OPPORTUNITIES AND CHALLENGES IN THE DISTRIBUTION CHANNELS OF INSURANCE SECTOR

Submitted to Amity University for the fulfillment of MBA (Insurance & Banking) in ASIBAS

FACULTY MENTOR:MR. B.R. SINGH AAST. PROFSR ASIBAS

SUBMITTED BY:ABHISHEK YADAV

Acknowledgment

It gives me immense pleasure to convey my sincere gratitude to prof. B,R SINGH who extended his full and invaluable support and encouragement in providing me with this excellent opportunity to learn through this highly informative project work. I would like to thank my faculty for his guidance and constant supervision as well as for providing necessary information regarding the project & also for his support in completing the project.

Abhishekyadav

Declaration

I hereby declare that the project work entitled OPPORTUNITIES AND CHALLENGES IN THE DISTRIBUTION CHANNELS OF INSURANCE SECTOR , submitted to the AMITY UNIVERSITY is a record of an original work done by me under the guidance of Faculty mentor, Mr. b.rsingh , AMITY UNIVERSITY, UTTAR PRADESH, and this project work has not performed the basis for the award of any Degree or diploma/ associate ship/ fellowship and similar project if any.

Table Of Contents SR. NO 1 2 PARTICULARS INTRODUCTION INSURANCE NEED 3 4 SECTOR PROFILE 8 INDUSTRY CLASSIFICATION 5 LITERATURE REVIEW 6 RESEARCH METHODOOGY 7 8 DATA ANALYSIS FINDING AND OBSERVATIONS 9 10 11 12 SUGGESTIONS CONCLUSION BIBLIOGRAPHY ANNEXURE 35 36 37 38 21 34 17 16 10 PAGE NO. 4 7

INTRODUCTION

Insurance can be defined as protection against the unfortunate consequences of future events, by transferring the possible risk of loss from a person or organization (i.e. insured) to the insurer. In order to enjoy the benefits of insurance, the insured pays a certain sum amount of money to the insurer which is known as premium (i.e. cost of insurance cover). The event or accident, which may cause a loss is called a peril. The business of insurance gives an assurance that the benefit will be protected. This assurance is given only if the peril is likely, but not certain. If its occurrence was known to be certain, insurance would not have been possible. Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided, through better safety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. Only economic or financial loss can be compensated through insurance. The concept of insurance can be understood as that of risk pooling. For example: certain coastal areas are likely to face severe floods or typhoons. People staying in those areas are all exposed to the same risk of being affected by the damages caused by these storms. All of them will made members of a pool by the insurance companies with the understanding that if anyone of them suffers damage, all in the pool would contribute and share the damage. The insurance company only acts as an intermediary to bring together members of a community all of whom are likely to experience the same adversity and make them share the adversity which may be experienced by any one of them. The arrangement reduces the suffering of one, by distributing the same among many. An increasing number of insurers are using multiple distribution channels as they continue to balance the needs of different groups of consumers against the cost of distributing their products and services. When it comes to insurance distribution channels, one size does not necessarily fit all.

Appended below are the various distribution channels:

Insurance Agents Trade Specific Agents (TSAs) Insurance Brokers Bancassurance Online Internet Portals Direct Marketing Cell phones /pda Worksite marketing Digital tv/satellite selling Supermarkets and other retail outlets Affinity channels and groups Insurance specific debit and credit cards Call centers

Insurance Agents An insurance agent is defined under the Insurance Act (Cap. 142) as a person who is or has been carrying on insurance business in Singapore as a registered agent for one or more insurers, and includes an agent of a foreign insurer carrying on insurance business in Singapore under a foreign insurer scheme under Part IIA of the Act. Individual agents or corporate agencies can employ nominee agents to assist them in their business transactions. For the purpose of registration with the ARB as an insurance agent pursuant to the mandatory requirements of the Notice No: MAS 211, an applicant may be classified under any one of the following:

Individual agents Corporate agents; i.e. sole proprietorship/partnership company registered with the Account and Corporate Regulatory Authority, society/cooperative society registered with the Registrar of Societies; and Trade Specific Agents

All the above-mentioned entities may appoint nominee agents, including individual agents. Trade Specific Agents (TSAs)
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TSAs are engaged in a business of which insurance is not their core business, and usually sell only one type of insurance product (e.g. travel agents selling travel insurance) in the course of their other business activities. The list of Trade Specific Agent types are as follows:

Freight Forwarders Foreign Domestic Worker Agencies Foreign Worker Agencies Motor Dealers Travel Agents Electrical Protection Sellers

The General Insurance Agents Registration Regulations (GIARR) specify that a person (individual or entity) shall not arrange, or hold himself out as entitled to arrange, a contract of insurance as an agent for an insurer, unless and until he has:

Been duly registered with the ARB of the GIA (the registered agent being classified as either a "Cash Agent" or "Credit Agent"), and is issued with a Certificate of Registration by the ARB; and Entered into an agency agreement in writing with his principal (the insurer that he is representing).

Before commencing and representing any insurers in selling insurance, all general insurance agents and Trade Specific Agents (TSAs) must register with the Agents Registration Board (ARB) of the General Insurance Association of Singapore (GIA) through their principal insurers. The ARB will issue each of them with a unique GIA nominee number. Consumers can authenticate and confirm if an agent is registered with the ARB and is authorised to transact general insurance business with the insurer by verifying the agents details in the agent search module on the GIA website at https://www.arcm.com.sg/arcmv2/App/UI/Common/SearchAgentInfor.aspx?strApplicati onType=SearchNominee All general insurance agents are required to comply with the following:

General Insurance Agents Registration Regulations Fit and Proper Criteria The Code of Practice for Agents; and Continuous Professional Development (CPD) Requirements, except for Trade Specific Agents.

