Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
Week 7 : Video 5
Distribution Channels of Insurance
Dear Learners, Namaskar,
Today, we'll discuss the Distribution Channels in the Insurance Sector. Life insurance
traditionally relied on agents, while general insurance depended on development officers. With
the liberalization of the sector, new private insurers in India are diversifying distribution
channels to align with global trends. This shift highlights the role of innovation in distribution
for insurers' success.
The modern insurance market includes:
• Consumers (individuals and employers),
• Carriers or policy issuers,
• Distributors connecting consumers with insurers through value-added services.
Over time, the way insurance products reach customers has changed. Agents and brokers
were the main channels initially. Now, we see growth in direct marketing, corporate agents,
independent financial advisors, and digital strategies (telemarketing, website, and internet
marketing). Other channels like retail chains and bancassurance reflect a move towards
more diverse and accessible methods.
Traditional New
•Agents •Direct marketing
•Brokers •Corporate Agents
•Independent Financial Advisors
•Digital Strategies
•Retail chains
•Bancassurance
Traditional Distribution channel:
Let's start with traditional distribution channels. Insurance has historically relied on agents and
brokers for customer outreach. These channels offered personalized service and advice. 1.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
Agents, or Insurance Advisors/Planners, are essential for connecting with potential clients.
They include:
Individual • Single Individuals linking customers
Agent with insurance companies
Corporate • Companies or Groups linking
Agent customers with insurance companies
Agents must be authorized by the insurance authority, allowing them to maintain, renew, or
reactivate policies. They educate people on the importance of financial security and assist in
finding suitable policies, emphasizing early planning for significant life events.
Both individual and corporate agents are certified to sell insurance products, simplifying
insurance terms and tailoring plans to individual financial situations. IRDA introduced
corporate agents, like bancassurance, to utilize the extensive network of banks and financial
institutions, making insurance more accessible.
2. Brokers: Next is Brokers. Insurance brokers are licensed professionals who help clients
manage risks and find the best insurance policies. They connect clients with multiple insurers,
offering a broader choice of policies.
So What is the difference between an "Agent" and a "Broker"?
Agent
• Works with just one Insurance Company
• General, Life, or Health
Brokers
• Work with multiple Insurance Companies
• Both Life and General insurance
An agent works with just one insurance company, whether it's for general, life, or health
insurance. On the other hand, a broker can work with multiple insurance companies, covering
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
both life and general insurance. Brokers represent you, making sure your needs and interests
come first, not the insurance companies.
They assist in setting up insurance contracts and support you during claims. Brokers improve
customer service by bringing innovative products and responding quickly to client needs. They
introduce international best practices to the Indian market, addressing the shortage of trained
professionals. By working with multiple insurers, brokers facilitate easier handling of complex
risks for companies. They also boost the insurance market by increasing competition and
enhancing service quality. Brokers help save on foreign exchange by optimizing reinsurance
programs and developing new products to grow the premium base.
New Distribution Channel: Traditional channels have been the foundation of the insurance
industry, providing personalized service and advice. However, the industry is evolving with
new distribution channels emerging to meet modern consumer needs. These include:
• Direct Marketing: Reaching out to consumers directly, bypassing traditional
intermediaries, to offer insurance products.
• Corporate Agents: Corporations that are authorized to sell insurance products on
behalf of one or more insurance companies.
• Composite Insurance Agent: A Composite Insurance Agent is an insurance agent who
holds a license to act as an insurance agent for a life insurer and a general insurer.
• Independent Financial Advisors (IFAs): Professionals who offer independent advice
on financial matters, including insurance, to their clients.
• Telemarketing: Using telephone calls to directly market insurance products to potential
customers.
• Website Marketing: Utilizing the company's website to provide information and sell
insurance products.
• Retail Chains: Partnering with retail stores to offer insurance products to the store's
customer base.
• Internet Marketing: Leveraging various online platforms to promote and sell
insurance products.
• Bancassurance: An arrangement between a bank and an insurance company, allowing
the insurance company to sell its products to the bank's client base.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
• Microfinance Companies: These organizations, which provide small loans to the
underprivileged, also offer insurance products tailored to their client's needs.
• NGOs: Non-governmental organizations collaborating with insurance companies to
distribute insurance products to a broader audience.
These new channels enable insurers to reach a wider audience, offer more personalized
products, and meet the changing needs of today's consumers. They represent a significant shift
from traditional methods, emphasizing the importance of innovation and flexibility in the
insurance industry.
After discussing new distribution channels, we turn to bancassurance, a blend of banking and
insurance services. This method, gaining popularity, significantly shifts the insurance
distribution landscape in India, offering a practical way to reach a broad audience.
Bancassurance : Bancassurance combines banking and insurance to sell insurance through
banks. It's known as "Allfinanz" in German, indicating integrated financial services. This
method is gaining popularity as the insurance industry looks for new distribution channels.
Banks have a wide reach and can easily connect with various customer segments. This marks
a significant shift in the insurance industry, moving beyond traditional agent-based distribution.
Bancassurance is now taking root in India, offering a practical way to sell insurance to a broad
audience.
Let's explore the types of Bancassurance
Bancassurance encompasses a variety of models, each tailored to integrate banking and
insurance services in unique ways.
• First is the Distribution Alliance: Insurance companies partner with banks to distribute
their products.
• Second is Leveraged Life Distribution: Here, the life insurance company leads the
partnership, with multiple banks acting as corporate agents. This setup aims to tap into
the middle market.
