Posted on Aug 31, 2012 by Sergio Ulloa
Reliance Life Insurance, India's largest private insurance company, has announced that they will be going through with an expansionary move that will see over 55,000 staff added to their force. This move is in anticipation to its future plans to move into different marketing channels.
Reliance Life Insurance is a business unit of Reliance Capital and led by Anil Ambani. Despite being one of India's larger life insurance companies, Reliance only controls a staggering 5 percent market share. The reason for this is due to the LIC - the Life Insurance Company of India. The LIC is a government-controlled corporation which dominates the market, consuming 70 percent of the market. Reliance's aim is to become the main alternative to the LIC.
Currently, Reliance is recruiting over 55,000 agents to join its sales force. However, not all agents will be on a commission basis - roughly 5,500 agents will be admitted to full time status with a base salary, in addition to incentives for performance, such as commissions. The rest of the hiring, over 50,000 agents, will be on a purely commission basis.
Reliance is seeking to bolster its workforce to 150,000 by the end of the current financial year, up from 120,000 which it has now. The company experiences high turnover due to the nature of the business - it is vastly pure commission so the stability of income and performance of individuals forces them to leave the business. As such, Reliance sees high attrition rates, which it hopes will not be the case with the 5,500 that they are hiring full time.
This increase in agents is aimed at replacing the 30,000 agents that left the firm during the April - June 2012 quarter. In addition, it appears that the move is in anticipation for a strategic business move that it is making.
Reliance Life Insurance is in talks with many banks in both the public and private sectors, seeking to add its products into the banks offerings. They are looking to get into bancassurance, which is a form of distribution for insurance companies by way of distributing insurance products through banks (also known as a bank insurance model or BIM).
Alternatively, Reliance can distribute its insurance products via its own agents, which it has been doing so historically. This business model is known as a tradition insurance model (TIM) whereas Reliance's new strategy is known as a Hybrid Insurance Model.
Reliance Life Insurance's latest move is an attempt to gain more traction in the market space not taken up by the government-run LIC. Excluding the LIC, there are 20 firms competing for 30 percent of the market share and 5 percent belongs to Reliance. Competing with Reliance are companies such as SBI Life, Metlife, ICICI Prudential, Bajaj Allianz, Max New York, and Sahara Life. Much of Reliance's business originates from the rural markets, including over 34 percent of its new business. Moreover, Malay Ghosh, President and Executive Director of Reliance Insurance, stated that only 15 percent of the company's business is from Tier-1 cities. With that in mind, Reliance's new approach via bancassurance channels should allow Reliance to gain more momentum and volume throughout Tier-1 cities.
However, with Reliance's late entry into the bankassurance market, the availability of suitable and preferred partners is low due to existing contracts and relationships in place. Reliance is in talks with many different banks, including some banks in the public sector. Currently, the Insurance Regulatory and Development Authority has regulations whereby every bank can only represent one partner for selling insurance products. To negate this reality, Reliance may be offering a small equity stake of up to five percent for banks who choose to partner with them. This incentive represents a large investment as Reliance Life has over Rs. 18,700 crore ($3.36 billion USD) assets under management and the company itself has a valuation of Rs. 11,500 crore ($2.06 billion USD).
This move by Reliance represents a significant decision with regards to its long term strategy. To be offering up to 5 percent to incentivize a partnership, Reliance is willing to further dilute its current shareholder percentages through this new direction. This isn't the first time that Reliance had given up equity for a significant partnership.
In addition to the expansion in to bancassurance, Reliance is looking to facilitate more market penetration by its business partner Nippon Life. Official since October 2011, Nippon had acquired a 26 percent stake in Reliance for Rs. 3062 crore (US$ 551 million) and this investment represents Nippon's faith and commitment to the Indian market. Reliance Capital, the parent company of Reliance Life Insurance, wants Nippon to bring its AUM products to the Indian market. Nippon has over US$600 billion in its management but very few of those assets are in India. Reliance is aiming to bring their assets into India in order to gain a higher market share.
Over 60 percent of Reliance's policies are sold through their strong workforce. Their distribution networks include brokers, corporate agents, and commission-based agents. With the inclusion of their bank network, it is unsure whether their commission force will suffer due to the introduction of the new channel. Since it represents such a large percentage of business and commitment from the company, Reliance will need to be careful in how it deploys its bancassurance in a way that it doesn't cannibalize or encroach on the commissioned agent's territory.