The new guidelines proposed by India’s insurance regulator spells trouble for online insurance companies as it increases operational costs and limits revenue opportunities.
The Insurance Regulatory and Development Authority (IRDA) has proposed changes to existing guidelines which were issued in November 2011. The new draft has made three major changes over the existing guidelines:
Remuneration structure has been changed.
Outsourcing activities such as premium collection and policy services have been allowed.
Telemarketing has been allowed (compliance to TRAI guidelines required).
The term “Web Aggregator” used in the draft pertains to any online website or portal which provides information and comparison of insurance products by different insurers and provides leads to insurers.
Insurance Web Aggregators in India
The new guidelines increase the operational cost of a web aggregator and leaves lesser options to generate revenues. For Instance:
The annual flat fee payable by insurers to web aggregators, for each product displayed on the aggregator website, has been reduced to Rs 50,000 (Upper limit); earlier this fee was Rs 1, 00,000.
Insurers will no more pay any charges per lead to web aggregator for each lead transmitted by the latter; previously web aggregators were entitled to charge an amount not exceeding Rs 10 for the same.
Older guideline prohibits web aggregators to display, any advertisements and sponsored content or rankings, endorsements, best seller of insurance products, on the website. The new draft further bans web aggregators to cross sell any product on their website or use of social media sites for comparison of products.
A web aggregator invests heavily in technology, marketing, operations, infrastructure, maintenance (and now in call centre setup). With no lead revenue, no display advertising or cross selling of products and reduced product display fees, only options left with aggregators are conversion revenues. IRDA guidelines clearly favours insurers who only need to pay per conversion but on the contrary the aggregator has to spend money per lead in marketing channels like Google Adwords.
PolicyBazaar.com, an online portal, sells 23,000 policies a month because it has a strong telemarketing back end and marketing push. What about smaller players? To do such number of sales, a call centre setup is pretty much a necessity, which will add to operational costs.
The document does not stop here, it further adds hundreds of smaller conditions. Few notable ones are:
50 hours of training by employees of the web aggregator from a recognized institute.
Establishment of a Lead Management System (LMS) to transfer data to insurers.
A web aggregator has to provide options to user for selecting any three insurers to whom their information will be shared and except the one’s preferred by the user, data cannot be shared with any other insurer (Though its of no relevance as there is no lead based model now).
Sale of Universal Life Insurance Products(ULIP) is not allowed through distance marketing (telecalling)
Web aggregator has to employ / designate a Director as Principal Officer to manage the company on full time.
There are seven web aggregators registered with IRDA namely including MyInsuranceClub, InsuringIndia, BuySmartPolicy, eMudhra Consumer Services Ltd, Sastapolicy, PolicyMantra and Accuratequotes.
Industry Reactions
According to Alok Bhatnagar, CEO, Easypolicy.com, conversion rate depending in the insurance category and product is 3-5% on an average. The cost per conversion lies somewhere around Rs 2500-3000 (lower limit); in such a scenario where the web aggregators are forbidden from generating any other revenue like from advertising, these guidelines seem “restrictive in nature and discourage web aggregators to be in this business.”
Another clause “forbids web aggregators to operate multiple websites”. If such is the case, then PoliicyBazaar.com will have to apply for a license with IRDA to get registered as an aggregator as it do runs two websites.
PolicyBazaar pivoted to a telemarketing model as a lead generation model by web aggregators was not allowed by IRDA in its first set of guidelines, though it acted as a web aggregator through its subsidiary, Accurex Marketing and Consulting Private Limited, which operates another website by the name of accuratequotes.in.
But now as the latest draft proposes, a web aggregator can also do telemarketing or distance marketing and hence PolicyBazaar only needs a commercial calling license in compliance to TRAI guidelines to register as a Telemarketer.
Yashish Dhaiya, Founder & CEO, PolicyBazaar says,
Our last funding round was done at a post money valuation of Rs 170 crore while we were doing Rs 50 crore of revenue in that year. The pre money valuation is less than 3x of the revenue because of the “Regulatory Cloud” and FDI cap of 26% on the top of that makes the funding scenario tough in this industry.
While, the cap on commission payable (in compliance with section 40A of Insurance act) to web aggregators by the insurers has been removed (earlier it was 25% of the commission payable), the draft limits online insurance aggregators for marketing what they are selling. (funny!)
Based on our conversation with various web aggregators and experts, here are a few negatives and positives.
Negatives
Cost of operations have increased because of requirements for more frequent audits, professional indemnity policy, requirement of principal officer etc
Cap on sale of single premium policies as well as non-single products through telemarketing where annualized premiums exceed Rs.1, 00,000 (single premium) and Rs.50, 000 (non-single premium)
Restriction on sale of ULIP or variable insurance product through distance marketing.
Remuneration on renewal (2nd year onward) premium has not been allowed.
Positives
Cap on commission (25% of first year commission payable) has been removed.
Outsourcing activities such as premium collection and policy services (e.g. change of name/address, fund switching etc) has been allowed which will help web aggregators use their resources optimally.
Ashish Sahay, CoFounder, BuySmartPolicy believes that while the changes in remuneration structure and allowance of outsourcing activities will allow greater flexibility to the web aggregators, the compliance related activities would make the operations more challenging. Furthermore, premium related cap on sale of certain products that can be distributed through this channel may not bode well for the players.
IRDA has asked all stakeholders to submit their comments and feedback ,based on which regulation will be finalised. The detailed draft can be viewed here.
Recommended Read: Understanding Online Insurance Industry in India: Past, Present and Future [A Definitive Guide]