Call for non-life Insurance sales incentives outside big cities

The distribution of general insurance outside large cities in India is poor, resulting in non-life penetration in the country standing at a low 0.7%.

The solution to this is to allow distributors to earn more when they operate outside large cities.

General Insurers in the country have about 10,000 branches, of which majority are in Tier I cities.

Insurance brokers, which is a large distribution channel for general insurance, have most of their offices in just seven states, and mostly in the capitals.

The reason Insurers and distributors do not build a presence in small towns is that it is unviable. A salesperson in a Tier 2 town will have to sell over 10 covers a month to just recover his or her salary. In contrast, in the much better distributed life insurance sector, agents sell just 3-4 insurance covers each month.

People buy less general insurance compared to life cover because they don’t know where to buy non-life cover, products are not adequately tailored to their needs, and non-life covers are mostly not mandatory.

Furthermore, a problem that has worsened over the years is that Insurers have been focusing on growing sales even if that creates a distortion in pricing for individuals.

The government should consider making property, catastrophe and certain liability insurance covers mandatory. Making such insurance compulsory will result in prices falling to an extent that they become marginal incremental costs.