Under the Code of Practice for Agents, an agent shall not enter into any agreement or arrangement whatsoever for the appointment or engagement of any sub-agent.
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Insurance Brokers They are registered under the Insurance Act (Cap. 142) to carry on insurance business as agents of insureds or intending insureds. They advise individual or corporate buyers of insurance on their insurance needs. They act on their clients' behalf to negotiate and obtain the most appropriate insurance covers at competitive premium rates from their insurers, exercising care and skill in doing so. Currently, insurance brokers in Singapore are generally classified under the following categories:

Direct insurance brokers General reinsurance brokers placement of reinsurance risks for general insurers; and Life reinsurance brokers placement of reinsurance risks for life insurers.

Reinsurance brokers negotiate reinsurance contracts between the ceding insurers and reinsurers. They generally represent the ceding insurers for placing the reinsurance business and perform other necessary services. A list of the insurance brokers licensed by MAS is available on the MAS website at http://www.mas.gov.sg/fi_directory/index.html Unlike an agent, a broker is free to place the clients insurance business with any number of insurers. His duty is to provide independent expert advice on a wide range of insurance matters to the client. These include identifying the best type of cover to meet the cl ients insurance needs, and providing assistance when an insured makes a claim. The broker has to exercise due care and diligence in understanding and satisfying the insurance requirements of the client, and take all reasonable steps to act fairly in the interests of the client. Although insurance buyers (i.e. ordinary retail consumers) may deal with insurers directly, the vast majority of commercial businesses (i.e. insurance covers bought by companies) are usually transacted through registered brokers. The complexity of many commercial risks and large premiums involved often render a brokers services invaluable to the insured. As required under the Insurance Act (Cap. 142), an insurance broking company must have in force a Professional Indemnity Insurance Policy.

Bancassurance Banks, including finance companies, with their huge database of customers, sell insurance through a network of branches. Almost all of the local banks in Singapore own or have partnership agreements with insurance companies. Bancassurance is the term used to describe the partnership or relationship between a bank and an insurance company, whereby the insurance company uses the bank sales channel in order to sell insurance products, most of which are personal lines. Bank staff members, rather than insurance agents, become the point of sales or point of contact for customers. Bank staff members are advised and supported by the insurance companies through product information, marketing campaigns and sales training. They are also required to pass the relevant licensing examinations before they can sell insurance or provide insurance-related advice. Banks also make use of their websites to sell personal lines products, such as Card Protection Insurance, Household Insurance, Private Motor Car Insurance and Travel Insurance. Some banks even offer travel insurance products through their ATM networks. Online Internet Portals Company Portals The growth of information on the Internet has also increased the amount of time people spend on it. This has in turn generated a new market for online offering of insurance products. In recent years, Singapore has seen the entry of direct-to-consumer insurance companies selling individual motor, travel, home and accident insurance. Its business model entails direct underwriting via an online platform, supported by a fully staffed contract centre (operating 24 hours every day of the week) and a full-fledged claims department. In Singapore, online insurance selling is limited mostly to personal lines products covering home, motor, golf, travel, card protection, personal accident, hospital income and even domestic maid packages. General insurers involved will sell these individual products through their own informative websites, which can provide for quotations and accessibility to web brochures, proposal forms and policy wording. Independent Portals

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Apart from the individual companys portals, there are also independent po rtals. These are deemed "passive" in nature, i.e. they are clearly not involved in any sales distribution functions, and need not register with the ARB of the GIA. Passive portals are not involved in any sales distribution functions, namely:

They do not provide sales or product advice, but provide static product information of the respective insurers without comments on product features, including premiums not being deemed as providing product advice; They are not involved in the collection of premiums and proposals; They do not issue policy documents on behalf of insurers;. The fees must not be based on the premiums.

Note: The remuneration fee for such online transactions must not in any way be tied to the premiums of the products being sold. If a fee based on premiums is paid, this will be deemed as sales commission and will be seen as being involved in the sales distribution process. Portals not meeting the above-mentioned criteria will be deemed as insurance intermediaries by MAS. Such portals have to be registered with the ARB as agents, or licensed as brokers by MAS. Direct Marketing Rapid technological advancements have changed the way in which individual insurance companies can now serve their customers. At the same time, new technology has allowed for more information on individual policyholders, which enables their buying habits to be stored in the IT systems of direct insurers. The build-up of such databases over the years is a useful marketing tool to harness the power of information technology by the insurers. They can then execute segment marketing to focus on customised products for niche target groups. Insurers have directly marketed personal lines, such as Personal Accident Insurance, Travel Insurance, Private Motor Insurance, Household Insurance, Hospital Income Insurance, Golfers Insurance and even Domestic Maid Package Insurance, through their informative websites. Intending insureds self-declare their pertinent information in the simplified online proposal forms. Insurance product quotations and policy wording are made available online. Payment of premiums is instant, made easy through online payment via credit cards. Insurers also periodically send out promotional product brochures (direct mailers) to existing policyholders without servicing agents. Telemarketers from call centres owned or appointed by insurers also phone customers to advise and market personal lines, as
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well as help to file claims. Insurers also embark on cross-selling strategies to serve the needs of their customers.

OVERVIEW OF DISTRIBUTION CHANNELS:-

Distribution channel is the chain of businesses or intermediaries through which a good or service passess until it reaches the end consumers .the distribution channel can include a whole seller ,retailers,distributors and even the internet . channels are broken into direct and indirect forms ,with adirect channels allowing the consumers to buy the goods and services from the company and an indirect channels allowing the customer to buy the goods/services from an intermediary .direct channels are considered shorter than indirect ones. Traditionally ,tied agents have been the primary channels for insurance distribution in the Indian markets . The public sector insurance companies have their branches in almost all part of the country nd have attracted local peoples to become their agents .The agents are from various segments of the society and collectively cover the entire spectrum of society .the profile of the people who acted as agents suggests they may not have been sufficiently knowledgeable about the different products offered and may not have sold the best possible product to the client . however ,the customer trusted the agents and company . this arrangement worked adequately in the absence of competition . agents continue to dominate as the prime channel for insurance distribution in india . the other distribution channels adopted by the insurers in india are:Corporate agents ,bancassurance ,brokers ,microinsurance ,worksite marketing ,direct internet marketing ,telcassurance , shopassrurance . almost all the new players follow the agency channel .the belief that all these channels will grow and seamlessly integrate to bring in business seems a fallacy .though new players are coming in and global marketing practices and ideas are being tested . Why channels ? Insurance is never bought and needs to be sold ,is a cliche often heard . but atrue one and hence ,the need for the distribution channel .even if the products are loaded with features to suit the market very competitively priced abd followed by outstanding post sales service ,without an efficient distribution channel .who directly deals with the market is not possible .
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The reasons for occupying the pride in te marketing plan of an insurance company ,charaterised traits of an efficient channels partner : 1. Someone who the prospect/customer trusts 2. Someone who is knowledgable 3. Someone who believes in the supremacy of the prospects/customers . Before the indian insurance market opened to the private players ,essentially the development officers employees of the public sector insurance companies were the key [marketing persons ,reaching out to the market .but the products and pricing were almost similar for all state owned insurers and a customer had no choice .the reach to the market of such a plan is restricted and the cost is very high ,particularly under the current detarrif pricing ,however such employees marketing personnel is effective probably in a niche segment . The need of the intermediaries arises out of the very nature of the general insurance product 1. Intangible 2. Complex wordings 3. Legal document

