance insurance awareness in the
country.3
Insurance is a business of keeping people’s hopes, aspirations and

expectations through a life insurance contract. It is more important for
insurance companies to be transparent at the time of selling. The policy
documents should be as simplified as possible with minimal fine print4.
The distributor is the first line representative of the life insurance

company and assumes greater responsibility in initial underwriting of the
policies. The distributor should understand the needs of the prospective
customer and recommend suitable policy that satisfies his needs. As a result,
the business retention ratios will improve and the persistency ratio will
increase. The distributor is well trained and equipped in identifying properly
the needs of the customers. He requires to be well-versed in all matters
relating to his job for favour of a proper matching between the needs of the
customer and also the service delivery.
A distributor is the vital link in the policy life cycle. His role begins the
time he starts prospecting till settlement of claims. A life insurance agent is
the key distributor. However, insurance brokers and other intermediaries also
play a key role in this process5. The insurers, at present, require immense
distribution strength and tremendous manpower to reach out to the present
huge customer base available for insurance service in our country. The future
of distribution for insurance products is a ‘brave new world’ and it will require
3
David Chandrasekharan, “Marketing of Life Insurance – Have Things Really Changed?”,
IRDA Journal, May, 2009, p.18.
4
Anjana Agarwal, ‘Emphasis on Trust – Grievance Management in Insurance’, IRDA
Journal, October, 2011, p.28.
5
Baradhwaj, C.L., ‘Arresting the Trends – Frauds in Insurance Industry’, IRDA Journal, June,
2011, p.29.
258
both courage and judgment to lead an organization into the rapidly unfolding
realm of possibilities6.
The insurance companies have to concentrate mostly on non-

traditional and more innovative channels and also multi-level delivery
systems. Under these systems, like in the West, the customers can buy an
insurance product from any bank, mall, post office, internet cafes, etc. The
distribution systems have been influenced significantly by cost pressures.
Besides, competition for saving amounts of the consumers is also intensifying.
An efficient and effective distribution strategy for life insurance products
should also be mostly customer-centric. It should represent both the customer
and the company goals.
Customer retention marketing is a process whereby marketers look at

building a long term association with their customers. This involves a
continuous process of interaction with the customer at any point of time. It
needs to understand the needs of the customers and provide products and
services accordingly7.
One of the major challenges of insurance marketing is to identify which

distribution method fits best and suitable to the business. The decisions
relating to distribution strategies must be made dependent upon what the
other insurers are doing. It is very common that every business insurance
prospect expects to receive customized service from his insurer. But, busy
agents can hardly afford any time or expense to present an individualized
proposal each time. A little extra care and attention to some often overlooked
talents can fill this gap and guide the insurer close to the sale8.
6
Chari, V.G. “Insurance – A Re-look at the Distribution Strategy’, Insurance Chronicle,
March, 2005, p.31.
7
Teena Makhija, ‘Retention Marketing – The Key to Business Performance’, The Journal of
Insurance Institute of India, Mumbai, January-June, 2008, p.55.
8
Shulman, Allen L., ‘Nine ways to get personal when selling Business Insurance’, Insurance
Chronicle, March, 2005, p.40.
259
Most of the private insurers are very much trying for a right channel mix
for reaching the potential customers. It is the distributor who makes the
difference in terms of the quality of advice for choice of product, after-sale
service and settlement of claims. The distributors should become trusted
financial advisors for the customers and trusted associates for the insurers.
The new companies are looking for well educated, knowledgeable

individuals with an interest in insurance marketing. At present, insurance
companies are moving from merely selling insurance to marketing an
essential financial product. New players are finding expensive and time-
consuming to bring up a distribution network of good and cost effective
standards. Usage of alternate channels will help, to some extent, bring down
the costs of distribution and thus, benefit the customers and insurers both.
Channel conflicts may arise in some cases. But, those must be

regulated to the best advantage of the customer and the insurer. The
distribution strategy can’t be taken up in isolation. Major elements like, the
organization structure, systems, processes, employees, organizational
cultures are to be taken care of by the insurer for designing the distribution
strategy. The insurance companies consider this distribution channel
profitable due to low customer acquisition cost, quicker reach to untapped
markets, introduction of innovative products and administrative convenience
and suitability. The quality of service rendered by the distributor should be
made the key parameter for efficient distribution management and also
persistence.
INSURANCE ADVERTISING
At present, insurance advertisements take up a lot of space in

television or print media. The emphasis on insurance advertising is on
creative and accent on awareness. The communication in advertising is
modern, young, approachable and conveying the difficult product offering. The
260
insurance selling activity usually reaches a peak around March and it needs to
be taken into account by the insurers in spending marketing budget on
insurance advertising. The visual is always more effective and universal.
The ICICI Prudential is the first private insurance company to recognize

and use the power of TV advertising with its ‘Sindoor’ campaign in 2001. The
retirement solution campaign of the company with the tagline ‘Retire from
work not life’ also has attracted a good number of customers.
SBI life has 63 per cent business coming from bancassurance. Its
advertisements are mostly confined towards saying people that they can buy
insurance from the bank. Their advertisements consist of branch
merchandising. It is more about point-of-purchase type of advertising. LIC has
contemplated celebrity marketing – a segment noted for the presence of high
net worth individuals. Life insurance products have accounted for about 88
per cent of overall insurance advertising expenditure with Life Insurance
Corporation topping the list of advertisers.
LIFE INSURANCE OFFICES AND THEIR DISTRIBUTION
The growth of the life insurance industry is mainly influenced by the

rapid pace of insurance spread and reach to the common man. This is more
reflected by an increase in the number of insurers during the last decade.
Each insurer uses to cover many parts of the country. This expansion is clear
from the number of life insurance offices established during the period9.
Table 6.1 gives information on the number of life insurance offices both
in the public and private sector units during the years 2000-01 to 2009-10. It
may be observed from the Table that there is an increase in the number of
offices established by both the sectors. There is a consistent increase in the
offices of the LIC. But, with regard to the private players, the increase in the
9 st
As on 31 March, 2011, there are 24 life insurance companies in the country with a total
branch network of 11,465.
261
number of offices has registered a rapid pace. With the old guidelines on
ULIPs, many private companies did 90 to 95 per cent of their business on
ULIPs. Only a small and a negligible percentage of the total business is done
on traditional policies. This is also made possible because of a significant
increase in the number of private players who have entered into the insurance
market over a period of time.
The total number of offices has increased dramatically during 2007-08

showing a growth rate of 65.88 per cent. A major portion of this expansion is
in the private sector whose offices have been doubled i.e. from 3072 to 6391.
But, with regard to an increase in the offices of LIC, there is a modest and
stable increase of around 10 per cent i.e. from 2,301 to 2,522 offices. But,
during the years 2008 to 2010, the private insurers had to close down some of
their offices as a measure of rationalization and reduction in their operating
expenses. The negative growth rate is recorded with regard to private life
insurance offices during 2009-10, i.e. -0.19 per cent, as the IRDA has
formulated new guidelines on ULIPs and this has made the private players to
restrict their business as ULIPs are not profitable to them.
The agents are also not willing to sell more ULIP policies as their
commission rates have been significantly decreased by the Regulator. As
there is a spur in the ULIP business of the private sector insurance units,
there is a need to rationalize branch net work and hence, some branches by
the private players had to close down some of their operations. As there is a
consistent business on both the traditional and the ULIP policies by the LIC,
the new guidelines on ULIPs have not much impact on its total business and
no such rationalization of branch network entertained by the private insurers is
needed by the LIC.
262
As regards the market share of life insurers in the total number of life
insurance offices, the private players’ share has increased from 0.59 per cent
to 72.96 per cent and the LIC’s share has declined from 99.41 per cent to
27.04 per cent during the period. Over the earlier years, the number of offices
of private insurers has almost doubled. Their market share in the total number
of life insurance offices established has increased from 0.59 per cent in 2000-
01 to 72.96 per cent in 2009-10. But, the LIC’s share has declined from 99.41
per cent to 27.04 per cent during the period.
Table 6.1
GROWTH RATE AND MARKET SHARE OF LIFE INSURANCE OFFICES

OF LIFE INSURERS DURING 2000-01 TO 2009-10
LIC Private Sector Total

Year
Number % Number % Number %
2000-01 2,186 99.41 13 0.59 2,199 100.00
2,190 116 2,306

2001-02 94.97 5.03 100.00
(0.18) (792.31) (4.87)
2,191 254 2,445
2002-03 89.61 10.39 100.00
(0.05) (118.97) (6.03)
2,196 416 2,612
2003-04 84.07 15.93 100.00
(0.23) (63.78) (6.83)
2,197 804 3,001
2004-05 73.21 26.79 100.00
(0.05) (93.27) (14.89)
2,220 1,645 3,865
2005-06 57.44 42.56 100.00
(1.05) (104.60) (28.79)
2,301 3,072 5,373
2006-07 42.83 57.17 100.00
(3.65) (86.75) (39.02)
2007-08 2,522 6,391 8,913
28.30 71.70 100.00
(9.60) (108.04) (65.88)
3,030 8,785 11,815
2008-09 25.65 74.35 100.00
(20.14) (37.46) (32.56)
3,250 8,768 12,018
2009-10 27.04 72.96 100.00
(7.26) (-0.19) (1.72)
Note: Figures in brackets are annual growth rate percentage
% indicates market share of the insurers
Source: Compiled from the Annual Reports of IRDA
263
Statistical Analysis:
i. Mean, Standard Deviation and Skewness
Particulars LIC Private Sector LIC Private Sector

