Should you buy insurance from agents, banks, over the Web... or other sources

Raj Pradhan

In an era of hi-tech distribution channels using mobile, Internet, distance marketing and other innovative channels, how should you be buying your insurance (health and life)? From banks, from individual or corporate agents, brokers, financial planners & advisors or online portals?

Insurance is an important financial product, but it is difficult to find the right one for you due to the multiplicity of choices and complexities of the products as well as the bias of banks and agents to sell what suits their objective. The charges (and, hence, premium) and features vary and comparison is difficult—almost impossible. Moreover, bancassurance and agency channels are restricted to selling insurance products from only one life and one general insurance company. Here are some factors that may help you choose the right channel.

Banks: They routinely sell unit-linked insurance plans (ULIPs) as products with a ‘guaranteed return’, persuading even retired people to move their money out of bank fixed deposits for the sake of their own commissions. Try opening a tax-saving fixed deposit and see how bank employees dissuade you from doing so with offers for a highest NAV (net asset value) ULIP or single-premium ULIP for tax savings. A relationship manager or a wealth manager working with a private bank has a ‘target’ to meet. Every bank customer with a sizeable deposit is a target for these managers to sell an insurance product, a structured product or a portfolio management scheme (PMS) and earn commissions. According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Services, “Banks should be regulated more stringently than any other intermediaries, as they already have an advantage over others due to the nature of their business. For example, a bank providing home finance makes it mandatory for the loan applicant to take a home loan or life insurance cover through them.”

Agents: There are 30-lakh odd insurance agents in India serving every nook and corner of the country. Amitabh Chaudhry, managing director and chief executive officer, HDFC Life says, “We believe that agents who are looking for a long-term relationship with the life insurance industry will thrive, while others will be slowly weeded out. We expect large structural changes in the operation of the agency model. Agents would need to play a more evolved and pivotal role—as financial advisors—in the entire financial planning exercise of an individual.” IRDA (Insurance Regulatory and Development Authority) chairman, J Hari Narayan, recently said at an insurance seminar organised by the Federation of Indian Chambers of Commerce & Industry “The agency, in its traditional form, has vanished from many markets in the world and I don’t see why India will be an exception to this.”



The withering away of the agency channel will affect the livelihood of agents. But this is unlikely to happen in the near future. The truth is that life insurers with dominant bank backing have slowly increased their agency workforce substantially—and even new entrants having bancassurance support are planning to double the number of agents in a year.

These include Star Union Dai-ichi, IDBI Federal and IndiaFirst Life Insurance. According to Shrigopal Jhunjhunwala, member of the Chairman’s Club for Agents, Life Insurance Corporation of India, “Life insurance is sold and not bought. Individual agents like me are available 24x7 and offer a personal touch. Life insurance is a long-term contract and I remember customers’ previous histories which is not possible for banks due to high turnover of bank personnel.”

Brokers: An insurance broker is someone who represents you for your insurance transactions, unlike an insurance agent, who represents the insurance company. A broker can provide you with quotes from different insurance companies for comparison, ensuring that you receive the best deal possible.

Brokers also assist you in claims processing; some brokers like Medimanage Insurance Broking will help to get cashless approval during hospitalisation by coordinating with the third party administrator (for health insurance). Brokers are required to possess a broker’s licence which normally indicates that the broker would have had more training and experience than an agent. Girish Malik, vice president (life), Nandi Insurance Broking, says, “The broker does not get paid by the customer and, hence, the cost is the same for the customer. The advantage is getting unbiased advice on different insurance companies and their products. Moreover, we offer after-sales service for help in claims processing, just like agents.”

A broker can give information to the best of his knowledge and experience with different insurance firms. It is possible that an insurance company may even catch the broker off-guard—like the hefty premium increase of 500% by Reliance HealthWise policy. Buying health and life insurance from brokers is an option worth exploring. It is important to talk with a few brokers before finalising your choice, as your experience may vary with each one.



Other Channels: According to Kshitij Jain, managing director and chief executive officer, ING Life, “Life insurance remains an advice-based product which requires well-trained and professional people servicing customers. As markets become mature, other channels, such as brokers or independent financial advisors (IFAs) will gain relevance.”

Online portals suffer from severe drawbacks, including absence of contact personnel to support claims processing. This is true for health and life insurance. Insurance is a promise of future payment. Health insurance claims can be followed up by the policyholder (if he survives hospitalisation), but death claims for life insurance will need the nominee to make numerous rounds of an insurance office, if there is no agent to support the nominee.

No matter which channel you buy insurance from, there are some factors you should keep in mind—the most important one being: study the insurance claim settlements, not just the cost of the policy. An insurance policy should not be preferred for ease of payment, or the lowest premium option. The key benefit of a policy is ease of claims settlement—whether it is health or life insurance. As we said, after-sales service is most important in an insurance policy. According to Amish Aggarwal, certified financial planner, PersonalFN, “We recommend term life plans from only those companies which have completed at least five years since their inception. After that, we look at the profitability, claims settlement history of the insurer and how much premium they charge for the policy. The premium charged by the insurance company should justify their claims settlement ratio. If a company is charging lower premium, but its claims settlement history is poor, then we do not recommend it. However, we do not mind considering a company that charges a higher premium, provided it has strong fundamentals and has a higher claims settlement ratio.”

Keep these factors in mind while choosing a channel to buy insurance.