• Third is Leveraged Bank Distribution: In this arrangement, the bank leads the
partnership, by offering life insurance products through their wide channels, like
branches and ATMs.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
• The last is a Bank/Life Joint Venture: Which combines a bank's customer database
with an insurer's product expertise for a new distribution strategy. This is ideal for large-
scale operations, like SBI Life Insurance, leveraging SBI's vast branch
network.Companies like ING Vysya explore this model to expand into new areas,
emphasizing the importance of keeping insurance visible and accessible to people.
Now, let's explore the Advantages of bancassurance, starting with how it benefits banks, and
then exploring its positive impact on insurance companies.
Benefits to Banks:
• First is Increased Income and Efficiency. Bancassurance enhances bank income,
optimizes infrastructure use, and boosts staff productivity by integrating insurance
services.
• Second is Enhanced Customer Insights: Utilizing technology, banks can leverage
extensive customer data to tailor products and services, meeting customer needs
efficiently.
• Next is Expanded Service Spectrum: Bancassurance allows banks to broaden their
service offerings, merging banking and insurance into a complementary financial
service model.
• Next is One-Stop Financial Solution: This integration offers customers
comprehensive financial services, extending beyond traditional banking and insurance
products.
Now, Let's discuss the Benefits to Insurance Companies:
• First is Market Expansion: Bancassurance provides access to new markets and
customer segments, increasing the insurance company's reach and potential customer
base.
• Second is Product Diversification: Collaboration with banks enables insurance
companies to diversify their product offerings, enhancing customer retention and
attraction.
• Third is Cost Efficiency: Bancassurance achieves economies of scale, making certain
products more viable and reducing sales depletion.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
• Next is Reduced Overhead Costs: Partnering with banks lowers operational costs for
insurance companies, leading to improved financial performance.
• Next is Learning and Development: The partnership between banks and insurance
companies fosters a culture of learning, ultimately benefiting customers with improved
services.
Considering the benefits, the question arises, What are the key factors that determine the
success of bancassurance? So Bancassurance's success relies on:
• Effective Promotion: By Choosing the right ways to promote and distribute products
• Integration: Merging support services and aligning bank and insurance operations
enhance efficiency.
• Operational Efficiency: Properly managing the sales force and setting achievable
targets are crucial for growth.
• Training: Focused training for sales teams is essential for understanding banking
products and customer needs.
• Cultural Harmony: Blending the different cultures of banks and insurance companies
is important for seamless service.
The future of bancassurance is bright, with growing customer interest and the merging of
banking and insurance offering a comprehensive service package. Despite challenges, its
growth potential is significant, promising a balanced share of the insurance market.
Having discussed bancassurance, we now shift our focus to the role of intermediaries in the
insurance landscape, particularly highlighting two main types: Surveyors and Loss Assessors
and Third Party Administrators.
Let's discuss the concept of an insurance intermediary first.
Insurance intermediaries act as the bridge between customers and insurance companies. They
include individual agents, corporate agents (such as banks), brokers, surveyors, and Third Party
Administrators (TPAs). While agents, brokers, and corporate agents help in acquiring insurance
business, surveyors evaluate insurance claims, and TPAs manage health insurance services.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
The Insurance Regulatory and Development Authority (IRDA) has set a code of conduct for
these intermediaries, ensuring ethical practices. This includes guidelines on client relations,
sales, disclosure of information, claims handling, and advertising. IRDA imposes strict
penalties for violations, including license cancellation, to maintain standards and protect
consumers.
Let's talk about the Surveyors and loss assessors.
These are licensed professionals hired by insurance companies to evaluate losses or damages
for claims. They must have technical qualifications, such as engineering degrees, chartered
accountancy, or medical degrees, and be certified by insurance institutes in India or abroad.
Once licensed, they can work for any insurance company in India, chosen based on their
expertise relevant to the claim.
Their main tasks include:
• Investigating the cause of loss.
• Advising on loss mitigation.
• Assessing the loss amount.
• Determining insurance liability.
• Managing salvage disposal for maximum value.
Despite being appointed by insurance companies, surveyors must remain neutral, serving
neither the insurer's nor the insured's interests exclusively. Professionalism and impartiality are
crucial.
The insurance sector has faced issues with surveyor reports and claim delays. The IRDA has
set regulations to improve this by categorizing surveyors based on qualifications and
experience. They must also adhere to a code of conduct, ensuring ethical, objective, and skilled
evaluations.
Next is Third Party Administrators (TPAs): TPAs are intermediaries in the health insurance
sector, helping policyholders access a network of hospitals and nursing homes. They benefit
both insurers and the insured by managing policyholder databases, issuing ID cards, handling
claims, and providing 24-hour support. TPAs employ medical professionals to make quick
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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Banking and Insurance
Dr. Ruchi Jain
Week 7_V5
policy coverage decisions and offer cashless hospitalization services, reducing administrative
costs for insurers. They are registered companies with specific capital requirements and
licenses valid for three years.
TPAs operate on a commission basis, with earnings capped by IRDA guidelines. They
collaborate with hospitals to ensure policyholders receive hospitalization services, with the
option for direct payment or reimbursement models. The role of TPAs could expand to include
policy documentation, legal services, medical examinations, and more, enhancing service
delivery in the insurance sector.
However, the increasing claims and complaints against TPAs are concerns for insurance
companies and regulators, indicating areas for improvement in this system.
As we conclude our discussion on insurance distribution channels, from traditional methods
to innovations like bancassurance, we'll next discuss policy servicing and related topics,
continuing our exploration of the insurance industry.
Stay tuned for more learning.
© All Rights Reserved. This document has been authored byDr.Ruchi Jain and is permitted for use only within the course "Banking and
Insurance” delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data, illustrations, pictures,
scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying,
recording or otherwise – without the prior permission of the author.
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