Growth Rate Growth Rate Market Share Market Share
Number of Years 9 9 10 10
Mean 4.70 156.11 2428.30 3026.40
Standard Deviation 6.77 241.58 392.27 3595.50
Variance 45.88 58360.73 153875 12927642
Skewness 1.76 2.85 1.60 0.94
Range 20.09 792.50 1064 8772
Minimum 0.05 -0.19 2186 13
Maximum 20.14 792.31 3250 8785
The above table indicates that the average percentage growth rate of
life insurance offices for LIC during 2001-10 is 4.70 and the Private Sector is
156.11. It shows that the average number of life offices of Private Sector is
higher than LIC. The standard deviation for LIC is 6.77 whereas Private
Sector is 241.58. It connotes that LIC has stability and consistency in
establishing offices over the Private Sector. The positive skewness values are
1.76 and 2.85 for LIC and also for Private Sector and the growth rates of
which are stated positively skewed distributions.
As regards market share, it presents that the average number of life

insurance offices for LIC is 2428.30 and Private Sector is 3026.40. It shows
that the average market share of Private Sector is higher than LIC. The
Standard deviation for LIC is 392.27 whereas Private Sector is 3595.50 during
the period. It shows that there is stability with regard to market share of the
LIC rather than Private Sector. The positive skewness values of LIC and
Private Sector, i.e., 1.60 and 0.94 indicate that their market shares are
positively skewed distributions.
264
The relevant line graphs of the growth rate and market share of the LIC
and Private Sector are given below:
1000
900
800
700
Growth Rate 600

(Per cent) 500
400
300
200
100
0
LIC
-100
-200 Private Sector
2002 2003 2004 2005 2006 2007 2008 2009 2010
YEA
R
Figure A: Line Graph of Growth Rate of LIC and Private Sector
900
0
800
Number of 0
Insurance 700
0
Offices
600
0
500
0
400
0
300
0
200
0 LIC
100
0
0 PRIVATE SECTOR
200 200 200 200 200
1 200 3 200 5 200 7 200 9 201
2 4 6 8 0
YEAR
Figure B: Line Graph of Market share of LIC and Private Sector
ii. Regression Analysis
Market Share
Dependent Mth Rsq F Sigf b0 b1
LIC Sector LIN 0.666 15.97 0.004 -209656 105.752
PRIVATE Sector LIN 0.834 40.26 0.000 -2172296.90 1084.68
Independent Variable: Year
265
Regression Equations
a) The linear trend forecasting equation is
LIC (Market Share) = - 209656 + 105.752*Year
The regression coefficients are interpreted as follows:
 The Y intercept b0 = - 209656 is the fitted trend value reflecting the

predicted mean of life insurance offices for LIC during 2001-2010.
 The slope b1 = 105.72 indicates that the life insurance offices are
predicted to increase by an average of 105.72 offices per year.
The significance value of F(0.004) is smaller than 0.05. Then the

independent variable(Time: Year) do a good job explaining the variation in the
dependent variable (LIC Market Share).This table displays R squared (0.666).
It is the proportion of variation in the dependent variable (LIC Market Share)
explained by the independent variable (Year) in the regression model.
b) The linear trend forecasting equation is
Private Sector (Market Share) = - 2172297 + 1084.68*Year

predicted mean of life insurance offices for private sector during 2001-
2010.
 The slope b1 = 1084.68 indicates that the life insurance offices are
predicted to increase by an average of 1084.68 offices per year.
The significance value of F (0.000) is smaller than 0.05. Then the

independent variable( Time: Year) do a good job explaining the variation in
the dependent variable (Private Market Share).This table displays R squared
(0.834). It is the proportion of variation in the dependent variable (Private
Sector Market Share) explained by the independent variable (Year) in the
266
regression model. Hence, it is clear that for both the sectors, the significance
value is less than 0.05 and the ‘R’ squared value is close to 1.
3400
3300
3200
Number of 3100
insurance Offices 3000
2900
2800
2700
2600
2500
2400
2300
2200
2100
2000 Observed
1900
1800 Linear
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Figure C: LIC Market Share Regression Plot
1000
0
900
0
800
Number of Insurance 0
Offices 700
0
600
0
500
0
400
0
300
0
200
0
100
0
0
Observe
- d
1000
- Linear
2000200 200 200 200 200 200 200 200 200 201
1 2 3 4 5 6 7 8 9 0
Year
Figure D: Private Sector Market Share Regression Plot
The above Regression Plots clearly show that the LIC and Private
Sector are fitted to the linear mathematical model. The observed figures are
closely related to the linear trend values. To reach the linear mathematical
line, both the insurers have to maintain an increase, on an average, 106
offices for LIC and 1085 offices for Private Sector in future every year.
Another remarkable feature for the life insurance offices is their

distribution over different areas of the country. The growth in life insurance
offices is observed to be not confined mainly to metropolitan centers and
267
cities. The insurers have opened their branch offices in semi-urban and rural
areas as a way to spread insurance service to these areas. This indicates
clearly that the insurance industry has widely campaigned the insurance
service in all areas and developed accordingly.
Table 6.2 shows the details on the area-wise distribution of life

insurance offices as on 31st March, 2010. The total number of offices
established by the life insurers is 12,018. Out of which 8,768 offices are
established by the private sector insurers and the remaining 3,250 offices are
established by the LIC. As regards the number of offices established in metro
and urban areas taken together, both the public and private sector players
spread only a 28 per cent their branches. But, there is an increase in the
number of offices in semi-urban and rural areas of both the sectors of the
insurance players mainly to tap the insurance market in these areas.
Consequently, around three-fourths, i.e. 72 per cent of the branches are
established by the LIC and also the private sector units in these areas.
Further, for meeting competition from the public sector giant, LIC and also for
promoting the business in untapped areas, the private sector insurers also
have established a good number of branches in semi-urban and rural areas.
Table 6.2
AREA-WISE DISTRIBUTION OF LIFE INSURANCE OFFICES

AS ON 31ST MARCH, 2010
LIC Private Sector Industry
Area No. of Percentage No. of Percentage No. of Percentage
offices to total offices to total offices to total
Metro 347 10.68 897 10.23 1244 10.35
Urban 550 16.92 1555 17.73 2105 17.52
Semi-Urban 923 28.40 3607 41.14 4530 37.69
Rural 1430 44.00 2709 30.90 4139 34.44
TOTAL 3250 100.00 8768 100.00 12018 100.00
Sources: IRDA Annual Report, 2009-10
268
INDIVIDUAL AGENTS
The agents, a traditional and a customary form of insurance

distribution, are proved to be very useful in building long-term relationships
with the customers and occupied a major share of the total insurance market.
They contribute significantly to its growth by making the insurance services
available to every nook and corner of the country. With a gigantic strength of
agents, the life insurance industry is the only financial wing to reach a good
number of villages in the country. There are over 30 lakh agents who are
active and these agents contribute to about 80 percent of the insurance
industry’s sales.
The insurance agent has been the bedrock in the marketing of life
insurance. He has been the link between the insurer and the insured. He has
the prime duty of explaining the concepts, terms, conditions and benefits of
taking an insurance policy. He has to identify the needs of the customers and
select the suitable insurance products to them. All insurers have recognized
the importance of agency network and they are encouraging professionalism
and greater competency among agents.
Under Sec.2(10) of the Insurance Act, 1938, an insurance agent

means an agent licensed under section 42 who receives or agrees to receive
payment by way of commission or other remuneration in consideration of his
soliciting or procuring insurance business, including business relating to the
continuance, renewal or revival of policies of insurance 10.
The code of conduct for agents makes its clear that his role is not
confined to soliciting and procuring insurance business for his company. He
has to service the policies sold by him. With many life insurance companies
operating in the market and selling almost similar products, the most
distinguishing factor of the companies is the competency level of the agents.
10
Shri Krishna Laxman Karve, ‘Principles of Life Insurance’, Himalaya Publishing House,
Mumbai, 2009, p. 94.
269
Hence, agents’ training and development occupies a prominent place for
increasing their competence.
To accomplish the responsibility of educating and training of agents,

most insurance companies have a highly organized training and development
programme. The training programme covers IRDA regulations and the
strategies used to protect against risk. During the programme, trainers and
managers are equally responsible for a new agent’s development. The
curriculum is mostly designed to develop positive habits that form the basis of
success of these programmes. The best practices and also the sales
practices of the insurance industry form the basis of the curriculum. An agent
requires to provide a good advice to the customer. He has to offer competent
and professional advice right from tax planning to investment in insurance.
The Life Insurance Market Research Association (LIMRA) is the best

known international organization aimed at supporting and improving the
marketing function of life insurers through research. The certificate
programmes are available for agents and managers. The 100-hour training
agenda is only a one-time intervention. In many cases it is not sufficient to
meet the ongoing training needs. The agent is a self-disciplined, self-
motivated and an independent operator. He has to be well-equipped with the
best practices of training and knowledge and adequately backed up by life
insurers’ commitment to strengthen the marketing channel. He has to
transform himself from a sales advisor to a financial expert.
The nomenclature of insurance agent is changed as an insurance

advisor with changing times. He has a prominent role in our society. The
prescriptions of the regulator, like imparting training, code of conduct for the
agents, etc. is to be implemented in its true spirit at all levels in the best
interests of the industry. Some sort of self-discipline and regulation among all
270
the existing agents is very vital and this can be made possible by giving them
suitable periodic training.
There has been a lot of change in the approach of the insurance agent.
The agent in the past established informal contacts with potential buyers and
mostly depended on referrals from friends and family members. But, the new
age and professionally-dominated companies insist on professional and often
aggressive measures on the part of the sales personnel. The agent should be
a man of trust and confidence for both the parties. The insurer appoints
agents mainly to create business based on the varied advantages of different
insurance products.
The average attrition rate among insurance agents in our country is

nearly 50 per cent. The primary cause for this high attrition is the large-scale
poaching in a competitive insurance environment. While agents are an
integral part of the company, the agent attrition causes greater inconvenience
not only to the customers but also to the industry. For life insurers a high rate
of attrition amongst agents is a significant challenge. The high attrition is a
result of a short-term approach. Very often, people who have an immediate
set of references are recruited and licensed as advisors. But, a lesser thought
is given to whether they will consider insurance sales as a long term career
option11.
Further, many agents join the insurance agencyship with enthusiasm

