The presence of intermediaries in the insurance market has led to an increase in the cost of insurance policies. This explains why the market regulator, SEBI, introduced direct mutual funds in 2013.
Direct mutual funds enable individuals to purchase funds directly from the fund house, avoiding the need for a distributor. This helps to save a lot on the expense ratio.
In a similar vein, the insurance regulator, IRDAI, has proposed a shift towards direct insurance plans. Although direct insurance plans already exist, there is hardly any difference in the premium when buying it from the insurer directly or via an insurance agent.
To address this issue, IRDAI has directed insurers to reduce commission on D2C (direct-to-consumer) plans from April onwards. The industry is uncomfortable with this decision. However, a Bima Sugam platform is currently underway, which will be a marketplace for individuals to buy and compare insurance policies from different insurers.
So, what does “going direct” mean? An insurance agent is supposed to understand your insurance requirement and suggest policies accordingly. They are responsible for explaining all policy features, inclusions, and exclusions in the policy. They also assist in the claims process. The insurance company pays them some portion of the premium as commission.
But what if you do not need an agent? You can sign up on the insurer’s website and buy directly, paying the same premium as you would when buying from an agent. This is what IRDAI wants to address.
Among different distribution channels for general insurers, the direct sale channel contributed 25% to premium in FY22, second only to the broker channel at 35%. For the new business premium in life insurance, it was only 8%, as 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.
However, Mahavir Chopra, Founder of Beshak, has a different view. “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.”
While Digit Insurance does provide a slightly lower commission when policyholders buy directly from them, they have to incur related expenses on their own. “We have to maintain and attract leads to our website, which comes at a cost. Moreover, to ensure a 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.
So, should you go direct? Insurance is a complex product, and you may need support while buying the policy and when filing claims. This is not to say agents will be helpful all the time. There are plenty of stories where 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 digitize the insurance marketplace with Bima Sugam – an online platform for insurance. Not only can people buy directly from insurers, but 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 or avail discount on the premium.