Distribution channels function as arteries in a marketing network that delivers goods and services to consumers .today distribution is increasingly seen as one of the key marketing variables ,capable of providing significant competitive advantage ,particularly in te service sector where consumer,technological ,and regulatory trends have increased competitive pressures markedly. The new era of insurance development in india has seen the entry of innovative products ,distribution channels and the raising of supervison standards ,intensified competition ,rising agent costs and product transformation have driven insurers to seek more efficient more efficient approaches to operate in the market .

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Review of literature

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REVIEW OF LITERATURE : A. The choice of channels is ultimately a fuction of two issues what the insurer wants and expects to achieve through the channel and how much it is prepared to expend for the purpose .typically in the marketing literature ,this has been examined with the regard of 4 parameters that have been critical in assessing the efficacy of the channel :

1. Cost by cost ,we mean the extent of financial resources and time that has to be expended on a given channel .A channel would be considered cost effective if it could reach a larger number of people speedily with least experience .the traditional approach to selling insurance to selling life insurance in india was through the commission agent it still remains the predominant channel as far as LIC of India is concerned .with the entry of other new players focus shifted to other channels .in particular the bank channel ,with its wide reach to customer of the bank ,has been seen to be a preferred alternative to the agency channel.

2. CONTROL It refers to the extent of influence ,which the life insurer would be able to wield on the channel. When an insurer uses an independent intermediary ,like a broker or an institiution like a bank ,to sell its products ,it bears a risk that the customers loyality would be to the intermediary rather than the insurer .again ,the employees and managers of a bank or other financial institution may have other priorities and targets and may not be amendable to doing what the life insurer wants .it is obviously rather difficult to develop a marketing strategy which is solely or largely dependent on the performance of another institution . 3. COMPLEXITY :- complexity can arise in two ways .firstly, there is the difficulty in understanding what the product is and does ,what the charges are ,and how it compares vis- a-vis others .secondly,the customer has to be convinced about how the product would actually match with his or her needs and what value outcome it would result into .the more the complex and intricate the product ,the more it would call for professional consultative selling and financial advice .

4. Customer outcome The final clincher on marketing channel decisions is provided by the customer outcomes that the life insurer seeks to achieve through
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their deployment .there are two issues that are to be resolved here (a).what is the nature of relation ,which the company wishes to establish with its customers and secondly ,what is the role that it envisaged for the channel in this regard . This also depends on the type of customer the company has targeted .

SOURCE. :-IRDA JOURNALS

B. STATE OF DISTRIBUTION CHANNELS IN INDIA :Insurance industry in india is no longer the sole domain of agent advisors .insurers are using all the distribution channels to improve their premium income and market share . Bank promoted insurance companies are naturally using bancassurance as the most preffred distribution channel. Other insurers are using tied agency force the most followed by alternate channels like bancassurance ,brokers,direct marketing and referrals ,insurers are hardly having any channel specific product ,i.e they al are using possible channels to send all their products . all said and done ,their 79% business comes from tied agency channels . Whatever progress this industry has been able to make so far ,owes a lot to the brand value of LIC .people of all customer segment have a reasonable trust on this orgnisation .This trust has been built not just because of efficiency and integrity shown by its employees ,but also because of a section of agents ,by way of providing great services to the customers and also by maintaining a harmonious relationship with the customers .These full time agents worked patiently and diligently for years ,before reaching a position of eminence .In insurance salesmanship one cannot become famous overnight like rocket singh .Here ,selling based on needs.and then post sales servicing .

C. INDEPENDENT DISTRIBUTION CHANNELS :Independent distribution is the leading sales channel for many core industry products. Today it accounts for more than half of the life insurance written and two-thirds of annuity business written. In the independent realm, advisors are actively screening carrier partners, while independent distribution networks (IMOs and BGAs, for example) have become central to distribution strategy.
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The independent distribution networks now play a critical role in the competition for sales talent and market share and today more independent advisors prefer to place their business through an intermediary as opposed to placing it directly with a carrier. With much of the business now written through independent channels, and with industry consolidation creating large mega-distributors and distribution networks, these organizations now have significant leverage among manufacturers. In an effort to differentiate themselves, these independent organizations have gone beyond the traditional mix of servicesto providing other value-added support such as advanced marketing attorneys and marketing services. Further, these independent distribution networks will seek new sources of revenue, which likely will lead them to expand into new markets, offer new services, or tap into new sales channels. Carriers must decide what value proposition, beyond product, they will provide to these organizations in order to have a seat at the table. These trends raise the question of how far carriers need to go in providing services to these increasingly vertically integrated marketing organizations. As supported in LIMRAs 2012 Turning Point research, for both the independent organizations and the carriers, key to their future success will be having a clear strategy for differentiation and executing it well.

http://www.soa.org/News-and-Publications/Newsletters/NewsDirect/2013/may/TheChanging-Face-of-Distribution--Recent-Developments-in-Face-to-Face-Distribution-ofInsurance-and-Other-Financial-Services-Products.aspx.