and anxiousness. Once the potential customers such as close relatives,
friends and neighbours are exhausted, meeting the minimum requirement of
bringing insurance business proves very difficult. When the rejection starts,
the new agents have to face hardship and failure. Then, the attrition of agents
begins. Sustenance of agencyship requires constant networking and acquiring
new relationships regularly for his business. This requires a lot of discipline.
11
Shanai Ghosh, ‘Persistency Challenge – The Bottoms-up Approach’, IRDA Journal,
September, 2011, p.21.
271
Insurance companies believe that adequate training to agents will help in
solving the problems in some measure.
As the agency network is a dominant distribution channel, the life

insurance industry places a very high emphasis on improving knowledge,
productivity and retention of agents. This network plays an important role in
creating awareness, motivating purchase and rendering other important
insurance services. New players also need support of at least a limited
agency or advisory network for their service delivery.
In many cases, the agent had not misinformed the customer, but did
not explain the implications of the policy terms. This results in unethical
practices at the bottom level. The gap between customer needs and their risk
management through insurance can be filled by ethical practices of agents
and other sales personnel.
Traditionally, the life insurance industry depends mostly on the agency

distribution force. Most of the companies follow the traditional route of
marketing through agents. In case of private insurers, their nomenclature is
changed and called insurance advisors. The success of LIC with its agency
network is proved exemplary.
Table 6.3 shows the information on the growth rate and market share
of the number of individual agents of life insurers during the years 2000-01 to
2009-10. The year 2002-03 has an abnormal growth rate in the number of
agents in both the sectors. As the authorities have granted licenses to agents
to operate in the rural areas, there was a significant growth of insurance
business in the country and provided lucrative employment opportunities to
the youth of the country. But, there was a negative growth rate in the number
of agents in 2004-05 due to the reason that the IRDA issued revised
guidelines for licensing of individual agents. Some restrictions were placed by
the regulator on the recruitment of agents and also their on online training. As
272
on 31st March, 2010, there were about 30 lakh agents registered with the life
insurers. LIC had over 14 lakhs and the private companies had about 16
lakhs.
Table 6.3
GROWTH RATE AND MARKET SHARE OF THE NUMBER OF INDIVIDUAL

AGENTS OF LIFE INSURERS DURING 2000-01 TO 2009-10

Year
2000-01 1,12,978 97.63 2,737 2.37 1,15,715 100.00
4,42,680 34,222 4,76,902

2001-02 92.82 7.18 100.00
(291.83) (1,150.35) (312.13)
9,47,405 91,397 10,38,802

2002-03 91.20 8.80 100.00
(114.02) (167.07) (117.82)
13,41,597 2,15,220 15,56,817

2003-04 86.18 13.82 100.00
(41.61) (135.48) (49.87)
3,53,634 1,27,616 4,81,250

2004-05 73.48 26.52 100.00
(-73.64) (-40.70) (-69.09)
4,72,002 2,49,478 7,21,480

2005-06 65.42 34.58 100.00
(33.47) (95.49) (49.92)
11,03,047 8,90,152 19,93,199

2006-07 55.34 44.66 100.00
(133.70) (256.81) 176.27)
11,93,744 13,26,748 25,20,492

2007-08 47.36 52.64 100.00
(8.22) (49.05) (26.45)
13,44,856 15,92,579 29,37,435

2008-09 45.78 54.22 100.00
(12.66) (20.04) (16.54)
14,02,807 15,75,476 29,78,283

2009-10 47.10 52.90 100.00
(4.31) (-1.07) (1.39)
273

Mean 62.91 203.61 871475 610563
Skewness 1.29 2.65 -0.39 0.69
Range 365.47 1191.05 1289829 1589842
Minimum -73.64 -40.70 112978 2737
Maximum 291.83 1150.35 1402807 1592579
The above table shows the average percentage of growth rate of

number of individual agents of LIC during 2001-10 which is 62.91. For Private
Sector, it is 203.61. It indicates that the average percentage of growth rate of
individual agents for Private Sector is higher than the LIC. The standard
deviation for LIC is 105.44 whereas Private sector is 366.74. It shows that the
LIC has stability in the appointment of individual agents. The positive
skewness values of LIC and Private Sector are recorded as 1.29 and 2.65
and hence their growth rates are stated positively skewed distributions.
The average number of individual agents of LIC is 871475 and the

Private Sector is 610563. It shows that the Private Sector average market
share is higher than LIC. The standard deviation for LIC is 480461.24
whereas Private Sector is 664795.28. It is meant that both the sectors are
having relatively the same position with regard to their stability in the market
share. A negative skewness value, i.e., -0.39 indicates that the LIC’s market
share is negatively a skewed distribution. A positive skewness value of 0.689
indicates that the Private Sector’s market share is a positively skewed
distribution.
274
1400
1300
1200
1100
1000
Growth Rate 900
(Per cent) 800
700
600
500
400
300
200
100
0 LIC
-100
-200 Private Sector
2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
200000
0
175000
Number of 0
Insurance 150000
Agents 0
125000
0
100000
0
75000
0
50000
0
LIC
25000
0
0 Private Sector
200 200 200 200 200
1 200 3 200 5 200 7 200 9 201
2 4 6 8 0
Year
Figure B: Line Graph of Market share of LIC and Private Sector

Market Share
LIC Sector LIN 0.502 8.08 0.022 -224693867.90 112473.37
PRIVATE Sector LIN 0.849 45.05 0.000 -405187935.10 202342.81
275
LIC (Market Share) = - 224693867.90 + 112473.37*Year
 The Y intercept b0 = - 224693867.90 is the fitted trend value reflecting

the predicted mean of the number of individual agents of LIC during
2001-2010.
 The slope b1 = 112473.37 indicates that the number of individual

agents are predicted to increase by an average of 112473.37 agents
per year.
The significance value of F (0.022) is smaller than 0.05. Then the

explained by the independent variable (Year) in the regression model.

Private Sector (Market Share) = - 405187935.10 + 202342.81*Year
 The Y intercept b0 = - 405187935.10 is the fitted trend value reflecting

the predicted mean of the number of individual agents of Private Sector
during 2001-2010.
 The slope b1 = 202342.81 indicates that the number of individual

agents are predicted to increase by an average of 202342.81 individual
agents per year.

276
regression model. Hence, it is clear from the regression analysis that both the
sectors have contributed a significance value which is less than 0.05 and the
‘R’ squared values are close to 1.
160000
0
150000
0
140000
0
Number of 130000
0
Insurance Agents 120000
0
110000
0
100000
090000
0
80000
0
70000
0
60000
0
50000
0
40000
0
30000
0
20000 Observe
0
10000 d
0 0 Linear
200 200 200 200 200 200 200 200 200 201
1 2 3 4 5 6 7 8 9 0
Yea
r
Figure C: LIC Market Share Regression Plot
2000000
1500000
Number of
Insurance
Agents 1000000
500000
-500000
Observed
-1000000 Linear
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Yea
r
Figure D: Private Sector Market Share Regression Plot
The above Regression Plots show that the LIC and Private Sector are
fitted to the linear mathematical model since the figures observed and
collected are closely related to the linear trend values. To reach the linear
mathematical line, both the LIC and Private Sector insurers have to maintain,
277
on an average, an increase in the number of individual agents by 112473 and
202343 respectively per year to maintain stability in business.
The performance of an agent is reflected by his new business

performance. Table 6.4 shows information on the new business performance
by individual agent during 2003-04 to 2009-10. Over the years, there is a
significant shift away from the individual agency channel. This is made
possible because of the emphasis given by the insurers on alternate
channels. The new business premium procured through individual agents has
come down to 79.61 per cent in 2009-10 from 95.32 per cent in 2003-04. But,
the share of individual agents in the new business premium of LIC has come
down marginally from 99.78 per cent in 2003-04 to 97.75 per cent in 2009-10.
It is very clear from the Table that in LIC, the role played by the individual
agents in new business performance is significantly dominating. But, in private
insurance companies, the earlier share of the individual agents in the new
business, at present, is shared by the corporate agents and through direct
selling. But, the private insurers’ share was recorded as 68.80 per cent in
2006-07 due to the reason that the private players have been providing added
value to individual agents as a way to expand the market initially.
Table 6.4
NEW BUSINESS PERFORMANCE BY INDIVIDUAL AGENT
DURING 2003-04 TO 2009-10
(in Percentage)
Year LIC Private Sector Total
2003-04 99.78 60.39 95.32
2004-05 98.79 59.30 88.65
2005-06 98.37 59.71 85.67
2006-07 97.28 68.80 88.62
2007-08 98.36 59.81 83.75
2008-09 97.34 54.94 79.57
2009-10 97.75 50.67 79.61
Source: Compiled from the Annual Reports of IRDA.
278
MDRT
The Million Dollar Round Table (MDRT), an international association of

life insurance and financial services professionals, was established in 1928
and has got members from all over the world.
The MDRT membership has got tremendous value as it helps

insurance advisors and consultants to build trust and bonds with customers,
acquire new capacities and capabilities and also use the MDRT Logo. The
members have good interaction with other high performing insurance agents
across the world and share experiences. But, a high registration fee and low
awareness are the major hurdles to increased membership. Some insurers
sponsor only a few of their top agents by paying the membership fees and
sponsoring the trip to the USA for attending the international convention.
The MDRT qualification is the highest honour for insurance agents and
the qualified agents can participate in the World Conference to be held in the
US in June. The five-day convention is slated for June at California. Though
thousands of agents qualify for the MDRT, a small number of agents attend
the convention every year. They were denied visas for attending the
international convention due to several reasons. Further, the costs are also
too high. The MDRT membership of the insurance agents created an
atmosphere of self-education by the agents and it is an encouraging trend
towards informed selling and marketing methods.
SBI life insurance has been ranked number-1 life insurer across the
globe for the year 2010 by the MDRT members. This is the second
consecutive year in which the company has stopped MDRT. In 2010, SBI life
has 2,904 MDRT members, up from 2,677 in 2009. SBI life is followed by the
US’ New York life and Korea’s Samsung life insurance in the rankings. The
LIC of India is ranked 4th with 1,218 members.
279
BANCASSURANCE
Bancassurance is meant selling insurance products in the banks under

