The Hindu Business Line : `Insurance brokers role not well understood'

WHY do you need a broker (and pay a commission) to buy an insurance policy when you can buy it directly from the insurance company at a discount? This is the question many corporates ponder over when a broker is engaged for buying a policy.

Mr Peter J. Valentine, Chief Executive Officer, HSBC Insurance Brokers India, says this question comes up because, in India the role of insurance brokers is not well understood. Interestingly, many customers buy insurance polices without knowing whether they need them and why.

In a chat with Business Line, Mr Valentine, who has been in India for the past two years and leaving the country to take a new assignment with the parent company, tried to disabuse the minds of people.

"There is lack of understanding even among brokers who are already out in the market as to really what the role of a broker is; and the customers don't know it either. Brokers must not position themselves as discounters, rebaters of premium, or glorified agents," Mr Valentine pointed out.

"A broker will generate risk awareness at both sides. He adds a lot of value at both ends of the purchase. He is not the one to merely sell a policy to the customer, but he also enables the customer to identify the type of policy most suited to his needs. A real broker will also add a lot of value at the other end, where the insurance company as the underwriter needs to know exactly what the customer requirements are and quite often, need to be encouraged to develop new products. Thus brokers operate at both ends of the supply chain,'' Mr Valentine said.

What has been happening till now is that people from insurance companies come knocking on the door saying, "I will discount your fire insurance premium by 5 per cent; and customers think that is a good deal. They may not even need that fire insurance in the first place. I have seen cases where customers have got dozens of fire insurance policies from different insurers. It is the worst possible scenario that you can have if you have a big claim.

You would have a horrendous time trying to get a claim settlement that would benefit the company."

He said the way insurance is being purchased is going to change as brokers who know their role come into the market and quality companies will use them. Companies that are only interested in price will go direct and get a discount or whatever and will not have the proper protection.

Broking is not a new concept. In the West Asia, companies run by non-resident Indians and other finance guys will go to brokers. It is not as though it is an alien concept or unusual thing to do. It's quite the other way in India.

It is rather unusual that you have had brokers in the market for 30-40 years but without a degree of expertise, professionalism and innovation. Insurance is being purchased just on basis of price and nothing else. People really don't know half the time why they are buying, said Mr Valentine.

In developed countries, many brokers will work for free when it comes to big business. There is still commission paid in many parts of the world.

But for bigger blocks of business, like aircraft insurance, which is hugely complex and very risky, the broker giving professional advice can be sued if proved that he had gives wrong advice either to the customer or to the insurer.

"At a recent seminar, I was surprised to hear of some claims against brokers already in the insurance market. It is a matter contractual rights and obligations. The broker represents the customer, and if he gives incorrect or wrong advice then he is held responsible, and the broker has to take insurance against those risks. If the insurance is badly put together, then you have the right to sue your broker. The IRDA regulations are quite clear on the brokers' responsibilities. There are many cases of brokers being sued in all sorts of jurisdiction, '' he said.

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