D. MULTI DISRIBUTION CHANNELS :The Indian life insurance sector is evolving and growing substantially and is one of the key drivers of Indias economy. The Indian insurance sector is moving rapidly towards international standards with new and innovative product offerings. With rising income levels, customers are demanding more sophisticated risk solutions. Life insurance was once purchased primarily as a tax-saving tool. A paradigm shift in regulation led to more customized solutions. The number of insurance holders has more than doubled to 5.32 crore policy holders in five years to 2010, with the total life insurance premium tripling to Rs 2.65 trillion during the same period. have a deep, actionable and detailed analysis of the end users or target segments, so the distribution channel can be set up to reach the segment effectively. Inefficient customer segmentatio n and targeting actually ends up
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delivering less value to the customer and hence to the insurance company also. This whitepape r explores the need to develop an effective multi-channel distribution strategy that meets customer demands and delivers differentiating customer experience. Emerging Trends In the last few years we have seen unprecedented growth in the choice of channels that customers can use to interact with the business. Insurers are now adopting a multi-channel distribution The Indian customer is offered innovative solutions that combine strateg y protection and long-ter m wealth creation. Improved services , demographics of insurance buyers, Insurance companies are also sound advice and innovative products are provided through a using multiple types of distribution systems. Based on the needs range of distribution channels such as banks, agents, direct offices and status of target customer segment distribution systems are and online platforms. The emergence of a more diversified and chosen. A combination of all or most of the following distribution multichannel distribution network has revolutionized the insurance channels make it a multi-channel strategy: sector, with increased access and better service to customers. Broker to drive operationa l efficienc y. With changin g Individu al Agents Apart from the conventional ways of marketing an insurance policy, which include brokers, agents, kiosks, worksite marketing and direct marketing, insurance companies now explore new avenues Corporate Agents Micro -Insurance Bancassurance Cell Phone/PDA of innovative and attractive range of distribution techniques that Kiosks can be exploited to their advantage. Today, an insurance company Internet leverages multiple channels for distributing its services to target Ecommerce customer segments. Work Site Marketing Direct Marketing Internet Distribution channels not only affect the top line and bottom line of a company but also raise concerns on the cost management of the firm. In this fluid environment, an insurance company needs to Digital TV/Satellite Selling Supermarkets and other retail outlets Affinity Channels and Groups Insurance specific debit/credit cards Call Centers 3

http://www.slideshare.net/NIITTechnologies/multi-channel-distribution-ininsurance?from_search=5

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E. FUTURE CHALLENGES :Effective analysis of distribution channel effectiveness requires assessment, solutions design, implementation and performance monitoring. Determine whether the problem or opportunity is at the agent or management level. If it is at the agent level, then look at compensation and market alignment and training; if it is at the management level, look at performance measurement and expectations. Depending on the assessment, solutions appropriate for the problem or opportunity must be structured. This may mean redesigning compensation, refining agent selection methods, identifying markets and matching agents to those markets, and/or improving sales, or product training. At the organisation level, the solution may mean redefining agents jobs, or organising appropriate branch-level support structures for sale administration. Finally, once a solution is devised, the company must implement changes and develop new measurement tools to monitor the ongoing performance of the sales force and to identify future potential problems. http://www.langmead.com/insurance/Q107/10096feature3.htm

F. INSURANCE TREND:The main distribution channels in lifeinsurance are the traditional individualagency channel, corporate agency (banksand others), broking channel and direct selling (which includes online selling). From an industry perspective, it is an agency-dominated business with 90% of the total premium being sourced from the agency channel. This trend is primarily a result of LICs agency dominated (at 98% of business) business model. Private sector insurers have a more balanced channel distribution, with agencies contributing 47%, banks contributing 33%, corporate agents 9%, brokers 5% and direct sales 6%.

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OBJECTIVE AND SCOPE OF STUDY

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3. OBJECTIVE OF THE STUDY : a. To study all the distribution channels available. b. To examine opportunities and challenges faced by the various distribution channels.

4. SCOPE OF THE STUDY : a. The members of various distribution channels are able to study their future challenges and opportunities . b. Distribution channels are able to service their customer more efficiently.

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DETAILED ANAYLYSIS OF
DISTRIBUTIONCHANNELS

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1. AGENTS:
An insurance agents plays a role of a communicator ,counsellor and facilitator ,for insurance products available in the market . An agent is one which has entered into an agreement with a particulars insurance company to sell only that companys product for a particular insurance company ,an agent dedicates his time an services to enhance the profitability of a particular insurance company .the role of an is also vital , as they are, for the reputation of the company are responsible for the work and they also have their obligations to their customers . The agents are from various segments of the society .a person who has lived in locality from many years ,sells the product of the insurance company with a local branch .this ensures the last mile touchpoint being closer to the customer . An Agent is the only point of contact between customer and insurance and is expected to be fair and ethical while selling a policy . in terms of coverage ,individual agents have their limitation according to their skill ,experience and productivity .in the present scenario ,lack of adequate knowledge of the competitive comparison with the competitors product has posed challenges to an agent growth and covera ge .due to inadequate of the products agents sometimes mis-sell insurance products to sustain themselves. But in handling the product complexity and control ,an efficient agent scores over the other distribution channels .in case of any complex product ,agents who usually have any one relationships with their respective clients often efficiently dedicate their .as agents are dedicated to one insurer they can be properly be managed and trained . Agents are affected by social function in the market is the considerable respect for age in Indian society and the belief that an elderly person who knows better. a very young market by means of which they may not be able to buy insurance to a large segment of the middle class that appeal to a solid trustworthy looking person,.

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 Agency distribution model plays important role as it maintains good relationship with the customers ,by providing pre-sales and post sales services to customers .it is an atrctive model as it is cost effective and helps to convince the customer to buy insurance covers with personal attention .however the agency distribution model needs to update with the latest technology .nowadays ,insurance companies finding difficult to manage and retain the skilled agents . In the Indian context :- to cater the market insurers are also recruiting some retired government employees (VRS from banks ) to sell some lines of product such as pension plans ,annuities etc. Gender of agents also plays an important role specially in rural context that makes difference ,especially for the female population .womwn to whom the customer can relate eg nurses ,gram sevikaas can target the female segment more effectively .some companies have also adopted a version of this strategy by appointing gram sahayaks to sell and service the rural customers .