a single window. In 1980, bancassurance started in France and spread its
wings over middle European countries and Asia. Bancassurance, a French
term, simply denotes using banking channels to sell insurance products. By
allying with a bank of good repute, the insurer can improve its own public
image. Bancassurance enables the insurer to establish a relationship early in
customer’s life, as individuals open bank accounts at a much earlier age than
they buy insurance12.
Bancassurance has played an enormous role in India as banks are

offered a fee-based income for selling insurance products in addition to their
responsibility. RBI and IRDA favoured bancassurance channel as many life
insurers are considering commercial banks as their main distribution channel.
This needs smooth flow of information between banks’ customer database
and insurance company. Bancassurance is a combination of banking and
insurance business. Bancassurance communication is expected to tangibly
increase in India. The tie-ups and post-liberalization of insurance companies
have increased its significance13. Private insurers have gained most from the
bancassurance channel which has played a significant role in the manner in
which insurance is sold.
Subsequent to the liberalization of the insurance sector, the IRDA

permitted in 2002 banks to enter the areas of bancassurance. On the
distribution side, a pure distribution tie-up with the bank by the insurance
company is considered as a corporate agent. This corporate agency model
enables the banks to earn higher incomes with very little investments like
12
Sreesha, Ch. and M.A.Joseph, ‘Bancassurance: A Case of SBI Life Insurance’, Southern
Economist, May 1, 2010, p.21.
13
Ravi Kumar, V.V., ‘The Emerging Structure of Bancassurance in India’, Insurance
Chronicle, December, 2005, p.35.
280
time, training and licensing. Hence, it is considered a profitable model for the
banks in India.
Bancassurance is an important distribution channel which is making

significant impact in terms of revenue to the company because this tie-up
ensures efficient distribution and delivery of the product at lower cost. Lower
operation and administrative cost of the insurers in bacassurance in
comparison with other channels was also the other factor for its higher
importance and persistency level. The sale of insurance products by banks is
proved more successful in the case of those banks that have an insurance
wing of their own that are marketing the insurance products.
The motives behind bancassurance vary. For banks, it is a means of

product diversification and a source of additional fee income. Insurance
companies see bancassurance as a tool for increasing their market
penetration and premium turnover. The customer sees bancassurance as a
bonanza in terms of reduced price, high quality products and delivery at
doorsteps. Actually, everybody can be a winner here. 14 It would be a win-win
solution for all the stakeholders.
Bancassurance15 distribution, at present, is a well established

distribution phenomenon in the Indian life insurance market. After
liberalization of insurance sector, almost all banks, including private, public,
foreign, co-operative and regional rural banks have taken to distribute life
insurance products. Sales by banks have grown faster than other distribution
channels for private life insurers. The best practices in bancassurance
distribution are developing a long-term relationship between the bank and the
insurer and also evolving a joint ‘bancassurance vision’ and assume
14
Neelamegam, R. and Pushpa Veni, ‘Bancassurance – An Emerging Concept in India’, The
Journal of Insurance Institute of India, Mumbai, January-June, 2008, p.49.
15
The opposite of bancassurance is assurbanking. It is the sale of bank products,
manufactured by the insurer’s own bank, through the insurer’s distribution channels. By and
large, banks have been more active in insurance than the insurance companies into
banking.
281
ownership of the sales process by the bank and the insurer. Under this
distribution channel, the insurer makes use of the vast net worth of the bank
branches and its customer base which is very important raw material for life
insurance business.
At present, a bank is permitted to tie up with only one insurer each from
the life and non-life segments as a corporate agent. The IRDA is now likely to
take this up to two or more. The panel has recommended allowing each bank
to sell products of at least two life and two non-life insurers. From a bank’s
view point, the proposed move is likely to result in higher fee-based income.
This is a more commercial proposition for banks and insurance companies.
But, IRDA is very critical of banks with regard to welfare of policyholders. The
IRDA came out with draft guidelines for the bancassurance business, under
which insurance companies will be allowed to partner with different Banks and
Non-Banking Financial Companies in different States for selling their
products.
The success of bancassurance in India is that these banks need not

look outside their own captive customer base to sell insurance. Further banks
represent a symbol of faith and trust where the customer puts his hard earned
money. So, the same customer obviously trusts the bank for buying life
insurance16.
The proper implementation of bancassurance still faces some

problems such as poor manpower management, lack of sales culture,
insufficient product promotion and insufficient incentives. Commitment and co-
operation from the top management, understanding demand for new products
and being adjustable to changes, development of necessary skills and
expertise, best utilization of the existing customer base and imparting
16
Nalini Prava Tripathy, ‘Bancassurance in the New Millennium’ in Nalini Prava Tripathy and
Prabir Pal, ‘Insurance Theory and Pracitce’, Prentice-Hall of India Private Limited, New
Delhi, 2007, p.145.
282
adequate training to bank people in selling insurance products are the
important contributing factors to the success of bancassurance in India.
A study titled ‘Lapsation and its impact on Indian Life Insurance

Industry’ conducted by the IRDA has revealed that bancassurance channel
has a higher level of persistency among all distribution channels employed by
private insurers. It has 53 per cent persistence rate. The vast reach, trust and
customer loyalty to a particular bank is behind the persistency rate in
bancassurance channel. The study has also revealed that the lapsation rate
was as high as 47 per cent in the life insurance industry.
Table 6.5 highlights information on the new business premium per

corporate agent (banks) during 2003-04 to 2009-10. The percentage share of
corporate agent (banks) in the new business premium increased marginally to
10.60 in 2009-10 as against 1.30 in 2003-04. Amongst other channels, banks
increased their share in new business premium from 10.57 per cent to 24.88
per cent underwritten by private insurers. The LIC has procured their new
business premium through banks marginally up to 1.64 percent from 0.11 per
cent during the period.
Table 6.5
NEW BUSINESS PREMIUM PER CORPORATE AGENT
(BANKS) DURING 2003-04 TO 2009-10
(in Percentage)
2003-04 0.11 10.57 1.30
2004-05 0.87 15.42 6.41
2005-06 1.25 16.87 6.38
2006-07 1.24 16.58 5.46
2007-08 1.30 18.89 7.97
2008-09 1.70 20.78 9.69
2009-10 1.64 24.88 10.60
283
BROKERS
IRDA has created a new category of agents called brokers in terms of

IRDA (Insurance Brokers) Regulations, 2002. There are three types of
brokers. A direct broker arranges for the placement of insurance of clients
with insurers. He can be a composite broker also. A re-insurance broker
authorizes to place reinsurance business of insurers with re-insurer. A
composite broker authorizes to handle both direct and reinsurance business.
With the liberalization of the insurance sector, a new link to the present
distribution channel needs to be included i.e., the broker. He is an
intermediary who acts as a consultant to the customer in many areas like
identifying the risk needs of the customers, selecting the best product to meet
the needs of the customer, adopting the latest technology available in the
market, facilitating the consumers in the process of concluding the insurance
contract.
Broking companies are the institutional agencies. The companies

concentrate on the spread of life insurance policies. They work on similar lines
of direct marketing, mostly depending on the data base from referrals. Brokers
are permitted to sell products of more than one insurer. They play a very
important role both in selling life insurance products and also in servicing of
life insurance claims.
The brokers are not merely participating in the price but would need to
make quality submissions to the insurers conveying all the material and non-
material aspects of the risk to be covered. He can contribute more effectively
by collecting all the relevant information that will lead to the underwriter being
able to give an appropriate and fair rate. This will require the broker to
understand the clients’ requirement in totality. They help clients determine
their exposures and structure of their insurance programmes.
284
The role of the broker is to minimize clients’ risks and maximize their
insurance benefits. A broker should be empowered by sharing his pricing
strategy and underwriting requirements. Insurers do it by bringing in rating
closer to point of sales and through co-branded websites.
The agent and the broker are different. The agent acts on behalf of one
insurer and can only sell what his insurer has to offer, whereas broker acts on
behalf of his client. Broker is not tied to an insurer and can arrange the best
protection for customer at a competitive price with any insurer. In fact, broker
uses many insurers for the insurance program of his customer. In a way, he
gives the best and more suitable product to the customer.
Insurance brokers are professionals who assess risk on behalf of a

prospect, advise on the mitigation of that risk. They identify the insurance
policy structure and bring together the insured and insurers. The preparatory
work to insurance contracts is carried out wherever necessary and assistance
provided in the administration and performance of such contracts when claims
arise. With increased competition, insurance brokers have a greater
motivation to introduce new and innovative products, to be more responsive to
consumer needs and to deliver higher terms of quality services. Insurance
brokers introduce best practices in technical skills and products, training
programmes, systems and technology and managerial techniques. Our
country is still in an early stage of insurance of broking business. The players
have just started pushing themselves aggressively and emphasizing their core
strengths.
They have been given a wider array to display their professional

expertise in risk management, consultancy and claims advice to customers.
But, the biggest constraint compelling the brokers to die early is the provision
that brokers are not entitled to receive any fee from insurers other than the
prescribed brokerage. If any additional fee or any other remuneration is paid
285
to the broker by an insurer, it amounts to breach of the Section-42E of the
Insurance Act, 1932. If the fee is not allowed at least in claim consultancy
services, the bubble of success of insurance brokers may burst soon 17.
The foremost important job of an insurance broker is to think about the

customer and to guide insurers to develop products that are meaningful and
attractive to the target customers. Broking in insurance will increase range,
mobility, integration and above all utmost good faith among parties in
insurance contract. Brokers need their mindset and expertise to become
accustomed to changing requirements.
Table 6.6 refers to a comparative analysis of the growth rate in the

number of registered brokers involved in insurance business during 2002-03
to 2009-10 between Andhra Pradesh and India. The total number of brokers
in India has been increased to 303 in 2009-10 from 40 in 2002-03, while in
Andhra Pradesh it was raised from 7 to 19 brokers during the period. The
growth rate declined during 2004-05 to 2005-06 in Andhra Pradesh as well as
in the country due to the reason that the Regulator assured the insurance
broking community that it would examine the 5 per cent discount currently
offered by insurers directly in favour of the corporate entities. It was a great
hindrance to the survival of many individual brokers. Brokers are permitted to
sell products of more than one insurer. There is likely to be a trend of
acquisition of small brokers by the larger ones and in the end, only those
brokers who learn the new rules of the game will only survive in future.
Ineffective market discipline is found an issue which is detrimental to the
growth of the insurance market. The total number of brokers in the country is
increased by over 7 times during the period.
17
Jagendra Kumar, ‘Success of Indian Insurance Brokers: A Bubble waiting to Burst’, The
Journal of Insurance Institute of India, Mumbai, January-June, 2007, p.14.
286
Table 6.6
GROWTH RATE OF REGISTERED BROKERS OF LIFE INSURERS

