Money & Banking

‘Insurance distribution costs should come down’

NS Vageesh | Updated on January 24, 2018

ANUJ AGARWAL, MD & CEO, Bajaj Allianz Life Insurance

Banks have very large databases and those should be utilised well: Bajaj Allianz Life MD

Bajaj Allianz Life Insurance, the fourth-largest private insurer in the country, grew its premium income 4 per cent last fiscal. Prima facie, that may seem rather flat. But given the loss of an important banking partner early in the year, and the difficult conditions in the life insurance industry, Anuj Agarwal, MD and CEO of the company, feels this performance was creditable.

He is hopeful that this fiscal will see a significant improvement with a more favourable regulatory environment. In this interview with BusinessLine, Agarwal gives his views on the new distribution architecture being debated in the industry. Edited excerpts:

What are your views on the changes in distribution architecture being proposed by IRDA?

They have been very positive over the last year, with guidelines on insurance marketing firms, on intermediaries and more recently on open architecture for banks. Banks have very large databases and those should be utilised well. That can happen only if the choice is given to the customer.

Look at the Jan Dhan Yojana. If the government wants to reach the masses, they use banks. So, is it not obvious that if you want to increase life insurance penetration, banks need to be utilised more? What has happened is that banks have become a lobbying group. All insurance companies are vying to tie up with banks and this pushes up costs. There is a scarcity of distribution models. Most of the tie-ups for India happen outside India. That is not good.

When the costs of distribution go up, who pays for it? It is the customer. So, if we want to provide good service to the customer that can happen only if you cut costs and do it through competition. That is what happened with the telecom revolution in our country. There was a time when we had to wait until 10 pm to make STD calls at cheap rates, whereas today any call costs just ₹1 a minute. That was unimaginable then. That will happen in life insurance, too. The cost of distribution should come down. It is important.

What about the sanctity of contract for foreign partners who invested in their joint ventures with some insurance companies and paid a premium on the understanding that they have an exclusive tie-up? How is it fair to them?

I can understand the point you are making. But the last time I heard this was when East India Company was made to buy all the cotton products from India and there was only one distributor through whom you could sell.

The moment you opened it to competition, it fell. I respect the contract. There is no point in arguing or avoiding it. At the same time, look at why insurance liberalisation was done?

In the year 2001, when IRDA opened up the sector, the new business done was ₹10,000 crore. In the year 2011, that rose to ₹1,30,000 crore. Last year, it fell to ₹1,10,000 crore. So, what are you trying to do? LIC had about five decades and the new business grew to ₹10,000 crore. In the last decade, that has grown 10-fold.

The next leap can come from opening up the insurance database and utilising the bank network. The value of their distribution network will actually go up when it is shared, and they distribute any company’s products.

Let me rephrase the question. If your parent Bajaj was asked to share its dealer network with other two-wheeler manufacturers because vehicle penetration needed to improve, would it agree?

It depends on what the objective of the country or company is. I do not know about vehicle penetration in India. I can talk about financial penetration. Take a mutual fund product.

A bank sells any MF’s products. Remember also that Bajaj created those dealers, whereas here you are asking for an existing network to be better utilised. If I have created a network, I would like them to sell my product.

However, if there is another group that is already existing with a bigger distribution (say a Big Bazaar), why not we sell through them also? That is important for the customer. Banks are the custodian of customers and they should offer the best products available in the market.

The moment you say that this is the only product you can buy, then you are not caring about the customer. The reason the IRDA brought the broker guidelines was only this — that the broker represents the customer whereas the agent represents the company. The question for the bank is whether it wants to be a broker or an agent.

You want it to be a broker….?

No. Whatever the regulator has decided should be accepted. In my view, the relationship with the customer should be owned by the bank.

Is the new draft on open architecture positive for the industry?

The earlier draft had made open architecture mandatory for banks. In the new draft, they are not making it mandatory. They are leaving it to the banks to decide whether they want to do it or not. It is a positive thing for banks but it is negative when seen from the point of view of the first draft.

There were just about four crore policies sold by the industry last year. See the gap when you compare it to the insurable population in India. We have come a long way on the back of providing accessibility. We should not cut down on that.

Published on June 16, 2015

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