With rising competition, customer retention is gaining weight in the design of insurers’ distribution strategies, shifting from customer acquisition which was the focus in previous years , says the stockbroking firm YES Securities (India) [YSL], a wholly owned subsidiary of YES Bank.
The traditional channels of agency, bancassurance and brokers are being upgraded through various efforts in line with the new focus, says the stockbroking firm in a recent report on the Indian life sector.
Bancassurance: open architecture hits growth
Bancassurance dominates the distribution of insurance products by private insurers with shares of 50%+ for most listed players. However, in the recent past, banks adopted an open architecture in which a bank can sell the insurance products of up to nine insurers.
Incrementally, banks are adopting this architecture to offer their customers a variety of products. This has resulted in stiff competition in this channel. Hence, insurers are keen to reduce their share of business from the bancassurance channel.
Considering the savings inclination of bank customers, the bancassurance channel sees almost a three-fourth share of premiums generated from unit linked insurance products (ULIPs). However, such products are expected to see a slowdown in the next couple of years, which is reflective of the lower share of premiums from the bancassurance channel. While this bodes well for players without a banking partner, it poses a competitive threat to private players. While the costs involved with the channel are not particularly very high, the product mix (high ULIP share) restricts profitability in the segment.
Agency: focus on improving efficiency
The agency channel has been the bread and butter for state owned LIC. Private players, though, are now shifting their focus to the agency channel by various methods which include incentives, training, and facilitating the use of digital infrastructure among others. Bancassurance hitherto has been the key channel for private players.
Online: a nascent channel with huge growth potential
The online channel enjoys a demographic advantage in India where there is a high proportion of individuals below the age of 30. As per a report by Internet and Mobile Association of India (IAMAI), India has over 450m monthly active Internet users. Furthermore, the emergence and development of e-commerce platforms in the country has modified the customer experience in buying products and services. In the insurance sector, web aggregators (such as Policybazar) have played a vital role in educating customers about insurance by providing easy and fast access to information and research to customers.
The COVID-19 pandemic has also led to faster adoption of the online business models in the insurance industry, says YSL.
Developments such as the Internet of Things, bots, AI and blockchain technology are being explored to further enhance the online channel.
Currently, the share of online channel is small for most private players; but YSL expects a rapid increase in the use of the channel. In terms of profitability, while the cost involved in terms of opex and capex is higher, the bigger share of high-profit protection business via the online channel ensures higher than average profit from the channel.