DURING 2002-03 TO 2009-10 BETWEEN
ANDHRA PRADESH AND INDIA
Total Number of Brokers in Total Number of Brokers in

Year
Andhra Pradesh India
2002-03 7 40
12 154
2003-04
(71.43) (285.00)
14 195
2004-05
(16.67) (26.62)
15 222
2005-06
(7.14) (13.85)
19 258
2006-07
(26.67) (16.22)
19 281
2007-08
(0.00) (8.91)
19 296
2008-09
(0.00) (5.34)
19 303
2009-10
(0.00) (2.36)
Note: Figures in brackets are the annual growth percentages
Table 6.7 gives information on the procurement of new business

premium by brokers during 2003-04 to 2009-10. The share of brokers in the
new business premium of the total industry has increased from 0.05 per cent
in 2003-04 to 1.38 per cent in 2009-10. The private players’ procurement of
new business through brokers has significantly gone up to 3.44 per cent in
2009-10 from 0.31 per cent in 2003-04. On the other hand, it may be
mentioned that the LIC did not procure more than one per cent of business
through this channel.
287
Table 6.7
NEW BUSINESS PREMIUM PER BROKER
DURING 2003-04 TO 2009-10
(in Percentage)
2003-04 0.02 0.31 0.05
2004-05 0.04 1.23 0.35
2005-06 0.06 0.83 0.31
2006-07 0.34 1.05 0.54
2007-08 0.05 1.5 0.6
2008-09 0.47 2.0 1.11
2009-10 0.09 3.44 1.38
CORPORATE AGENTS
Corporate agents work on similar lines of broking companies but

represent one life and one non-life companies. The corporate agency,
especially a bank seems to hold much promise. But, the full potential of this
distribution channel is yet to be fully tapped.
The corporate agents have the advantage of making use of their vast
network of resources to spread the message of insurance. There is no doubt
that the corporate agents have contributed a great deal to the visibility of
insurance in the country. The number of corporate agents has grown in recent
years. With a good number of locations and wider network of the people
288
assisting them, these entities have a different structure and purpose. They
assist greatly in the spread of insurance through the greater reach of the
institutions.
IRDA has stipulated a minimum tenure of 3 years for corporate agents

agreements with the right to either party to terminate the arrangement based
on a few pre-determined criteria. The bank terminating the relationship would
need to put an alternative system in place to service the insured customer to
the satisfaction of the IRDA.
Some corporate agents are utilizing the services of a large number of

unqualified people without requisite licence or certificate to procure insurance
business by passing on varying levels of commission to them.
The IRDA gets tough with corporate agents and insurers to carryout
inspection on their corporate agents to curb irregularities.
Table 6.8 indicates data on the growth rate and market share of the
number of corporate agents of life insurers during 2000-01 to 2009-10. In the
initial stages of the establishment of private sector units, the regulator has
been given licenses to the corporate agents as a way to develop insurance
business in the sector.
But, during 2005-06 and 2006-07, IRDA issued revised guidelines for
licensing of corporate agents in order to streamline the system of corporate
agents. As a result, the private insurers terminated a large number of
corporate agents as a way to fulfill the new regulations. But, LIC terminated
only a very less number of corporate agents.
The market share of corporate agents of private sector is 82.59 per

cent in 2009-10. The LIC’s share is only 17.41 per cent during the period.
289
Table 6.8
GROWTH RATE AND MARKET SHARE OF CORPORATE AGENTS OF

LIFE INSURERS DURING 2000-01 TO 2009-10

Year
2000-01 2 33.33 4 66.67 6 100.00
20 255 275
2001-02 7.27 92.73 100.00
(900.00) (6,275.00) (4,483.33)
160 597 757

2002-03 21.14 78.86 100.00
(700.00) (134.12) (175.27)
602 1,834 2,436

2003-04 24.71 75.29 100.00
(276.25) (207.20) (221.80)
139 680 819

2004-05 16.97 83.03 100.00
(-76.91) (-62.92) (-66.38)
74 142 216
2005-06 34.26 65.74 100.00
(-46.76) (-79.12) (-73.63)
409 1906 2315

2006-07 17.67 82.33 100.00
(452.70) (1242.25) (971.76)
345 2,070 2,415

2007-08 14.29 85.71 100.00
(-15.65) (8.60) (4.32)
415 2,091 2,506

2008-09 16.56 83.44 100.00
(20.29) (1.01) (3.77)
510 2,420 2,930

2009-10 17.41 82.59 100.00
(22.89) (15.73) (16.92)

290

Mean 248.09 860.21 267.60 1199.90
Variance 129574.47 4291331.83 46193.16 890709.66
Skewness 0.95 2.80 0.190 -0.05
Range 976.91 6354.12 600 2416
Minimum -76.91 -79.12 2 4
Maximum 900.00 6275.00 602 2420
The above table indicates that the average percentage growth rate of
the number of corporate agents during 2001-10. It is 248.10 for LIC and the
Private Sector is 860.21. It shows that the average number of corporate
agents for Private Sector is higher than the LIC. The standard deviation for
LIC is 359.96 whereas private sector is 2071.55. It shows that LIC is relatively
stable and consistent in the appointment of corporate agents with regard to
growth rate.. The positive skewness values of both the insurers are 0.952 and
2.80 and hence their growth rates are stated positively skewed distributions.
The average number of corporate agents of LIC with regard to market

share is 267.60 and Private Sector is 1199.90. It means that the average
market share of corporate agents for Private Sector is higher than LIC. The
standard deviation for LIC is 214.91 whereas Private Sector is 943.77 during
2001-10. But, LIC has stability with regard to market share. A negative
skewness value i.e., -0.051 indicates that the Private Sector market share is a
negatively skewed distribution. A positive skewness value i.e., 0.190 submits
that the LIC’s market share is a positively skewed distribution.
291
700
0
650
0
600
0
550
0
500
0
450
Growth
0
400
Rate (Per
0
350
cent)
0
300
0
250
0
200
0
150
0
100
0500
0 LI
C
-
- 500 Private
1000200 200 200 200 200 200 200 200 201 Sector
2 3 4 5 6 7 8 9 0
Yea
r
3000
Number of 2500
Corporate Agents
2000
1500
1000
500
LIC Market Share
0 Private Sector
2001 2003 2005 2007 2009
2002 2004 2006 2008 2010
Year
Figure B: Line Graph of Market Share of LIC and Private Sector
Market Share (Dependent Variable)

LIC LIN 0.423 5.86 0.042 -92326 46.17
Private Sector LIN 0.655 15.22 0.005 -504903 252.36
292
LIC (Market Share) = - 92326 + 46.17*Year

predicted mean of the number of corporate agents of LIC during 2001-
10.
 The slope b1 = 46.17 indicates that the number of corporate agents are
predicted to increase by an average of 46.17 agents per year.

explained by the independent variable(Year) in the regression model.

Private Sector (Market Share) = - 504903 + 252.36*Year

predicted mean of number of corporate agents of Private Sector during
2001-10.
 The slope b1 = 252.36 indicates that the number of corporate agents

are predicted to increase by an average of 252.36 corporate agents per
year.

293
regression model. It is therefore, to say that both the insurers have a
significance value which is less than 0.05 and the ‘R’ squared values are
close to 1.
700
650
600
Number of 550
Corporate 500
Agents 450
400
350
300
250
200
150
100
50
0 Observed
-50
-100 Linear
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Figure C: LIC Market Share of Regression Plot
3000
2500
Number of
Corporate 2000
Agents
1500
1000
500
-500 Observed
-1000 Linear
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Yea
r
Figure D: Private Sector Market Share of Regression Plot
The above Regression Plots clearly show that the LIC and Private
Sector are fitted to the linear mathematical model as the observed figures are
closely related to the linear trend values. To fit in the linear mathematical
model, both the insurers have to maintain an increase, on an average, 46.17
and 252.36 corporate agents every year respectively in future to ensure
further sustenance in the development of life insurance business.
294
Table 6.9 shows information on the new business premium per
corporate agent (others) of the life insurance industry during 2003-04 to 2009-
10. The percentage share of corporate agents (others) has increased from
0.86 per cent in 2003-04 to 4.28 per cent in 2009-10. The private insurers
procured their business up to 10.28 per cent from 6.86 per cent during 2003-
04 to 2009-10. But, LIC procured only less than 1 per cent of new business
premium through this channel. It shows clearly that the corporate agents
(others) occupied a very important position and did a lot for developing
insurance business in the private sector.
Table 6.9
NEW BUSINESS PREMIUM PER CORPORATE AGENT

(OTHERS*) DURING 2003-04 TO 2009-10
(in Percentage)
2003-04 0.09 6.86 0.86
2004-05 0.30 7.75 2.21

