Monday, February 28, 2011

Irda’s plan to sell insurance products through post offices hits roadblock

Dear Comrades,

The life insurance wing of India’s postal service has objected to the insurance regulator’s move to allow post offices to sell the policies of other insurers.

India Post’s life insurance wing says since the postal department has its own life cover schemes, it should not sell the policies of other insurers.

“We have the largest network on which other insurance companies want to ride,” an official of the directorate of the postal life insurance (PLI) said on condition of anonymity. “We have our own insurance scheme. Then why should we sell policies of other insurance companies and lose our advantage?”

The Insurance Regulatory and Development Authority (Irda) in October allowed each postal region of India Post to function as an insurance agent. Each such circle was allowed to sell policies of two general insurance firms, two life insurers, one agricultural insurance company and one stand-alone health insurer.

Some private insurance firms have found it difficult to expand their distribution networks. The regulator’s move to have post offices act as agents would have worked in the larger interests of financial inclusion, according to Irda.

To be sure, since selling financial products is a good way to generate revenue, the postal department is reluctant to let go of this income-earning segment despite objections from its insurance wing.

It was India Post that had asked for such an arrangement, said an Irda official. “Earlier, they were allowed to sell policies of only one insurance company,” he said, requesting anonymity. “We permitted each circle to sell policies of two life and general insurers and one health insurer.”

Postal life insurance, initially meant for postal employees, was later extended to other government employees. In 1995, it was extended to rural areas.

There were more than 4.4 million postal life insurance policies and 9.9 million rural postal life insurance policies as on 31 March 2010, official data show.

Irda gave India Post a special dispensation after an expert committee headed by Ajay Shah suggested effectively utilizing the postal network to further financial inclusion.

The insurance regulator wanted to leverage the reach of India Post to deepen the coverage of insurance services in the country. While the penetration level of general insurers is as low as 0.6% of the gross domestic product, penetration of life insurers is slightly above 4%.

India Post has a network of over 155,000 branches across 22 circles. More than 45% of its revenue comes from various financial services. As of December 2009, India Post’s total revenue was Rs.2,273.69 crore.

“Selling insurance policies is a good revenue stream for the postal department. As it is, the PLI scheme does not cover all the requirements of the population,” said an insurance company official, who declined to be named.

Private insurers say if the India Post experiment was successful, Irda may also permit banks to sell policies of more than one firm.

“I think Irda has test-piloted by opening it out for India Post,” said another insurance company official, requesting anonymity. “The regulator wants to see what the teething problems are and the bottlenecks before permitting an open architecture.”
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