Leads That Cost Too Much: Re-engineering the Digital Channel
Aster Health & Life sells term and health cover online. Last year its own website and nine web aggregators generated 1.2 lakh quotes and 5,040 issued policies - a 4.2% quote-to-issue rate. Marketing, aggregator remuneration and call-centre costs together were ₹9.6 crore; average first-year premium is ₹11,800 and renewal premium is level. Free-look cancellations are 9.2% on aggregator business against 2.8% on the insurer's own site, and 38% of monthly-mode aggregator policies lapse at the second premium. One aggregator, 46% of digital volume, generates most of the free-look and lapse problems, and its call scripts promise 'no claim rejection'. A board member asks why the company pays renewal commission on policies that lapse in month two, and whether the channel should simply be closed.
1. Is the digital channel viable? Work the unit economics and state what persistency it needs to break even.
Read the worked answer
Acquisition cost per policy = ₹9.6 crore ÷ 5,040 = about ₹19,050, against first-year premium of ₹11,800. The channel spends roughly 1.6 years of premium to acquire one policy. On a level-premium product that is only recoverable over several years of retention.
Break-even logic. Assume a contribution margin of about 40% of premium after claims and expenses. That is ₹4,720 per policy-year. ₹19,050 ÷ ₹4,720 = about 4.0 policy-years of premium just to repay acquisition, before the channel contributes anything. At realistic persistency - say 75% in year two, 65% in year three - a cohort delivers roughly 2.4 years of premium, not four. On blended averages the channel does not break even.
But 'close it' is the wrong conclusion, because the average hides two different businesses:
- The own site has 2.8% free-look cancellations and is the closer to viable cohort; scaling it lowers blended acquisition cost.
- The problem aggregator carries 46% of volume with 9.2% free looks and 38% second-month lapses. It is not a distribution channel so much as a refund generator, and it drags the average down on its own.
So the decision is not channel-level, it is partner-level: cut or restructure the concentration, invest in the owned channel, and re-test the arithmetic on the retained cohort. A useful discipline is to set an internal ceiling - for example, acquisition cost must be recoverable within three policy-years at the cohort's actual persistency - and hold every partner to it.
2. Redesign remuneration for the aggregator channel. What do you change in the contract with the problem aggregator?
Read the worked answer
Move from paying for issue to paying for policies that stay on the books.
Structure:
- Split the commission. Pay around 60% on issue and hold 40% as a quality pool released only when the policy reaches the 13th month in force.
- Clawback. Recover first-year commission on free-look cancellations and on policies lapsing before the third premium. Renewal commission accrues only on renewal premium actually received - never on a lapsed policy.
- Quality gates. Free-look rate at or below 4%, upheld complaints below a set rate, and a script and call-recording audit each quarter. Breach for two consecutive quarters suspends new business.
- Script control. 'No claim rejection' is a false statement about the product. Require written scripts approved by the insurer, recorded calls on a sample basis, and a written undertaking that no adviser will describe the product as guaranteeing claim payment. Suspend the partner's new business until scripts are corrected and retrained.
- Volume concentration. With 46% of digital volume in one partner, cap the share any single aggregator can hold - say 30% - so a single remediation cannot stall the channel.
Commercially, be honest about the trade. Quality-linked pay will reduce the partner's willingness to push volume, which is the point: the volume it is pushing is refunded or lapsed premium. Expect a renegotiation request; answer it with the cohort data, not with assertions about fairness.
3. How do you answer the board member's question about renewal commission on policies that lapse in month two?
Read the worked answer
The direct answer: it should not be happening. Renewal commission is paid on renewal premium received. If a monthly-mode policy lapses at the second premium, there is no second premium, so no renewal commission accrues. If it is being paid, either the commission engine is calculating on expected rather than collected premium, or the lapse is being recorded late and the payment has already run.
What to do:
- Reconcile. Pull the commission ledger against the premium register for the last four quarters and quantify renewal commission paid on lapsed or free-look-cancelled policies.
- Recover and correct. Recover from the aggregator where the contract allows, and fix the engine so payment is triggered by receipt and by the policy being in force.
- Fix the contract language. Renewal commission on renewal premium actually received; clawback on early lapse; no payment on free-look cancellations.
- Fix the incentive, not just the ledger. The deeper problem is that volume-based pay made lapses profitable for the partner. That is why the quality pool and clawback matter more than the recovery itself.
- Report plainly. Give the board the reconciled number, the cause, the recovery, and the control change - and note that the cohort data means the channel's real problem is partner concentration and persistency, not a bookkeeping slip.