Insurance distribution

Insurance distribution is how an insurance policy reaches the person or company that buys it: through an agent, a broker, a bank, a comparison website or the insurer's own app. For most of its history, insurance was sold, not bought. An agent visited the customer, explained one policy and earned a commission on the sale. The internet now lets people compare policies and buy one themselves.

Why was insurance sold by agents? A policy is hard to understand. Its fine print decides what is covered, and most buyers do not feel the need for it until something goes wrong. So the agent's job was to explain the policy and persuade the buyer. In India, the insurance regulator, IRDAI, sets the rules for everyone who sells policies. It registers brokers and comparison websites, and insurers appoint their agents under its rules. IRDAI also limits how much an insurer may spend on commissions and its other costs.

Here is how distribution works in general. The insurer designs the policy and sets its price. A distributor finds a buyer and explains the policy. An agent sells the policies of one insurer or a few. A broker acts on behalf of the buyer, and asks several insurers to quote for the same cover. The buyer compares the options and chooses one. The insurer issues the policy, and the distributor earns a commission. The distributor often helps the customer at each renewal and with claims.

Take, for example, a business that needs cover for its buildings, vehicles and staff. Its broker works inside an insurance agency management system, which gets quotes from several insurers and tracks every renewal.

Consider a person buying health insurance for their parents. An insurance comparison marketplace lists twenty policies side by side, and the person buys one in fifteen minutes.

Say a traveller books a flight. A tick-box at the checkout adds travel cover, which is called embedded insurance.

A digital insurer sells directly from its own app, with no agent at all, and so pays no agent's commission. A national online marketplace called Bima Sugam is also being set up under IRDAI's rules. On it, people will be able to compare and buy policies from all insurers.

How is distribution different from underwriting? Distribution is selling the policy and looking after the customer. Underwriting is the insurer's decision on whether to take on the risk, and at what premium. An agent may collect the details, but the insurer's underwriter makes that decision.