The more the intermediaries, the higher the cost of the product. It is not surprising, therefore, that people hailed the market regulator Sebi’s directive to launch direct mutual funds in 2013. Direct mutual funds are those that you directly buy from the fund house instead of a distributor. This helps you save a lot on expense ratio.
Insurance regulator IRDAI has suggested the same for insurance policies. While direct insurance plans already exist, there is hardly any difference in premium buying it from the insurer directly or via an insurance agent.
IRDAI had directed insurers to reduce commission on D2C plans from April onwards. The industry is uncomfortable. Meanwhile, a Bima Sugam platform is underway which will be a marketplace to buy and compare insurance policies from different insurers.
What does going direct mean?
An insurance agent is supposed to understand your insurance requirement and accordingly suggest policies. He is the one responsible for explaining all policy features, inclusions, and exclusions in the policy. He helps you in the claims process. The insurance company pays him some portion of the premium as commission.
What if you do not need an agent? You sign up on the insurer’s website and buy directly. You are still paying the same premium as buying one from an agent. Unfair, right? This is what IRDAI wants to target.
To be sure, among different distribution channels for general insurers, direct sale channel contributed 25 per cent to premium in FY22 second only to broker channel at 35 per cent. It was 8 per cent for the new business premium in life insurance. Life insurance is dominated by individual brokers.
“Insurers keep the extra amount in D2C plans that they would have otherwise had to pay to agents. It is a welcome move by IRDAI and in the interest of the common man!” says Bhanushali, Co-Founder & CEO at 1 Finance.
Mahavir Chopra, Founder, Beshak, however, has a different take on it. “Insurers spend more on direct marketing per acquisition, than through the variable commission they pay to the insurance agent.In effect, there is hardly any financial benefit that can be transferred today to the customer who is coming directly.”
Digit Insurance does provide a slightly lower commission when policyholders buy directly from them. They incur related expenses on their own. “We have to maintain and attract leads to our website which comes at a cost. Moreover, to ensure seamless customer experience, insurers have to take additional efforts to build connections with direct customers. Both these factors are important in determining the pricing of insurance policies online,” says Adarsh Agarwal, Chief Distribution Officer, Digit Insurance.
Should you go direct?
Insurance is a complex product. Not only do you need support while buying the policy but also when the moment of truth comes, that is, when you file claims. This is not to say agents will be helpful all the time. Horrible stories do the rounds often when agents mis-sell or do not help in settling claims. You need trusted advisors. Alternatively, you may come in touch with Sebi-registered investment advisors who can help you with not only choosing the right insurance but also overall financial planning.
Meanwhile, IRDAI has announced its plans to simplify and digitise the insurance marketplace with Bima Sugam – An online platform for insurance. Not only can people buy directly from insurers, they can also connect with agents online and buy through them.
The platform was supposed to go live from January 1 but is yet to see the light of the day. “From what we understand, this is in progress and IRDAI is working towards launching the platform soon,” says Agarwal of Digit Insurance.
“The key offering of the Bima Sugam platform is the ability for customers to purchase both life and non-life insurance policies online, where customers will have access to a wide range of policies from multiple insurers, and they can easily compare and evaluate policies based on features, coverage, and pricing. The low acquisition cost is also expected to result in a lower premium,” he adds.
The platform will enable policyholders to file claims, renew their policies or port to a different insurer.
As you await the Bima Sugam platform, you should ask about the premium differential between the direct and agent-led plans. Pay commission only to deserving agents else avail discount on the premium.
Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.