The corporate agency channels which is the key distribution channels for insurance company is now getting out of favor of life insurers .This distribution channel is loosing out preference due to stringent licensing norms and new persistency guidelines . Insurance company has to develop an alternative channel, who can replace corporate agents not completely at least partially .

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2.

DIRECT SELLING : Direct selling occurs when insurance company insurance company directly connects with their prospective or actual client .This can be done through different modes using a direct sales force ,catalogs ,website ,email ,direct mail ,telemarketing ,seminars ,trade shows and other one-to one techniques, to communicate and sell to their customers and clients .however in india sales through internet,phone or mail are not significant in india . With the growing popularity of internet in the Indian household the popularity of this distribution channel is consistently rising .direct selling through direct marketing staff of insurance has contributed to about 23.80% in the total number of policies sold in 2011-2012. The internet makes direct marketing more easier ,more targeted ,more flexible more responsive ,more affordable and potentially more profitable than ever. The ability to reduce the transaction cost of interaction between buyers and sellers ,has always been ackowleged as a central motivation for the use of web . Due to cost advantage , insurance companies may provide a price differential to their direct customers. This distribution channel has advantage over cost and contol over other channels. Direct marketing creates face to face communication ,builds cordial relationship between insurer and insured . Internet facility has helped to make an interactive system can make it possible for likely customers to feed in basic information about quotations from different companies ,before they make choices. But, considering product complexity it may turn out as a worst performing channel as for a complex understanding trust may be build up only via one to one correspondence . However in india mobile phone ,internet ,news papersetc . still have a low coverage on a pan India basis due to their inassesibilty as well as unawareness and distrust for virtual media to the common people in india .

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CHALLENGES IN ONLINE DISTRIBUTION :1. product innovation: Since the products bare sold through traditional channel not blend well online too, it becomes that companies innovate and design specific products for sales. This again involves a cost companies may find it a bigger to invest in product innovation. products that can be clearly by the potential customer on visit to website is the need of the hour. It is observed that the complexity of the product many a times has been a major hurdle in converting a potential sale into actual one. 2. Transparency: The pricing of the product on this channel would be more transparent than those in the traditional channels. The companies therefore, must always keep their prices competitive and updated to the market changes and requirements. 3. Security: As more and more transactions take place online, one of the important concerns that customers would face would be the security of their personal data. The companies would require to make investments in ensuring the data security and keep upgrading the same from time to time. The customers would expect robust and sturdy online transaction safety architectures for the security of their transactions. Since this involves a cost to the companies, they would weigh it against the present and expected sales. This may result in loss of potential customers on account of insufficient data security. 4. Positioning/segmentation: Normally, it is expected that the younger population and those owning a mobile phone or having an internet connection would be appropriate segment for selling insurance through direct mode. However, one must recall that those who aspire to own a mobile and those who have remote access to internet also can be the segment that can be targeted by companies. Rural segments which are very price sensitive and have problems of inaccessibility can be marketed insurance through this channel. The online model proffers such individuals the twin reward of cost saving Even if they dont own an internet access, they can well be made aware of the nearest center where they can be provided access. and convenience. Even if they dont own an internet access, they can well be made aware of the nearest center where they can be provided access; the positioning however should be price advantage that they would derive. Online channel must be positioned as easy, safe and affordable. Train specific people to

propagate and utilize the online mode, who can assist those who are not comfortable using the system on their own. This would bring in a culture of online usage over a period of time.
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5. Pricing: Since there would be no commission involved in direct sales, there would be an expectation among the customers that the benefit would be passed on to them. Moreover, price comparisons become quicker and faster and the companies need to keep it at par with the market standards lest they lose out on the customers. The pricing must also be simple for the customer to understand. Virtual Interaction: Among others, one reason as to why agents are the most preferred channel in India is because there is a personalized interaction and one to one relationship that is created between the insured and the agent. This does not exist through online mode; with the advancement of technology, a virtual interaction can be created which would be more personalized and a call center that would be readily available to assist the customer in case of any queries in the process, may create additional demand for this channel. This would enable and convert the entire exercise of buying an insurance product wholesome and fulfilling to the customer.

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Brokers:brokers are not tied to any one insurer and are facilated to present as many options as possible to clients brokers have unique advantages as they can combine the life ,non-life and health insurance requirements of a client .the positives are that the broker in the urban arena can do well with the elite and upper middle class customer .this feature allows brokers to work with relatively smaller companies in a cost effective manner as individual insurers and agents would not have the same in serving the small clients . A broker can also look across all related companies to pick the right option as bin that brokers are constantly exposed to people and product offerings of different companies .brokers also update themselves via training programmes conducted by different companies for proper understanding of market and developments . Brokers are influenced by the bargaining power of companies and can have a bias approach towards a particular company . In vast majority of cases , abroker compensation comes in the form of a commission as a percentage of the insurance premium creating a conflict of interest in that brokers fianancial interest is titled towards encouraging an insured to purchase more insurance than required at a higher price.

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Challenges: Insurance brokers need to continue upping the ante to set yourself apart from the competition and the increasing tendency of the players directly in the course of the many changes in the industry in recent years .

meet the needs of their customers in the current consumer -oriented environment focused on compliance. It requires specific skills , transparency and professional advice , the back - bending pressure on brokers separation value added operations of those whose service accesses is set too short.

expected to grow as consumers seek to continue a better price options . To counteract this, will need brokers to prove their worth and avoid the bad press to produce direct insurer for them to stay in business and grow their market share.