2005-06 0.32 8.92 3.15
2006-07 0.90 8.41 2.96
2007-08 0.29 11.03 4.36
2008-09 0.49 10.92 4.86
2009-10 0.52 10.28 4.28

* Any entity other than banks but licensed as a corporate agent
Note: New business premium includes first year premium and single
premium
REFERRALS
Referrals are a new concept very similar to getting a prospecting list

and lead to affect sales with customers. It is evident that in addition to bank,
there could be other entities which could act as a referral provider due to the
large database of the number of clients. The referral provider is not a licensed
295
intermediary but can be regulated by the IRDA through approval of the terms
of the agreement between the insurer and the referral provider. A referral tie-
up is an agreement between a bank and an insurer wherein the bank gives a
reference of prospective customers to the insurer. It is part of the
bancassurance.
The insurer would not be allowed to enter into a referral arrangement

with any bank which has been licensed by the IRDA to act as an agent or an
insurance intermediary. The arrangement between bank and insurer should
not be construed to have resulted into an agent-principal relationship between
the bank and insurer. The referral fee paid by the insurer to the bank should
be treated as acquisition cost and should be decided between the parties
under a written agreement. Referral providers promote the penetration of
insurance through provision of good prospecting list and the huge database.
A successful and intelligent insurer has a good number of referrals

under his ambience. The foundation and base for developing referrals are to
like and help people. Sustaining trustworthy relationships with the existing
customers and also potentials influence significantly in creating a good
referral base. Thus, building and developing relationships are very important
in almost all steps developing referral arrangements. The cost effectiveness
and conversion efficiency are also crucial in ensuring the success of referral
arrangements.
The approach of referral gathering is not a system in case of many

insurers. The insurers, generally, may get referrals by asking their customers.
But, by doing this, they are only scratching the surface of a high-quality
referral base. The understanding of the referral process and the way it works
is very necessary for the insurers to implement a total referral gathering
approach. The insurers should not ask for referrals and the referrals must
come to them by customers’ voluntary suggestions.
296
A successful life insurer needs a good number of referrals and the
method of creating a good referral is to like people. The methods of
developing creditable, trusting and fair relationships with the clients and the
insurers’ network of data base are the main factors for creating a good referral
base.
Table 6.10 analyses the information on referrals’ new business of life

insurance during 2003-04 to 2009-10. As the referral tie-ups of the insurers
have been progressing gradually and also very recently, their business
particulars are considered for only 7 years. It is observed from the available
figures that the share of referrals in the new business premium procured by
the private players is significant as compared to LIC. The private insurers
recorded a least 6.25 per cent business in 2004-05 and 9.27 per cent highest
business in 2008-09. LIC did procure business only during two years from
referral tie-ups during the period.
Table 6.10
REFERRALS’ INDIVIDUAL NEW BUSINESS

DURING 2003-04 TO 2009-10
(in Percentage)
2003-04 0.00 7.50 0.85
2004-05 0.00 6.25 1.60
2005-06 0.00 7.06 2.32
2006-07 0.24 6.77 2.04
2007-08 0.00 7.79 2.95
2008-09 0.00 9.27 3.90
2009-10 0.18 7.95 3.13

297
MICRO INSURANCE AGENTS
Micro-insurance refers to insurance to the low-income people and a

low-value product. This needs a different design of the distribution strategies
such as premium based on community risk-rating and active involvement of
an intermediary. It is a young financial product. Demand is very strong and
indicative of a well-established insurance market at a later date.
In offering micro-insurance, micro-insurance agents are allowed to

carry out the collection of proposal forms, remittance of premium, settlement
of claims, nominations and policy administration services. The conventional
models may not be able to accomplish the desired target in the area of micro-
insurance. The intermediary may have to do the role of an integrated financial
advisor. 18
The Self-Help Group members get income by way of interest every

year. A part of this amount can be utilized by the members for buying
insurance products because they are prone to various risks.
Table 6.11 shows information on the growth rate and market share of
micro-insurance agents appointed by the life insurers during 2006-07 to 2009-
10. With the notification of IRDA (Micro-insurance) Regulations, 2005 by the
Regulator, there has been a steady growth in the design of products catering
to the needs of the poor and under-privileged. As the concept of micro
insurance agent is new as per the IRDA’s Regulations in 2005, only the
information for four years is considered. The number of micro insurance
agents as on 31st March, 2010 was 8,676, of which 7,906 were for the LIC
and 770 for the private sector companies. The number of micro insurance
agents is increased by 6.62 times in the insurance industry, i.e. 6.42 times in
LIC and 9.75 times in the private sector. It shows a significant increase in the
number of micro insurance agents in the industry. LIC contributed to a greater
18
Arman Oza, “Importance of Delivery Mechanism – Role in Micro-Insurance”, IRDA Journal,
December, 2006, p.8.
298
extent to this increase. But, the response with regard to the sale of micro
insurance products by the private sector is not up to the mark. It is marginal
and meant only for fulfilling the regulatory obligations.
Table 6.11
GROWTH RATE AND MARKET SHARE OF MICRO-INSURANCE

AGENTS OF LIFE INSURERS DURING 2007-08 TO 2009-10
(in Percentage)

Year
Amount % Amount % Amount %
2006-07 1,232 93.97 79 6.03 1311 100.00
4,166 418 4,584

2007-08 90.88 9.12 100.00
(238.15) (429.11) (249.65)
6,647 603 7,250

2008-09 91.68 8.32 100.00
(59.55) (44.26) (58.16)
7,906 770 8,676

2009-10 91.12 8.88 100.00
(18.94) (27.69) (19.67)

DIRECT MARKETING
Professionally qualified and adequately trained intermediaries will

emerge in insurance as competition is forced upon them. The role played by
agents is likely to be partly replaced by internet and e-commerce. Insurance
being opened up will use all the tools of new technology in its activities 19.
19
Avadhani, V.A., ‘Marketing of Financial Services’, Himalaya Publishing House, Mumbai,
2008, p.348.
299
Direct marketing is a company owned sales team concept. It is now
employed by a majority of the new players and has proved effective in
customer creation and retention. Under direct marketing, the insurance
products are marketed with little initial costs than the conventional marketing
mechanism. Direct marketing is one of the most successful channels of
distribution. It is a great way to reach a larger number of customers. So the
product should be sold through telemarketing or direct mail.
Telemarketing connotes marketing of insurance products through

telephone, generating leads through calls and forwarding leads to the main
sales team of the company. Under telemarketing, there is no direct contact
between the prospect and the insurance company. Retail chains also indicate
the cross selling of insurance products of different companies at retail outlets.
Internet marketing offers the internet based products of life insurance

to the customers. It also offers other facilities like suggestion of covers for
individuals, premium calculations, policy status and knowledge of new
products.
Table 6.12 shows figures relating to the information on new business

through direct selling by the life insurers during the years 2003-04 to 2009-10.
The share of direct selling procured in the new business premium
underwritten by the private insurers declined from 14.37 per cent in 2003-04
to 1.39 per cent in 2006-07. Later, the share has increased to 10.73 per cent
in 2009-10.
It is observed from the Table that LIC did not procure any business
through this channel. It has yet to make in-roads through this channel of
distribution to procure new individual business. It is understood that total
business procured by this channel belongs only to private life insurers.
300
Table 6.12
DIRECT NEW BUSINESS OF PRIVATE LIFE INSURERS

DURING 2003-04 TO 2009-10
(in Percentage)
Year Private sector Total
2003-04 14.37 1.63
2004-05 10.05 2.58
2005-06 6.61 2.17
2006-07 1.39 0.38
2007-08 8.78 3.33
2008-09 11.37 4.76
2009-10 10.73 4.13
MALLS
Mall assurance signifies the sale of insurance products at malls. It is

relatively more cost-efficient as it enables customer acquisition through low-
cost insurance products. Under this model, direct sales teams are involved
with a customer database of different malls. The sales teams convene
meetings with the mall customers and take measures to bring in insurance
business from them. It contributed to around 10 per cent of the insurers’
business. The brand power of the Future Group is leveraged in 170 malls and
mall assurance is a key to the expansion strategy of the Group.
e-SALES
The e-sales platform is an exclusive distribution channel and the

products can be brought only through the website of the company. The
products are to be marketed through online advertising. The customers can
apply online by seeing the advertisements and make payments using credit
cards or net-banking. As this marketing process is completely paperless, the
insurers have to keep the costs very low and making the premiums low. As a
result, the products are more attractive to a large number of customers.
301
MIS-SELLING
Mis-selling is a bane in insurance sector. There is a small section of

insurance agents who involved in such practices. But the problem in
insurance is that the consumer will know and feel the impact of such a mis-
sale only after 10 or 15 years or at the point of surrender or maturity.
Misrepresentation by agent to the customer on product features like

false guarantees on returns, not informing about additional charges etc.,
comes under mis-selling. With mis-selling, some policies are getting lapsed
and leading to surrender. Some policies were penalized with higher charges.
In order to appreciate the ethical values of insurance selling, one has to
accept the principle of utmost good faith. Ethics of undertaking a transparent
life insurance business needs that an insurance company should treat the
consumer in a fair and equitable manner and provide insurance cover at the
best possible premium rates.
Mis-selling is meant selling something which is not required by the

customer. The choice of sum assured, plan and term are all issues
determined by the agent leaving significant scope for mis-selling. Over-selling
and under IRDA has taken serious steps to curb the practices of mis-selling
by -selling are both examples of mis-selling.
IRDA has taken serious steps to curb the practices of mis-selling by

intermediaries. These include regulatory action against erring intermediaries
and also insurers. A Consumer Affairs Department is annexed to the
Regulator to monitor the customer complaints with regard to mis-selling. The
regulator is planning to formulate some additional disclosure norms to check
mis-selling of products by agents.
There is a lot that needs to be done to gain the confidence of the

