The life insurance sector, which has seen costs rising significantly due to regulatory issues, has lost 1.5 million agents in the last two years. Insurance agents, who earn through commissions, are primarily responsible for selling products though they are not regular employees.
Besides, the sector has been seeing high attrition with 20,000 full-time executives having quit.
Growth in the sector has been erratic as fresh policy sales plunged after the Insurance Regulatory Development Authority enforced a new set of norms in September 2010 for the controversial Unit Linked Insurance Products (ULIPs). The norms benefit consumers, but reduce profitability of firms and cut agent commissions.
"We have seen thousands of agents moving out of the sector as sales have dropped and companies have put most of their expansion plans on hold to reduce costs," said a managing director of a mid sized insurance firm on condition of anonymity.
The sale of ULIPs - a hyb-rid product where part of the money is invested in equities and balance set aside as premium and charges and fees - typically constituted 30% of the total premium collection in 2009-10. But sales have fallen sharply since the norms came in.
Finance minister P Chidambaram has underlined the need to revive the sector. He has promised to introduce the Insurance Bill in the current Parliament session. The bill seeks to increase FDI in insurance sector to 49% as the sector required immediate capital of $5-6 billion to expand operations and increase penetration.
In the last few years, no global insurance firm has entered India though Canada based Manulife, French firm Scor Global Life and South Korean Samsung Life Insurance, had shown interest.