IRDAI's Bima Sugam Plan Could Disrupt Insurance Distribution

India's insurance regulator has proposed to set up Bima Sugam, an aggregator-like platform allowing insurers to sell products directly to customers online, lowering costs and altering the distribution process.

"Bima Sugam will be a one-stop shop for sales, service and claims," Debasish Panda, chairman of the Insurance Regulatory and Development Authority of India, said at a conference. The platform, which is expected to provide an "end-to-end digital journey", will be a "gamechanger", he said. "There is a need to create it at the earliest."

The move is in conjunction with the regulator's plans of digital transformation and easing entry for newer players by creating a level-playing field to sell and service insurance policies online.

How Bima Sugam will work:

• All general and life insurance policies will be listed on the platform.

• Addresses the need of tech-based insurance distribution.

• Individuals will be able to buy life, motor or health insurance policies and raise service requests and claim requests through the portal.

• Technology and (availability of) data can help bring down cost of intermediation.

• Expected to bolster sale of insurance to address huge protection gap in India and help individuals be covered for their life and assets.

Apart from selling policies, servicing and processing claims, it will also help insurers follow up on industry data, such as the persistency ratio of policies.

According to Panda, Bima Sugam has generated interest among industry intermediaries and other stakeholders.

The initiative is a positive step for the industry with the entire insurance ecosystem coming together on a single platform, said Vighnesh Shahane, managing director and chief executive officer of Ageas Federal Life Insurance.

Bima Sugam would help expand reach, make the industry more inclusive and thereby democratise the whole process, said Mahesh Balasubramanian, managing director at Kotak Mahindra Life Insurance.

"It will help in spreading awareness about insurance and make it more convenient for customers to buy," he said.

Disrupting Conventional Channels

By allowing insurers to sell directly to customers, the platform could wield the power to disrupt the traditional distribution system involving agency, brokers and intermediaries. It may also impact existing insurance web aggregators like PolicyBazaar, InsuranceDekho and Coverfox that allow multiple product listings and purchase.

While the platform may disrupt distribution, a section of customers will still need help from agents till they get used to the technology platform, Shahane said.

At a recent media interaction, Anand Pejawar, deputy managing director at SBI General Insurance Co., highlighted how most people used aggregators like PolicyBazaar during the initial years to research on insurance policies but still purchased offline through agents.

According to Shahane, people would prefer an agent to understand complex products. However, with non-life products like motor, health and travel covers, and term plans in the life segment which are relatively simpler to understand, more people may switch to online modes of purchase.

Customers consider multiple factors for complex products like life insurance including the features offered, returns and performance of the company, Balasubramanian said.

While Bima Sugam will increase the relative competitiveness, it will be good for the industry. "There is enough space for everyone to grow," he said.

Commissions And Price Differentials

Panda expects Bima Sugam to lower cost of intermediation.

Since agents and intermediaries would also be using this platform to make sales, it brings up the question of premium differential due to commissions.

Shifting the business online may not necessarily make the process cheaper, Balasubramanian said. "There is a cost associated to customer acquisition."

Pricing is not the sole determinant for customers while purchasing insurance; an understanding of the product through agent intervention may also be necessary, he said.

Currently, insurance companies and web aggregators have fixed commissions for listing products on the aggregator's website. But with Bima Sugam, this could get impacted.

According to Shahane, the platform has two main advantages:

• Convenience of services on a single screen.

• Lower premiums. Currently, 30-40% commission is given to brokers but with Bima Sugam, the commission will be down to 5-8% ensuring that the benefit will be passed on to the customer.

Web aggregators might be required to match prices with the listings on Bima Sugam, said an industry insider from a leading web aggregator, who spoke on the condition of anonymity.

Fair competition would only increase awareness and bolster business, the person quoted above said.

However, the impact on margins of such web aggregators while competing with the IRDAI-backed Bima Sugam remains to be seen.

Dematerialisation Mandate

The initiative is also expected to push insurance repositories as IRDAI aims to mandate dematerialisation of policies from December this year.

In the draft proposal, IRDAI proposed that insurers offer discounts on premium rates for policies purchased directly through the electronic platform in accordance with certain guidelines.

Addressing inhibitions around people wanting physical copies after the proposed dematerialisation in an online purchase, Panda said a downloadable and printable format will be made available for policies bought via Bima Sugam.