Why is the Insurance Marketing Firms Channel not Growing?

Swetha Dhinesh

18 Mar, 2023

Insurance Marketing Firms are the Distribution channel approved by IRDAI based on the recommendation of the Govardhan Committee Report, 2007, to allow qualified applicants to become marketing firms in the insurance sector as per the prescribed Regulations and have numerous tie-up with insurers. On January 21, 2015, the Insurance Regulatory and Development Authority of India (IRDAI) published regulations for the registration of the IMF. To conduct Insurance service activity, you must register your insurance marketing firm, as stated in Regulation 3(a) of the Insurance regulation and development authority of India. 

Insurance Marketing Firm

A company that offers insurance services is known as an IMF. An entity that has permission to engage in insurance service operations is referred to as an IMF or Insurance Marketing Firm in the legal terminology set forth by the IRDAI. As per the Registration of Insurance Marketing Firm Regulation, 2015, an “IMF” can be a company, limited liability partnership, cooperative society, or any other entity that the legislation may specify. IMFs are free to market insurance products from various indemnifiers as long as they uphold an open and honest obligation to their customers. The number of transactions an IMF can have with a single firm is infinite.

Functions of Insurance Marketing Firm

According to the Act, the IMF will be able to carry out the following functions:

Solicitation of Insurance Products – IMFs have the ability to solicit and procure insurance products from two life insurance companies, two general insurance companies, and two health insurance companies. IMFs, however, are only permitted to promote retail (individual) lines of products when it comes to general insurance.

Insurance Servicing Activities – 

• Performing insurers’ back-office activities as permitted by the IRDA’s guidelines on outsourcing activities by Insurance Companies, 2011;
• Becoming the approved person of insurance repositories;
• Carry out survey and loss assessment work by putting licenced surveyors and loss assessors on their payroll;
• Engage in any other insurance-related activity permitted by IRDA^[1] from time to time.

Two types of licenced individuals will work for insurance marketing firms. Insurance Salesperson (ISP), who is only in charge of soliciting and marketing the products; and financial service executives (FSE), who are in charge of services like giving financial advice, sale of mutual funds, and NPS.

Marketing of Other Financial Products through FSE

• Mutual funds regulated by SEBI;
• Pension products regulated by PFRDA;
• Non-insurance products offered by the Department of Posts, Government of India;
• Other financial products distributed by SEBI licenced Investment Advisors;
• Banking/financial products of banks/NBFCs regulated by RBI;
• Any other financial product or activity permitted by the IRDA from time to time.

Problems in the growth of IMF Channel

There are several issues which spoil the growth of insurance marketing firms’ channels in the insurance sector. Some of them are as follows:

• Low insurance penetration is partially a result of insufficient capital with insurers. Lack of funding also affects their financial condition and makes it tough to expand footprints into unexplored areas.
• Lack of penetration in many geographic areas, notably rural areas. Urban areas are where the majority of insurance companies are located, especially private ones.
• The IRDAI was established in 1999 with the responsibility of overseeing the sector. Then the market was accessible to private firms, allowing international companies to work alongside Indian ones. Even if they are fewer, public sector organisations continue to dominate India’s insurance business.

• Regulating these marketing firms is a huge issue that raises questions. The agents are quitting the market in large numbers because the channel does not address the current problem of the industry. Initially, limiting their duty to a single district will not help the firms, and only small agents will grow into insurance marketing firms. These firms are all over, and IRDA functions as a centralised office, so it will be challenging to inspect them.
• Entrusting insurance marketing firms with fiduciary responsibility is a huge step in the direction of protecting consumers’ interests. ISPs would get a fixed payment and a performance bonus from the marketing companies. A disparity in compensation among intermediaries has emerged during the past few years.
• The business must maintain a minimum of Rs.10 lakh in net worth and have professional indemnity insurance coverage in order to operate as an insurance marketing firms.
• The IRDAI claims that one of the obstacles to raising health insurance levels throughout the nation is a lack of knowledge about it. The covid-19 outbreak caused an almost immediate increase in public awareness of the value of health insurance. Additionally, individuals choose to invest money in realty or liquid assets when it comes to annual tax savings or savings in general. 

An insurance marketing firm is one of the simplest insurance organisations to establish in India.  Still, it has many hurdles to developing an insurance marketing firm. IRDA has to work and inspect these areas for the growth and development of the insurance sector. Despite having several issues, it has some benefits also. 

Benefits of the Insurance Marketing Firms

Although the IMF channel has several obstacles to the expansion and development of the insurance industry, the following are some advantages that highlight the significance of these marketing companies in the insurance industry:

• Access to multiple insurance services: Obtaining an IMF licence is the best option if you don’t want to restrict your services to only particular facilities. It is not just insurance services; you can also offer marketing and insurance services by setting up the IMF (IRDA). From that, you can sell your insurance plans online or from a strategic partnership with a company that offers a range of services.
• Enhancing channel sales to expand your company: Because you have strategic alliances with so many participants, you can expand the business in the insurance industry. By advertising your services to potential customers and through strategic alliances, you can bring on insurance service providers from many industries, such as surveyors and loss accessors. The potential for expansion is almost infinite when all of these elements are combined.
• Wide variety of Clients: one can get a wide range of clients because the IMF Guidelines permit an insurance marketing firm to offer a wide variety of insurance and financial services.
• Establishing a Legacy: There are not many well-known around. And the problem is that nobody has really been able to tap into this industry to gain its full benefits despite the flexibility it offers. As a result, the market is experiencing a legacy vacuum. If you have the proper support, you can launch your business in India in a fashionable manner. It will assist you in creating a legacy that will last for a very long time. And it plays a crucial role in a world where there are too many start-ups to count.
• Access to an online market: IMF has access to a large internet market because most individuals are more interested in purchasing insurance services online.

Conclusion 

We have come to understand the importance of protecting our financial futures as we live in an uncertain world. You can start the process by increasing public awareness of insurance by founding an insurance marketing firm. Choose an insurance marketing firm if you want to offer insurance services in a method that is reliable, interactive, and unrestricted by the insurance sector. 

Also Read:
Guide to starting an IRDA Insurance Marketing Firm
IRDAI New Guidelines for Insurance Marketing Firms
Registration Renewal Process of Insurance Marketing Firm