Point of Sales Persons An Alternate Distribution Channel for Insurers

Introduction

The Insurance Regulatory and Development Authority of India (“IRDAI”) permits insurance companies and intermediaries to appoint individuals (i.e. natural persons) as Point of Sales Persons (“PoSPs”). PoSPs are essentially individuals who are permitted to carry out activities pertaining to solicitation and marketing of insurance policy products and act as distribution channels for insurers or intermediaries. In accordance with the provisions of the Insurance Act, 1938, sale and solicitation of insurance products can only be carried out by entities licenced by the IRDAI, i.e. either insurers or intermediaries. PoSPs, despite not being “licenced persons”, are “qualified persons” (as discussed below) and carry on the activity of sale and solicitation of insurance products. They are sponsored by insurers or intermediaries to carry on sale and solicitation activities.

The IRDAI in its Annual Report for Financial Year (“FY”) 2020-21 identified that bulk of products like motor insurance, travel insurance, personal accident insurance (“Point of Sales Products”)[1] are largely pre-underwritten since they are standard in nature. Typically, such policies are automatically generated by the insurer’s system once the customer provides a pre-determined set of information. There is little to no human intervention required in the process. The IRDAI has analysed the nature of such policies and concluded that the amount of training and qualification required for solicitation and sale of such policies is basic and does not require extensive understanding of the underwriting process. Accordingly, to facilitate the growth of insurance business and to enhance insurance penetration and insurance density in the country, the IRDAI introduced the following guidelines to legitimise PoSPs to be utilised for distribution of Point of Sales Products:

a. Guidelines on Point of Sales Products (POS) – Life Insurance Products[2] dated November 7, 2016, dated Guidelines on Point of Sales Person – Life Insurance[3] dated November 7, 2016 (Both collated and revised in Master Circular on Point of Sales Products and Persons – Life Insurance[4]); and

b. Guidelines on Point of Sales Person – Non-Life & Health Insurers[5] (as modified by circular dated March 16, 2017[6]).

How can one qualify as a PoSP?

Like insurance agents, broker qualified persons[7] and specified persons[8], being natural persons qualified to market and sell insurance products, PoSPs also need to undergo training to qualify as such. PoSPs are broadly divided into categories of Life and Non-Life, depending upon the type of training undertaken by them. The IRDAI prescribes model syllabus for both categories of PoSPs. The training requirements for both Life and Non-life PoSPs are the same, barring the content of the syllabus. Any person who is at least 18 years of age and has successfully cleared his 10th grade examination is eligible for training. The training involves 15 hours of inhouse training, followed by exams (conducted by the insurers or intermediaries) on the basis of the model syllabus. Successful candidates are provided a certificate and appointed as PoSP in accordance with the agreed terms and conditions.

How does this help insurers and intermediaries?

The fundamental benefit of appointing PoSPs is that it allows market participants to diversify their distribution network and ensure reach and accessibility to a wider section of prospective customers. With a larger pool of customers that become accessible by utilising PoSPs, insurers will be able to ensure organic growth and stability. This in turn is expected to lead to higher insurance penetration in India. The IRDAI Annual Report states that insurance penetration in India is severely low, at 4.20% as of March 31, 2021.[9]

Given that the eligibility requirements for PoSPs are low and the training is not intensive, any person can become a PoSP. This enables insurers and intermediaries to leverage their existing work force as PoSPs for solicitation and sale of Point of Sales Products. Most of the existing workforce is well qualified and already well-versed with the insurance business. This can be done at next to no cost, inculcating a new distribution channel with good know-how and expertise. It is interesting to note that this option has not been exercised by majority of market participants.

Analysing recent market trends

The IRDAI Annual Report records that as on March 31, 2021, the total number of PoSPs engaged by insurance market participants was 8,27,901. The breakup of PoSPs appointed by each type of market participant is provided in the infographic below,[10] with insurance brokers being the most active in training and appointing PoSPs, with 4,49,585 PoSPs appointed as on March 31, 2021. However, this number accounts for the total number of PoSPs appointed by 106 brokers, the approximate average number of PoSPs per broker being 4,241. Further, the numbers point towards the concentration of PoSPs in the intermediary categories, with brokers and corporate agents accounting for a combined 5,55,452 PoSPs, more than half of the industry total.

Type of market participant No of participants No. of PoSPs
Insurers 42 2,72,449
Insurance Brokers 106 4,49,585
Corporate Agents 145 1,05,867
Total 8,27,901

It was observed that Insurance Marketing Firms (IMF) and Point of Sale channels together contributed less than one percent (0.85 per cent) to the individual new business premium in 2020-21, against 0.59 per cent in 2019-20. While the contribution of PoSPs towards new business has grown, the year-on-year margin of growth is not much.

Life Insurance Business

Conclusion

The lower contribution to Gross Written Premium of new business for FY 2020-21 should not lead us to neglect or dismiss the role of PoSPs. The insurance market has historically relied on insurance agents for distribution of insurance products. As per the IRDAI Annual Report, insurance agents continue to be the major source of new business for the individual category, i.e: for policies taken by individuals, with a 58.14% premium contribution to new business. Due to the sheer number of insurance agents and their tremendous outreach capabilities, the contribution of agents has been the driving force being the growth of the Indian insurance industry. In comparison, the concept of PoSPs is fairly new and is only just catching up.

Also, insurance agents are allowed to act as an agent for one life, general, health and mono-line insurer[11], PoSPs are initially exclusive to the insurer or intermediary that invests in their training. Thereafter, the IRDAI mandates PoSPs to be tied to only one insurer or intermediary at any given point of time. Though this may seem restrictive to the overall utilisation of PoSPs by the market at large, from a regulatory perspective, such restriction is required to ensure control over their activities. Since PoSPs are sponsored by market participants, the ultimate responsibility of PoSPs lies with them and consequently it becomes imperative to exert control over their activities. The relatively low market contribution of PoSPs is due to the capability and scope of PoSPs not being properly utilised by the market participants, except for brokers and corporate agents. The large concentration of PoSPs on the intermediary side also shows that insurers have been generally reserved about appointing them. We hope that this trend slowly corrects itself in the future.


[1] Page 78-79, IRDAI Annual Report for FY 2020-21.

[2] Circular No. IRDA/LIFE/GDL/GLD/222/11/2016.

[3] Circular No. IRDA/LIFE/ORD/GLD/223/11/2016.

[4] Circular No. IRDAI/LIFE/CIR/MISC/215/12/2019.

[5] Circular No. IRDA/Int/GDL/ORD/183/10/2015.

[6] Circular No. IRDA/INT/GDL/PSP/058/031 2017.

[7] Natural Persons qualified to market and sell insurance products for insurance brokers.

[8] Natural Persons qualified to market and procure business for corporate agents.

[9] Page 5, IRDAI Annual Report for FY 2020-21.

[10] Page 79, IRDAI Annual Report for FY 2020-21.

[11] The IRDAI (Appointment of Insurance Agents) Regulations, 2016 define “mono-line insurers” as insurers carrying on one particular specialized line of business such as agriculture insurance, export credit guarantee business.