average policyholder in order that the large number of consumer complaints is
reduced to the barest minimum. Financial products should not be sold on the
302
basis of emotional or celebrity appeal. This would also amount to mis-
selling.20
THE REGULATOR
The insurance regulator constituted a committee to examine the

functioning of the different distribution channels for insurance products in
2007. The terms of reference of the committee are to review the system of
licensing of the corporate agents, their qualifications, examine in detail the
commission structure and recommend necessary additional channels. The
committee recommended that since life insurance companies have a wider
reach to the customers, they may be permitted to distribute health insurance
products also. The committee felt that there was a need for improving the
distribution network of the life insurance companies.
The Swaroop Committee on investor awareness and potential had also

clearly mentioned that insurance policies need to remove the bias towards
selling policy only with the highest commission. The committee recommended
that the commission should not exceed 15 per cent of the premium. The
industry needs to move to a rational commission model which will improve
persistency ratios in addition to benefit the long-term interest of the
policyholders.
The initiatives by IRDA to permit banks, corporate agents and brokers

to operate in the Indian Market have created enormous possibilities. The
linking of each segment of customers to appropriate distribute channel is
important as the middle and upper middle class urban and city customers are
well-informed and have access to modern technology like web, telemarketing
and internet marketing.
20
Rajesh Khandelwal, “Visualizing Beyond Business Targets - In the Service of the
Customer”, IRDA Journal, October, 2010, pp.32-33.
303
The new guidelines on ULIPs present an opportunity for positive
changes in insurance industry. The low-cost distributors and new distribution
initiatives have emerged in the Indian life insurance market. Other channels,
like bancassurance and online marketing which involved low-cost distribution
ensured a quality sales process. But, the success of the market-centered
products like ULIPs in the life insurance market requires the distributor to be
refreshed with the latest development taking place both domestically and also
international in life insurance sector.
DISTRIBUTION COSTS
The life insurers have been on a drive to control expenses to cut costs
which are in the form of rationalization of offices, employees and agents. This
is in consonance to the Regulator’s stringent regulations on management of
expenses. With reduction of commission on ULIPs, the distributors have lost
interest in selling the products. The number of people engaged in selling
these products has not only gone down but also their productivity due to the
volatile equity market.
The new norms on ULIPs resulted in a withdrawal of more than 270

products from the market and the life insurance business was also made
sluggish. Consequently, a massive downsizing of the workforce and
infrastructure was affected. Self-regulation will lighten the monitoring load on
the IRDA even as the members of the industry become more responsible in
their conduct. 21
Distribution costs are a type of transaction cost which reflect the fact
that without incurring these costs, it is impossible for the insurers to ensure
agents to work in their interests. The high commission percentage ratios are
partly influenced by the excessive strains taken by the private insurers for
expanding their market in the initial years.
21
Mony, S.V., “Seek Sustainable Solutions”, IRDA Journal, December, 2003, p.28.
304
Higher levels of compensation packages are given to the distributors
by the private insurers for developing their business potential at that time. It is
given the kind of sustained activity which an insurance agent has to
undertake. The number of times he has to meet a prospect before a sale can
be concluded and the kind of post-sale service which he has to provide for an
insurance holder. The remuneration is not excessive in the sense that there
can’t be a lower cost method of distribution than this.
Table 6.13 shows the commission expenses as a percentage to the

premium underwritten by the life insurers during the years 2000-01 to 2009-
10. It may be found from the Table that there is a gradual decline in the ratios
with regard to both public and sector units.
The IRDA’s new regulations on ULIPs and its other regulatory

measures have made the commission rates at which the agents and other
distributors are paid have declined. Further, there is a also cap on the
commission charges payable to them. Hence, over the ten-year period, the
ratios of LIC between commission expenses and premium underwritten have
come down from 9.08 per cent to 6.52.
Private players have also reduced the ratio from 18.45 per cent to 7.63
per cent. With regard to aggregates i.e. both public and private players, the
ratio has decreased from 9.09 per cent to 6.85. This shows a healthy trend
and also a favourable atmosphere which leads to a positive development in
the industry.
305
Table 6.13
COMMISSION EXPENSES AS A PERCENTAGE TO PREMIUM

UNDERWRITTEN BY THE LIFE INSURERS
DURING 2000-01 TO 2009-10
(Rs. in crores)

Year
Premium Percent Premium Percent Premium Percent
Commission Commission Commission
Underwritten (%) Underwritten (%) Underwritten (%)
2000-01 3169.39 34892.02 9.08 1.19 6.45 18.45 3170.58 34898.47 9.09
2001-02 4519.32 49821.91 9.07 49.09 272.55 18.01 4568.41 50094.46 9.12
2002-03 5015.08 54628.49 9.18 153.03 1119.06 13.67 5168.10 55747.55 9.27
2003-04 5742.92 63533.43 9.04 415.42 3120.33 13.31 6158.34 66,653.76 9.24
2004-05 6249.74 75127.29 8.32 854.73 7727.51 11.06 7104.47 82854.80 8.57
2005-06 7100.19 90792.22 7.82 1543.11 15083.54 10.23 8643.30 105875.76 8.16
2006-07 9173.58 127822.84 7.18 3109.65 28242.48 11.01 12283.23 156065.32 7.87
2007-08 9614.69 149789.99 6.42 5089.61 51561.42 9.87 14704.30 201351.41 7.30
2008-09 10055.09 157288.04 6.39 5477.27 64497.43 8.49 15532.36 221785.47 7.00
2009-10 12132.56 186077.31 6.52 6052.75 79373.06 7.63 18185.31 265450.37 6.85
A. LIC
i. Mean and Standard Deviation
LIC
Particulars LIC Premium
Commission Underwritten
Number of Years 10 10
Mean 7277.26 98977.35
Standard Deviation 2856 52475
306
The above table presents information on the average Commission
expenses spent by LIC. The amount spent on commission, on an average, is
stood at Rs 7277.27 crores and premium underwritten is Rs 98977.35 crores per
year. The standard deviation of commission expenses by LIC is Rs 2588.59
crores and premium underwritten is Rs 52474.99 crores during 2001-10.
1400
0
Commission 1200
0
(Rs in crores)
1000
0
800
0
600
0
400
0
200
0 2000 6000 10000 14000 18000
0 4000 0 8000 0 12000 0 16000 0 20000
0 0 0 0 0
Premium Underwritten (Rs in Crores)
Figure A: LIC Scatter Plot

ii. Correlation
LIC LIC Premium
Particulars Commission Underwritten
LIC Commission Pearson Correlation 1 .992 **
Sig. (2-tailed) . .000
N 10 10
LIC Premium Pearson Correlation .992 ** 1
Underwritten Sig. (2-tailed) .000 .
N 10 10
**. Correlation is significant at the 0.01 level (2-tailed).
The above table shows that the correlation coefficient for LIC premium
underwritten and commission expenses is 0.992. Since 0.992 is relatively
close to 1, this indicates that LIC premium underwritten and commission
expenses are positively correlated. The significance level is small i.e.,0.000. It
is less than 0.01. Hence, the correlation is significant at 1% level of
significance and the two variables are linearly related.
307
iii. Regression Analysis
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 1934.201 269.135 7.187 .000
LIC Premium
5.398E-02 .002 .992 22.222 .000
Underwritten
Adjusted Std. Error of

Model R R Square R Square the Estimate
1 a
.992 .984 .982 382.41661
a.Predictors: (Constant), LIC Premium Underwritten
The linear trend forecasting equation is
Commission Expenses = 1934.20 + 0.0539* Premium Underwritten
 The Y intercept b0 = 1934.20 is the fitted trend value reflecting the

predicted mean of commission expenses (Rs in Crores) of LIC during
2001-10.
 The slope b1 = 0.0539 indicates that the commission expenses are

predicted to increase by an average of 0.0539 crores of rupees per
year.
The above table displays R, R squared, adjusted R squared, and the

standard error. R, the multiple correlation coefficient, is the correlation
between the observed and predicted values of the dependent variable
(commission). Larger value of R (0.984) indicates stronger relationship. R
squared (0.984) is the proportion of variation in the dependent variable
(commission expenses) explained by the independent variable (Premium
underwritten) in the regression model.
308
14000
12000
Commission
(Rs in crores)
10000
8000
6000
4000
Observed
2000 Linear
20000 60000 100000 140000 180000
40000 80000 120000 160000 200000
Figure B: LIC Commission and Premium Underwritten Regression Plot
B. Private Sector
i. Mean and Standard Deviation
Private Sector Private Sector

Particulars
Commission Premium Underwritten
Number of Years 10 10
Mean 2274.59 25100.38
Standard Deviation 2444.57 29653.97
The above table provides information on the average commission

expenses spent by Private Sector. It is Rs 2274.59 crores and the premium
underwritten is Rs 25100.38 crores. The standard deviation of commission
expenses is Rs 2444.57 crores and premium underwritten is Rs 29653.96
crores during 2001-2010.
309
700
0
600
0
Commission
(Rs in crores) 500
0
400
0
300
0
200
0
100
0
0
-
1000
- 0 1000 2000 3000 4000 5000 6000 7000 8000
10000 0 0 0 0 0 0 0 0
Figure C: Private Sector Scatter Plot

ii. Correlation
Private Sector
Particulars Private Sector Premium
Commission Underwritten
Private Sector Pearson Correlation 1 .988 **
Commission Sig. (2-tailed) . .000
N 10 10
Private Sector Pearson Correlation .988 ** 1
Premium Underwritten Sig. (2-tailed) .000 .
N 10 10
**. Correlation is significant at the 0.01 level (2-tailed).
The above table gives information on correlation coefficient for private

sector commission expenses and premium underwritten 0.988. Since 0.988 is
relatively close to 1, this indicates that the Private Sector premium
underwritten and commission expenses are positively correlated. The
significance level is small 0.00 (less than 0.01). Hence, the correlation is
significant at 1% level of significance and the two variables are linearly
related.
310
iii. Regression Analysis
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 230.902 171.988 1.343 .216
Private Sector
8.142E-02 .005 .988 17.848 .000
Premium Underwritten
Adjusted Std. Error of