-to -face interaction and more about convenience and advice. It is necessary for brokers to to improve their technology and computer skills information not only about the products but also to manage their customer relationships. Consumers are easier, faster and more effective Search Help amending Directives and communication

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Worksite Marketing Work site marketing is an innovative channel to distribute insurance products at work places. This channel is not in practice in India. But it is already popular in US, UK, Australia, Netherland and South Africa. Work site marketing works with the mutual understanding of insurers and employers. The co-operation of employer is essential for the success of worksite marketing. Of course, worksite marketing is a complex process. It involves the process that begins with educating the individual employees on the insurance products, then selling and administering those products. The main product is pension, and in addition Health care products, Risk cover simple products and General0020insurance products can also be sold. There is a huge growth potential for worksite marketing in India. There are many employees working in factories, companies and other departments with uncovered or underserved insurance. Pension plans and other risk cover plans can be sold with the co-operation of employers. Generally, premiums are paid through the employer by salary deduction method. Regulators and the insurance companies in India should plan for adopting worksite marketing as a distribution channel. In South Africa, worksite marketing is largely driven by trade unions and in Australia, there is an obligation on the part of employers to provide retirement benefits to his or her employees, which is made to boost work site marketing. Therefore, it can be said that work site marketing is a win- win model. It is advantageous to employees, employers and insurers. Benefits to employers: Helps to attract better employees by offering greater fringe benefits Reduces staff turnover Improves productivity Creates long term goodwill Cost effective Benefits to employees: Supplements existing fringe benefits Convenient, pay roll deductions Enjoy group discount rates Risk coverage can be extended to spouse and children Greater financial security

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Benefits to insurers: Promotes insurance business Profitable as the chances of lapsation of policies becomes very less brings platform to provide better services to employees and customers attracts new customers

BANCASSURANCE :Bancassurance broadly refers to the collaboration between banks and insurers,to distribute insurance products to the same clientele or same client base.bancassurance is sen as an emerging and important distribution channel globally and has risen in a relatively short time due to its benefits over other channel ,in terms of operational cost and effectiveness due to wide consumer network . The success of banca as a distribution model very much depends upon the degree of integrity .distribution agreements are merely associated with distributing an insurance product .while joint ventures mutually share their product as well as customer .need for clarity on the operational activity of the banc assurance i ie, who will do the branding, if the insurance company pulls to put a person in the branch bank or the bank branch train and put one of their own etc. should be carefully defined besides this in case of direct compensation to conventional banking products ,banks Staff may sell insurance products resistant to. most large retail banks build a great deal of trust with broad segments of consumers.

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Challenges of Bancassurance: The disadvantages associated with bancassurance are as follows: Economic viability of banks since bancassurance is a volume based business Training people and the lack of vision and awareness Useful for certain lines of products Not suitable for non-life insurance Initial investment in systems and processes and people in training India being one of the most populous countries in the world with a huge potential for insurance companies ,has an envious chain of bank branches as the lifeline of its financial system .banks with over 65000 branches and 65% of household investment are the backbone of the Indian financial market

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BANCASSURANCE o The main reason may be the complementary nature of life insurance and banking products. Bank employees are already familiar with financial products and quickly adapt to the sale of insurance -based savings or pension products .

On the other hand , the non-life market requires special management and sales skills that are not widely used in the bancassurance necessarily . In addition , such skills require significant investment in training and motivation , and therefore additional costs.

Life insurance products are generally long -term products that customers need to ensure full confidence in the institution that invests their money and , as we know , the banks have a better picture and more confidence than the insurance companies.

Bank Consultant Can use knowledge about their customers to target their finances advice on specific needs. This is a great advantage in life insurance and less important in Personal insurance .

Some professionals in the claims management aspect of personal insurance , which could have a negative impact on the brand image , referred to. This seems to explain why for a long time hesitated bancassurance operators , this type of product .

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Benefits to the insurance company : Basic advantage through bancassurance , the insurance company significantly expanded its customer base and provides access to customers that were previously difficult to achieve , and even enough to convince an insurance company to ally with a bank; The insurance company to make its distribution methods and procedures has varied to avoid over- dependence on a single network. Diversification reduces the risk ; The insurance company often benefits from the trusted and reliable picture , people are more likely attributable to banks ; The insurance company also benefits from the reduction in selling expenses in relation to the cost , which is usually the same for banking products and insurance products. In traditional sales representatives, because the distribution network is This means that the products are sold for less .

Advantages for the bank: First, a bank sees bancassurance as an opportunity to create a new stream of income and diversification of business activities. Since 1990 , a period which , it is through increased competition between financial institutions and reduction in the profit of the banks to find the margins that drives the need for new business look .

The bank becomes a kind of "supermarket" or " one-stop - shop" for financial services, in which all customer needs - whether financial or insurance -related - can be met . The broadening of the product range makes the bank more attractive and can strengthen customer satisfaction and customer loyalty.

Distribution costs can be seen as marginal because , in most cases, it is the bank's existing employees who sell insurance products . Among other things, the one-stop - shop model optimizes the use of the network and increases the profitability of the existing store network .

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Benefits for the consumer: As mentioned in the benefits for the bank , the consumer enjoys better access to all financial services from a bank that offers both banking and insurance products :

Since the distribution costs are lower than in a traditional distribution network of consumers can generally cheaper than insurance products through traditional channels . In addition, premium payment methods Club Fanned because premiums are collected directly from the bank account .

The special relationship between the customer and the bank means that it provided a better match between the wha the needs of customers and solutior of the Bank.

Benefits for legislators : The role of the regulatory authorities or the government itself, to make laws to ensure that the risks are taken by the financial institutions of the country and actively managed in a way to keep public finances sound controlled. However, events may occur that are beyond the control of individual and national managers that can affect the entire financial system. These risks going under the name of " systemic risk " .

