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The Expense of Management (EoM) Regulations 2023 for Life, General and Health insurers make a strong case for encouraging Direct Selling (Buying) of insurance products – something that has been very much missing even after over two decades of liberalisation of the sector. In this backdrop, it is difficult to say if this will immediately lead to be a material price difference for customers in case of direct buying, as there are multiple costs beyond commissions associated with direct selling of insurance; also, the scale of direct sales is currently low. However, one point is abundantly clear: direct buying will pick up considerably in case of renewal of simple products with higher commissions (health insurance renewal), and a business model relying on health renewal commission might come under pressure. Finally, the key question remains: to encourage direct buying of insurance products, who (insurers) will bell the cat (distributors)? Perhaps every insurer (even if reluctantly), as the regulator now appears sincere about encouraging direct selling.

The EoM Regulations 2023 make an explicit case for making direct policy buying attractive for customers: The fine print of Expense of Management (EoM) Regulations 2023 for life, general and health insurers clearly mentions that insurers must have a Boardapproved policy in place to pass on the cost savings to policyholders, in case the customer is directly buying (or paying premium) the policy from insurers.

No serious attempt in the past to make direct buying of insurance attractive for the customer: It has been long debated that the Insurance industry has not made much effort to encourage direct selling in order to manage the conflict with its powerful distribution lobbies. In the absence of explicit guidelines from the regulator, there was no visible difference in the premium of the same policy bought via an intermediary or purchased directly. This absence of a visible premium difference (unlike Mutual Funds, where the direct vs regular difference is visible) meant that the ‘chicken-egg’ problem of the Economies of Scale in direct selling as well as customers actively seeking direct product continued.

The new policy sold via an intermediary or directly (at current scales) does entail a material cost difference: Notably, direct selling (online or offline) has many associated costs (Online and Offline marketing, Search Engine Optimisation, and so on) beyond commissions, which is why the regulator has covered ‘Direct Selling’ in the EoM Regulations and not in the Payment of Commission regulations. In this backdrop of cost beyond commissions, it is difficult to conclude if direct selling of new policies (at least the currently low volumes) is actually leading to some material cost savings that would be passed on to customers. However, it is abundantly clear that in case of renewals, there are substantial cost savings for insurers if the policyholders directly pay a premium to insurers.

Distribution Business models banking on renewal commission on Health appear to be at grave risk: In the backdrop of cost savings to be passed on to customers, Health Insurance renewal (currently flat commission as new policy) makes a strong case of lower price in case customers directly pay the premium to insurers or via proposed portals, such as Bima Sugam. For insurers, this would largely be a neutral move; however, any distribution business model banking on renewal commissions on Health Insurance can come under tremendous pressure.

Who (insurers) will bell the cat (distributors)?: Such dominance by distributors, even at the cost of customers’ interest, was a common issue and insurers were agreeably living with it, as they believed insurance was a ‘push’ product and that they, hence, needed distributors on their side. Amid all these regulatory developments, the key question here is: who is going to rein-in the ‘unfair’ dominance by distributors? With the regulator now showing signs of seriously batting for customer interest, it appears that insurers will have little choice than to hold policyholders’ interest above distributors’ interest. This report is intended for team.emkay@whitemarquesolutions.com use and downloaded at 04/05/2023 02:53 PM This report is intended for team.emkay@whitemarquesol

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