Model R R Square R Square the Estimate
1 .988 a .976 .972 405.82294
a. Predictors: (Constant), Private Sector Premium
Underwritten
The linear trend regression equation is
Commission Expenses = 230.90 + 0.0814 * Premium Underwritten
 The Y intercept b0 = 230.9 is the fitted trend value reflecting the

predicted mean of commission expenses (Rs in Crores) of Private
Sector during 2001-10.
 The slope b1 = 0.0814 indicates that the commission expenses are

predicted to increase by an average of 0.0814 crores of rupees per
year.
700
0
600
0
Commission
(Rs in crores) 500
0
400
0
300
0
200
0
100
0
0 Observed
- Linear
1000
- 0 2000 4000 6000 8000 10000
20000 0 0 0 0 0
Premium Underwritten (Rs in

crores)
Figure D: Private Sector Regression Plot
311
The above Regression Plots of both LIC and Private Sector are fit to
the linear mathematical model since the observed figures are close to the
trend values. Their significance values are less than 0.05 and ‘R’ squared
values are close to 1. Hence, in order to meet the linear mathematical line
requirement, on an average, LIC has to increase its spending by Rs.5.39
lakhs and the Private Sector by Rs.8.14 lakhs per annum towards commission
expenses.
CHANNEL PERFORMANCE
The performance of distribution channels is measured by the new

business premium collected by each channel. The share of different channels
in new business premium for LIC, private sector companies and also the
industry taken together is given in the Table.
Table 6.14 gives information on the new business premium collected

by different intermediaries in LIC during 2003-04 to 2009-10. The new
business premium collected through individual agents has come down to
97.57 per cent in 2009-10 from 99.78 per cent reported in 2003-04. This is
because of the dominating and most prominent role of insurance agents in
LIC which occupies the major share of total business. The shares of other
channels have been gradually increasing since last seven years. But, this
increase is very marginal. It shows that almost the total business of the LIC is
procured by the individual agents and the new business premium is also
collected through the agents themselves. The role played by other
intermediaries is insignificant and marginal.
312
Table 6.14
NEW BUSINESS PERFORMANCE OF INTERMEDIARIES IN LIC

DURING 2003-04 TO 2009-10
(in Percentage)
Individual Corporate Agents
Year Brokers Referrals Total
agents Banks Others
2003-04 99.78 0.11 0.09 0.02 0.00 100.00
2004-05 98.79 0.87 0.3 0.04 0.00 100.00
2005-06 98.37 1.25 0.32 0.06 0.00 100.00
2006-07 97.28 1.24 0.9 0.34 0.24 100.00
2007-08 98.36 1.3 0.29 0.05 0.00 100.00
2008-09 97.34 1.7 0.49 0.47 0.03 100.00
2009-10 97.75 1.64 0.52 0.09 0.18 100.00

Note: New business premium includes first year premium and single
Premium
From 2008 onwards, referrals’ business has not considered in total
business.
Table 6.15 refers to the information on the new business performance

of intermediaries in the private sector during 2003-04 to 2009-10. The share
of agents is about 60 per cent of the premium for private sector insurers in
2003-04. It is observed that their share has gone down to 50.67 per cent in
2009-10 which shows that other channels like banks and other corporate
agents have increased their shares in the total new business premium. Banks
have shown a good growth in terms of the share. This is almost more than
doubled. It shows that bancassurance played a very important and active role
in promoting and developing insurance business of the private sector. The
corporate agents (others), direct selling, referrals and brokers are the other
channels which contribute their mite in the development of the insurance
business of private players.
313
Table 6.15
NEW BUSINESS PERFORMANCE OF INTERMEDIARIES

IN PRIVATE SECTOR DURING 2003-04 TO 2009-10
(in Percentage)
Individual Corporate Agents Direct

agents Banks Others Selling
2003-04 60.39 10.57 6.86 0.31 14.37 7.50 100.00
2004-05 59.30 15.42 7.75 1.23 10.05 6.25 100.00
2005-06 59.71 16.87 8.92 0.83 6.61 7.06 100.00
2006-07 65.80 16.58 8.41 1.05 1.39 6.77 100.00
2007-08 59.81 18.89 11.03 1.50 8.77 7.79 100.00
2008-09 54.94 20.78 10.92 2.00 11.36 9.27 100.00
2009-10 50.67 24.88 10.28 3.44 10.73 7.95 100.00

Note: i) New business premium includes first year premium and single
Premium
ii) From 2008 onwards, referrals’ business is not included in total
business
Table 6.16 gives information on the percentage share of different

distribution channels in the total insurance business of the industry as a
whole. It is clear from the Table that the individual agents’ share in the total
insurance business has declined from 95.32 per cent in 2003-04 to 79.61 per
cent in 2009-10. Despite a decline in their share, the individual agents
contributed a lot for the development of life insurance business in our country.
Afterwards, the corporate agents (banks) contributed to over one-tenth of the
insurance business. Other distribution channels like corporate agents (others),
direct selling, referrals and brokers contributed to the insurance business of
the industry during this period. Their total share in the industry’s business is
around 10 per cent.
314
Table 6.16
NEW BUSINESS PERFORMANCE OF INTERMEDIARIES

IN TOTAL INDUSTRY DURING 2003-04 TO 2009-10
(in Percentage)
Individua Corporate Agents Direct

l agents Banks Others Selling
2003-04 95.32 1.30 0.86 0.05 1.63 0.84 100.00

2004-05 88.65 4.61 2.21 0.35 2.58 1.60 100.00
2005-06 85.67 6.38 3.15 0.31 2.17 2.32 100.00
2006-07 88.62 5.46 2.96 0.54 0.38 2.04 100.00
2007-08 83.75 7.97 4.36 0.60 3.32 2.95 100.00
2008-09 79.57 9.69 4.86 1.11 4.77 3.90 100.00
2009-10 79.61 10.6 4.28 1.38 4.13 3.13 100.00
Note: i) New business premium includes first year premium and single
Premium
ii) From 2008 onwards, referrals’ business is not included in total business
To conclude, an important challenge before the insurance industry is to

promote more effective distribution channel to meet the new generation
demand. The distribution of products in the emerging market is
characteristically different because of the information explosion and the
adoption of latest technology. Emergence of financial conglomerates,
universal banking and integration of financial services has changed the
geometry of financial products. Efforts of insurance companies should be to
promote institutional intermediaries like corporate agents and brokers who will
provide a new dimension to distribution channel.
315

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CHAPTER – VI

INSURANCE MARKETING AND DISTRIBUTION

The life insurance industry in India has a great potential to develop. It

Insurance is a business of sacrifice. This is mainly due to the fact that

Insurance marketing must be considered as a positive trend by the

The marketing of life insurance is universally considered a matter of

There is no product differentiation in insurance business. One company

The liberalization of Indian life insurance sector has created many

Insurance selling should not be regarded as a mere act of selling

Distribution of insurance products and efficient service delivery has

Due to the emerging convergence and globalization, the entire

The corporate customers and institutional investors are interested in

Consequently from a single channel industry i.e., the individual agent,

Insurance is a business of keeping people’s hopes, aspirations and

The distributor is the first line representative of the life insurance

The insurance companies have to concentrate mostly on non-

Customer retention marketing is a process whereby marketers look at

One of the major challenges of insurance marketing is to identify which

The new companies are looking for well educated, knowledgeable

Channel conflicts may arise in some cases. But, those must be

At present, insurance advertisements take up a lot of space in

The ICICI Prudential is the first private insurance company to recognize

LIFE INSURANCE OFFICES AND THEIR DISTRIBUTION

The growth of the life insurance industry is mainly influenced by the

The total number of offices has increased dramatically during 2007-08

GROWTH RATE AND MARKET SHARE OF LIFE INSURANCE OFFICES

LIC Private Sector Total

2000-01 2,186 99.41 13 0.59 2,199 100.00

2,190 116 2,306

i. Mean, Standard Deviation and Skewness

Particulars LIC Private Sector LIC Private Sector

As regards market share, it presents that the average number of life

Growth Rate 600

Figure A: Line Graph of Growth Rate of LIC and Private Sector

Figure B: Line Graph of Market share of LIC and Private Sector

ii. Regression Analysis

a) The linear trend forecasting equation is

LIC (Market Share) = - 209656 + 105.752*Year

The regression coefficients are interpreted as follows:

 The Y intercept b0 = - 209656 is the fitted trend value reflecting the

The significance value of F(0.004) is smaller than 0.05. Then the

b) The linear trend forecasting equation is

Private Sector (Market Share) = - 2172297 + 1084.68*Year

The regression coefficients are interpreted as follows:

 The Y intercept b0 = - 2172297 is the fitted trend value reflecting the

The significance value of F (0.000) is smaller than 0.05. Then the

Figure C: LIC Market Share Regression Plot

Figure D: Private Sector Market Share Regression Plot

Another remarkable feature for the life insurance offices is their

Table 6.2 shows the details on the area-wise distribution of life

AREA-WISE DISTRIBUTION OF LIFE INSURANCE OFFICES

The agents, a traditional and a customary form of insurance

Under Sec.2(10) of the Insurance Act, 1938, an insurance agent

To accomplish the responsibility of educating and training of agents,

The Life Insurance Market Research Association (LIMRA) is the best

The nomenclature of insurance agent is changed as an insurance

The average attrition rate among insurance agents in our country is

Further, many agents join the insurance agencyship with enthusiasm

As the agency network is a dominant distribution channel, the life

Traditionally, the life insurance industry depends mostly on the agency

GROWTH RATE AND MARKET SHARE OF THE NUMBER OF INDIVIDUAL

LIC Private Sector Total

2000-01 1,12,978 97.63 2,737 2.37 1,15,715 100.00

4,42,680 34,222 4,76,902