For financial institutions Bancassurance can be a means to limit such system. : risk , because it is the Bank diversified sources of income , so that the business stable and thus safer for its customers . On the other hand, certain authorities may think that the deregulation of financial systems in order to increase surplus to systemic risks of a country. That is why in many countries , banks are still not

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Opportunities:: ChallenQes in the distribution of insurance Mirco Droducts : As is the case with another insurance product in Micro- insurance , there are major challenges that are seen in the development and distribution of such Mikroversicherungsproduktezu :

a) Infrastructure: Due to the nature of the low premium products, it can not physically be viable for the insurance company have their own offices to cater to this population in rural India . As such, an alternative distribution mechanism that has a long- term prospective and controlled well adjusted systems and procedures Manage premium collection and maintenance is required.

b ) Medical Network : Building a Medical Network in this area is another challenge , which then restricts the development of certain types of products that the rural population , which could require medical examination may be offered either before or Transmission output .

c ) Manpower : The quality of the workforce in rural India is little knowledge and experience of the sales of these products. Second, the rural markets are not a preferred location for the employment of the youth of today .

d ) Technology: This is another limiting factor , and a challenge in maintenance. The technology factor is a huge obstacle in the remote control for the underwriting and pressure of policy documents.

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e) Actuarial restriction : Lack of accuracy of mortality data available and the accuracy of lapsation data is another major challenge in this segment.

f) Awareness: Low awareness of life insurance itself and specifically its products ( the term and duration of the return premium) is a major challenge in the segment. Low literacy rate to mislead products or distribution channels (multi -level marketing , where people have lost money ) have created a negative feeling towards such products.

g) Fraud Management : misselling of products and in the absence of structural collecting mechanism , misappropriation of premium collection is another challenge that confronts the insurance company.

h) Training: Logistical obstacles in the implementation of training program in rural areas and especially in the local language , is another challenge that needs to be done.

i) Product Design : With the kind of population in rural India , with seasonal / irregular income , the design of the products is a major challenge. The company must at least enable transaction costs , the factors that contribute to difficulties in controlling the moral dangers of reaching the minimum turnover Despite the limited data and skills for actuarial analysis of insurance and reinsurance. is a challenge. It's a win -win situation for everyone involved - the customer , the bank and the insurer in such a tie on .

a) for the customer : Easy, inexpensive, are customer-friendly products through the banking channel , the maintenance of the pre-sale , sale and after sale services rather than made . This is very convenient for the customers, especially in the rural market . b) For the Bank: An excellent opportunity for cross- selling or up-selling is very convenient for the customer loyalty and get a bigger pie of the wallet. It is also a great tool to not deserve - Interest income for the rural market where such options are very limited .
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C) For insurers : Helps to use the large branch network of the Bank , to dig deeper into rural pocket in the most cost effective manner and the use on the strength and brand value of the bank .

New emerging distribution models: Potential distribution channels 1.Direct Marketing Direct marketing in the past, especially in the form of direct mailing of banks, made to their account holders , marketing insurance products through their allied life insurance available. However, only the insurers were entitled to sell these products . As banks and brokers now allows life business to sell directly , these types of direct mail are likely to increase. Moreover, as the range of products available , the sales are contributed to expanding direct mailing likely to increase. At the same time , spending on advertising by insurers have also grown significantly , as insurers try to attract the attention of the public on a wide range of products and services , as well as educate them about the benefits of life insurance and in particular the protection type - Products .

Second E -commerce The Internet has not for the insurers a major source of distribution. The population of over one billion in India were estimated around 9.5 million people , be Internet users . Some life insurers have a site where the services are provided to mainly access to product information and rate quotes , etc. are restricted Nevertheless , premium payments can be made by credit card, internet, e - " design are made transfer, direct debit and bankers , and this should allow insurers to better develop an e- strategy.

3rd bancassurance Bancassurance will emerge as an important new way of distribution of insurance in India. " The Reserve Bank , in recognition of the symbiotic relationship between banking and
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insurance industry , has three ways of participation of the banks identified in the insurance business (i) providing fee-based insurance services without risk participation, ( ii ) investing in an insurance company for the provision of infrastructure and services support ( iii ) establishment of a separate joint venture company with Risk Insurance Participation. "

4. Networks and Decentralization Online insurance sales are growing. Online sales of insurance products continue to grow. Each year, more customers obtain quotes, for and even purchase, coverage over the Internet. A 2007 study by international strategy consultancy Celent predicts that by 2011 nearly 30 percent of auto insurance sales will take place on the Web. In 2007, Network/partnership models are flourishing. The opportunity to greatly expand the distribution channel and reach new customers through bancassurance is enormous. 5. Mobile phone technology: Access to high-speed networks remains unequally distributed around the world, although some emerging markets are leapfrogging over legacy infrastructure and moving straight into mobile and wireless technology. In South Africa, insurers are issuing microinsurance life policies to low-income customers whose premiums are attached to their cellular phone bills. Insurance customers in India may stay in touch with insurers through text messages that deliver policy information and updates to their phones. 6. Radio-frequency identification (RFID) Developments in tracking technologies offer a more accurate method of assessing and minimizing risks. RFID chips in automobiles serve as theft deterrents Of the population of over a billion in India around 95 lacs people were estimated to be Internet users. Some life insurers have a website. in which the services are provided, especially for the access to product information and rate quotes etc. limited16. Takaful Takaful is an Islamic insurance concept which is founded on Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law. The takaful industry is growing at a faster rate than the conventional insurance segment globally by 35 percent,
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and it is increasing in popularity in countries with a sizeable Muslim population such as Malaysia and This fast growing industry offers attractive and affordable products to consumers, while being religiously and culturally appropriate

