The Hindu Business Line : Insurers in brokerage bring poaching fears

Chennai, April 16 The Insurance Regulatory and Development Authority (IRDA) recently permitted general insurance companies to start their own brokerage outfits. To understand how this would impact existing brokers in the general insurance industry, we mailed Mr Rahul Aggarwal, CEO of Optima Insurance Brokers, for his views. Mr Aggarwal has a bachelor’s degree in pharmacy and is an alumnus of IIM-Ahmedabad. Optima Insurance Brokers specialises in construction, infrastructure development policies, employee benefits, marine and liabilities policies, and was amongst the first private players to enter the sector after private participation was allowed in 2000. He is critical about the attempts made by insurance companies to poach their clients. And although he expresses optimism about growth in the current fiscal, he sounds a bit sceptical of any changes immediately.

The IRDA has recently permitted general insurance companies to set up their own brokerage outfits. Will this not eat into your company’s income? What are your views about this development?

Internationally, insurers own broking companies directly or indirectly and brokers have floated insurance companies successfully. Hence, IRDA’s permission to general insurance companies allowing them to own broking companies seems to be in step with international practice. However, insurers would have to create an atmosphere of confidence wherein brokers do not feel threatened by this development, and will have to show a maturity level wherein insurers’ broking units do not start cross selling or poaching of the customers brought to them by the brokers. The restraint would be very important. Sadly, many Indian insurers have shown neither this maturity nor the restraint in their pursuit of short-term gains. The direct selling teams of insurers have consistently tried to poach the clients placed with them by the brokers while mouthing platitudes on partnership. Therefore it seems that the Indian market is not ready for this move.

Would you be open to being bought over by a larger general insurance company?

We would welcome any prospective suitor that ensures impartial operations, brings value to our customers, brings in better systems and processes and provides a fertile ground for us to grow faster than our current growth.

The general insurance industry seems to have grown at about 12 per cent last year to achieve an overall premium income of around Rs 25,000 crore. Why is the growth much slower for this segment as compared to life insurance industry which seems to be growing at 45 per cent plus?

General insurers are not investing in growing the market, but are fighting for the same. Whenever there has been an initiative to grow the market, customers have responded enthusiastically. This has led to the expansion of both the market for the product and the insurer’s share. Reliance’s Healthwise is a case in point. The general insurance market is also going through a bruising rate war because of the same reason. This has led to a drastic fall in the premiums, although the number of policies issued has grown.

What do you predict will be the growth rate for the general insurance industry in the current fiscal? Which segments are likely to see good growth?

We do foresee an increase in the growth rate for the general insurance industry. For any change to happen this year, change in strategy should have happened in the last financial year and that, alas, has not happened. Myopic managers are still planning to outdo their competitors by reducing their prices further.

A lot of insurance contracts are due for renewal around this period. How are premium rates for different segments as compared to their level last year?

Most insurance premium rates have fallen further by 30 per cent this year while health insurance rates have seen a slight increase. In an extremely competitive market, most insurers were keen to retain clients even at the cost of facing losses; hence group health rates could not increase to the logical levels.

Is there a lot of undercutting of rates in the industry and hence a lot of movement of accounts between various insurance companies?

There has been a lot a undercutting of rates but since the current insurers were more than willing to match the prices being offered by their competitors, there has not been much movement of accounts except where the client was unhappy with the servicing.

What is the role that your company plays in such movement of clients across companies?

We have consistently advised our clients to sacrifice short-term gains in favour of building a strong relationship with the chosen insurers. It is our strong belief that insurers will reward past behaviour in case of a large claim and that is what insurance is for.

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