The Hindu Business Line : `Insurance broking policies not conducive for growth'

MANY insurance broking firms privately lament that regulations are stifling. The recent changes in the regulations over how the brokers should be remunerated, have only added to their woes. Today, there are some 140 licensed brokers and it looks like in a short time, most of them will be out of business. All this is happening at a time when the industry is desperately looking at intermediaries to expand the pie.

Mr N. Raveendran, Managing Director, Alegion Insurance Services, a Chennai-based broking firm, has been a vocal advocate of the changes needed in regulations. He speaks about that in an interview with Business Line. Excerpts:

What is your view of the regulatory framework for the insurance broking industry?

The present regulations are not conducive for growth. Broking firms have to bring in a minimum capital of Rs 50 lakh; but they have to compete with agents and corporate agents, who practically have no capital requirement at all. Also, we compete against the marketing departments of the insurance companies — the officials there have their internal targets to meet, so they often take away our clients. This is also unlike the situation in developed countries, where insurance companies only underwrite risks, leaving all the marketing to be done by intermediaries. And above all, if the corporate clients opt for a discount from the insurance companies, we get no brokerage at all.

You say you compete with agents. But it seems that the intent of the regulator is to push agents towards retail business and brokers towards corporate.

But is that how it is happening? Corporate agents, such as banks, do take away a lot of corporate business. The argument that the agents would concentrate on retail business and brokers on corporate account will not wash for the simple reason that there is not much retail business available at present for anyone to sustain on that alone. Even in metros where the penetration levels are relatively higher, an agent would find it hard to create sufficient income to sustain. In rural areas, it's a no go.

But the job of the brokers is to provide such a good service to the clients that it is beneficial for them to forgo the discount given by the insurance company and take your service. That is how the system would like the brokers to function.

That is after the broking industry develops. Today, insurance advisory services as a profession has neither developed nor gained any credibility in India.

A man, who would pay a doctor or an advocate thousands of rupees for advice, would hesitate to pay Rs 100 to an insurance advisor. In such scenario, if a broker demands that the clients give up the 5 per cent, he is most likely to lose the client. Until the society accepts that even insurance services are valuable that may not happen.

Also, our capital requirement has put us into a situation of having to make an extra effort to earn more than the other intermediaries.

Are you saying that the capital requirement is very high?

No. I am not saying that the capital requirement is high. All I am saying is that if the Authority has asked us to bring in so much of capital, it should also ensure that there is a reasonable room for livelihood. It is good that there is a certain entry barrier in the form of a capital requirement, because otherwise all and sundry would get into this business without understanding its nuances.

In fact, I would like the capital requirement to be even higher, say even Rs 2 crore, provided unhealthy practices such as rebating of commission are plugged. If we had a higher minimum capital, we would not have today's situation where 140 brokers are fighting for a pie that is not growing much.

Why not let the market decide which of the 140-odd brokers will stay in business? Why should the regulator prevent a potential good service provider by shutting him out with a high capital barrier?

Letting the market to decide would be the best way, if it were a free market. But here, the broking business is in its infancy. If 100 of the 140 brokers wither away, think of what effect it will have on the industry.

It will just destroy the confidence in the market. Nobody will trust even the good brokers. In the initial stages, a new industry will have to be nurtured and only then left to face competition.

You say your company has about 150 clients and has turned in a profit in the very second year of operations. Then why do you say the regulatory framework is not conducive for growth?

We have done that with a two-and-a-half-year head start, because we entered the industry as risk management advisors, hoping to acquire clients well before we would get a broker licence.

That may not be the case for all the players. If many other players fail, it will have an impact on the entire industry, which in turn will affect us.

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`Insurance broking policies not conducive for growth'