21Shoppassurance (Multi-Company Service Centres) Another innovative distribution channel that could be used is the nonfinancial organizations. The Indian retaii market is the most fragmented in the world and at present, organized retail channel is around 3% of total retail business. But the organized sector is expected to grow at a rate of around 30% per annum. With this huge growth rate of the retail sector, it can become a viable distribution channel for life insurance products. In the life segment.group creditor insurance may be the most suitable product for this channel. However, repeat business or renewal business cannot be assured in this system. Scope of retail business in life insurance is limited as compared to non- life insurance. . 22. Selling Life Insurance through Pharmaceutical Agencies A simple tie up wth pharmaceutical agencies will help insurers to tap the huge potential market at a very low cost. Pharmaceutical agents can be utilized to sell life insurance products, through their well bulit network and contacts. The Indian pharmacy market is the most fragmented in the world and at present, organized pharmacy channel is around 6% of total retail pharmacy business. But the organized sector is expected to grow at a rate of around 25-35% per annum. This shows a huge growth rate of the retail pharmacy sector, which can be turned into a viable distribution channel for life insurance products. In the life segment, group creditor insurance may be the most suitable product for this channel. 23. Selling Life Insurance through Anganwadi Workers This channel will offer a great opportunity to the insurance companies, to meet their social responsibility as well as to secure a strong footing in the rural market. A total of 11.71 lakh anganwadi workers including workers of mini-AWC5 and 10.97 lakh AWHs workers are serving in rural India. The huge untapped market for insurance is the rural and social sector. 24 .Selling insurance through Electricity Department, Petroleum Gas Agencies, and Cable/DTH Operators Insurance companies can tie up with the electricity department, to provide protection against fire insurance, caused by electricity. A small monthly premium can be charged
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along with the electricity bill to cover for the fire insurance. Likewise, a tie up with petroleum gas agencies by insurers, with a collection of small monthly premiums, can provide protection against fire caused due to leakage of petroleum gas. Since these services are contractual in nature, they offer a good match for selling of insurance products. Cable and 0TH operators can be used for selling all insurance products. Discussion and Conclusion The insurance marketplace is undergoing a transformation that may finally lead to significant changes in how consumers purchase insurance products. With about 200 million middle class households, India shows a better potential for the insurance industry. A variety of distribution channels

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FINDINGS

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FINDINGS:-

1. Agents are the traditional channels of distribution ,they are having high level of control ,coverage ,complex product handling capability .on the other hand agents are having lack of depth of knowledge, experience and comparative skills regarding competitors product .

2. Agents are facing challenges as due to the presence of stringent licensing norms and persistence guidelines and also the commission to agents are very much limited . 3. Direct selling is a new channels having different modes of communicating with the customer it is more flexible ,targeted ,responsive, but it is not suitable in case of complex products as technicalities cannot be easily understood. 4. Direct selling channels are having problem of network connections as majority of areas are not having internet facility . 5. In india internet is not so common till date as to develop businesses with direct selling channels of distribution.

6. Brokers are the best channel from customers perspective as they help in getting the best suitable product out of all products offered by the companies . On the other hand brokers are influenced by the biasness towards one company.

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7. Brokers are the most cost-effective channel due to non-presence of large players in the industry .

8. Worksite marketing channels are very much suitable from employees point of view as there is also a huge opportunity of this channel in india .large chunk of customers can be targeted with the help of this channels .

9. Bancassurance model is very much required for the development of insurance sector in india as people are having trust in banks as a financial advisor. Banks are having the large amount of database with them .

10.Bancassurance requires change in mind of employees of banks in their approach ,thinking and work culture on the part of everybody .

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SUGGESTIONS

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Suggestions :-

1. Agents has to know which product will appeal to the customers ,with focusing on competitors product also . new companies are looking for the individuals with marketing skills . On the other hand agents are preferred because of the trust they create among their clients. Hence agents must have to develop a goodwill as to go further. Agents has to equipped themselves with the latest technologies as to compete with the other channels of the industry . New Agents must asked to have training under experienced agents so as their way of functioning is observed and special guidance can be given . 2. Insurers must focus on direct selling as in todays scenario with no time to spend on buying insurance products from other channels there is huge scope of this channel. Youth and High networth individuals are more computer savvy can be directly focussed through internet. Insurers made this channel by giving customer a user friendly interface as this channels has potential to service customers pre, post sales querries online in a efficient and effective manner .

3. Brokers must provide customer need based products .

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4. Brokers are having less level of control with customers so brokers have to improve their technology and IT SKILLS in order to provide information ,not only about products ,but also to manage their customer relationships as managed in other channels .

5. Bank must focus on selling skills,product knowledge by giving the employees proper training through industry expert. 6. Banks must motivate their employees and improve their morale as to involve them completely in insurance business as the mindset required to sell an insurance product are vastly different . Employees must be suggested that this is work of core job not an optional one. 7. To fully exploit the potential of bancasurance insurers need to develop new type of administration ,policy issue and delivery ,premium collection procedures ,customer service strategies and sales approaches .

8. Woksitemarketing must be analysed properly with cost-benefit anaylysis .Apt Technologies has a key role to employe this system in the workplace of different companies . 9. Product customization ,efficient post sales servicing are other matter which need to be considered in this channel.

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CONCLUSION

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CONCLUSION :-

The insurance distribution is undergoing a transformation that may finally lead to significant changes in how consumers purchase insurance products . The company that survives is one who sticks to its strategy ,adjusting it when required and constantly innovating its offering and reach to suit the customer changing requirement . Better channel management is likely to improve channel performance in the long run .it therefore makes sense to look at well balanced ,alternate channels ,bancassurance,teleassurance,shopassurance etc. The relationship between the fast moving people and technology is empowering the next generation . Its the distributor who makes the differences in terms of after sales and claim settlement . Insurers need to be aware of the risk in the structuring of their distribution through alternate channels because ultimately ,they dont control the acces to the customer. Insurers need to positioned with multi-channel stragies and products to capitalize on the opportunities.

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BIBLIOGRAPHY

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Bibliography .:
1. http://www.ey.com/IN/en/Industries/Financial-Services/Insurance/Indias-insurance-industry-issues-andchallenges 2. http://www.slideshare.net/deepapremk/insurance-distribution-system

3. http://www.ey.com/Publication/vwLUAssets/Insurance_industry__challenges_reforms_and_realignment/$FILE/EY-Insurance-industry-challenges-reformsrealignment.pdf 4. https://www.genevaassociation.org/media/238894/ga2002_gp27%283%29_benoist.pdf

5. http://connection.ebscohost.com/c/articles/87005074/driving-microinsurance-through-bancassurance 6. http://www.cifplearning.com/Insurance%20distribution%20models%20of%20the%20future.pdf

7. http://www.soa.org/News-and-Publications/Newsletters/NewsDirect/2013/may/The-Changing-Face-ofDistribution--Recent-Developments-in-Face-to-Face-Distribution-of-Insurance-and-Other-FinancialServices-Products.aspx

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