ISSUE FOCUS
Kapil Mehta observes that in spite of the huge
Challenges of
Scaling Up
– A Broker’s Perspective
R
abindranath Tagore famously
said “You cannot cross the sea
by standing and staring”. The
opportunities in the Indian
insurance market are like that great
sea – vast and limitless. However,
several concrete steps are needed
to capture the macro-economic
potential. I have had the
opportunity of working extensively
with insurers and now, more
recently, as an insurance broker. I
must confess that I am struck by the
big gap between the market
potential for brokers and our on-
the-ground presence. I will not
elaborate the size and scale of the
opportunity since that is now self-
evident and many have described
this in detail. Instead I would like
to focus on the shackles that hold
us back and suggest some ideas to
really fulfill the broking potential.
The following facts demonstrate
that brokers have a long road to
travel.
Brokers account for a small portion
of the market:
The premium through brokers is
about `16,000 crore if both Life and
General insurance are included. This
is less than 10% of new business
potential that is readily available in the Indian
domain, the brokers’ channel is sadly failing to
assert itself and grow exponentially. He evinces
hope that the trend would be reversed in the
near future.
A quick scan of IRDA’s
website reveals that
several brokers have
surrendered their
licenses, many are
having difficulty
renewing and there are
several regulatory
investigations
underway.
premiums. Much of this business is
on the General insurance side and
insurance brokers are a miniscule
portion of the Life market. Even on
the General insurance side broker
penetration in countries such as
New Zealand, Philippines,
Singapore, Australia and Indonesia
are more than twice that in India.
What makes India different? Why is
broking so small here?
Several domestic brokers are sub-
scale:
While the information is not publicly
available, a majority of brokers
have premiums of less than `40
crore. Less than a handful of brokers
have a premium size of over `1000
crore. Contrast this to international
markets where it is common for
brokers to be as large as insurers
themselves. The top 10 brokers each
have brokerage of over a billion US
dollars which means the premiums
would be about US$ 10 billion or
more. What talents and capabilities
do international brokers have that
allows them to scale-up so
effectively?
Limited overseas investment and
FDI:
If you look at the list of insurers
operating in India it is evident that
over 75% of the world’s largest
insurers have joint ventures
established here. However, only two
of the top 20 insurance brokers by
size have entered India. Why should
that be the case when the macro-
economic fundamentals are so
sound and the opportunity so large?
Large number of regulatory
violations:
irda journal April 2014
A quick scan of IRDA’s website
reveals that several brokers have
surrendered their licenses, many are
27

having difficulty renewing and there
are several regulatory investigations
underway. These are signs of an
industry yet to stabilize. Why do
brokers surrender their license when
the business opportunity is so
significant?
The majority of brokers are
concentrated in a few cities:
According to IRDA’s annual report,
the top 5 states account for 76% of
the brokers, the next 9 states
account for the remaining 24% of
brokers and 15 states do not have a
broker headquartered in that state.
Why is this the case? Do those states
not have a business need for
broking? For the broking industry to
develop geographic penetration
needs to be significantly higher.
The industry is at a critical juncture.
The steps we take will determine
its future course. On the positive
side most of the steps required are
very much in our own control.
Specifically, I would like to offer the
following suggestions:
Improve broking talent:
Talent needs to be strengthened at
two levels. First is the people who
open new brokerages and second
the talent hired by brokers.
High performing sales people,
professionals from insurance
companies, people with financial
services expertise need to set-up
broking firms. We need at least 1000
irda journal April 2014
brokers instead of the current 350.
It is telling that between June 2012
and 2013 the number of brokers
28
tg_ _
f m
~
The curriculum of the
mandatory training
should be revamped.
There is a gap between
what is taught in the
course and the
requirements for day-
to-day functioning.
*,.
increased from 335 to just 350. The
best magnet to attract talent is to
showcase success. I would urge the
broking community to speak about
the businesses they have built.
Perhaps the regulator can publish
business performance publicly.
Today, broking firms do not attract
the best people. The best talent
tends to be hired by insurers. Why?
The broking profession should be
equally or more satisfying because
significant choice can be provided
to customers. The main issue is that
working at an insurer is seen as safer
and with better market recognition.
I would encourage brokers to offer
compensation with strong
performance incentives. Good
performers should earn more at
brokers. The profession should
attract entrepreneurs.
Invest in practical training:
Broking executives get trained in
three ways – on the job, by insurers
and by the mandatory 50 hours
training. Each of these three areas
needs to be improved. Most of us do
not really groom sales people well.
We have a tendency to leave new
hires on their own to learn by
themselves. Sales persons are
assessed by the set of captive clients
they have. As a result it is not
uncommon to see employees move
from one broker to another with the
same set of clients. This is an
intrinsically self-limiting view
because no new capabilities are
being built in executives. I would
like to see much more hand-holding,
joint client meetings and senior
management engagement in the
early days of a new hire.
Insurer’s training also falls short. I
have attended several of these
training events – most are a
company pitch or just lavish
entertainment. The broking
community is far more interested
in real knowledge sharing. Insurers
need to appreciate that our business
growth is fundamentally dependent
upon our understanding of risk and
pricing. Help us become better at
that. I find small working sessions
with insurers, without the trappings
of a large event rewarding. Insurers
should consider doing more of those
(and save some money in the
process).
The curriculum of the mandatory
training should be revamped. There
is a gap between what is taught in
the course and the requirements for
day-to-day functioning. Specifically,
the content on Health insurance and
Liability needs to be stepped up.
Cases should be introduced. The
training sessions that were best
were those where participants
debated an insurance case. Was the
claim payable? How could the
insurance have been better
structured? And so on.
From a philosophical standpoint
there are two ways of ensuring that
sales executives are trained. The
first is to control the input in terms
of hours spent in the classroom and
the material studied; the second is
to test people to see if they
understand the subject. This is the
format followed by universities
worldwide. GRE, GMAT, CAT are
examinations that measure
learning. However, there is no
mandatory requirement for studying
in a classroom or for a fixed number
of hours. Could the regulator
consider such an approach for
brokers? The quality of the
examination can ensure that sales
people understand the subject and
training costs will also come down
allowing more people to get
licensed.
Build well-recognized brands:
Several times, I have asked company
executives to name the insurance
brokers they are familiar with. The
results are revealing. Most do not
understand the difference between
a broker, agent or TPA. Those that
do are hard pressed to name even
five brokers.
We need to invest more in brand
building. This could be customer
facing advertising or by working in
smaller affinity groups. I look
forward to the day when brokers are
nationally recognized and inspire
universal trust.
Improve technology deployment:
A strong technology backbone is a
pre-requisite for scaling up. A good
system records information
accurately; factors in specific
requirements for the Indian market
such as endorsements, claims
statuses; and gives timely renewal
reminders. Many of the larger
brokers have built in-house systems
to track business. However, most
depend upon off-the-shelf broking
systems. These are still
underdeveloped. For example,
many broker systems are not web-
enabled, cannot be used on multiple
devices and do not integrate
efficiently with accounting
packages like Tally.
Technology providers need to invest
more into these systems. There is a
big market for them if they develop
and price the product right. There
is also an opportunity to provide
SaaS platforms for brokers.
Many of the larger
brokers have built in-
house systems to track
business. However,
most depend upon off-
the-shelf broking
systems.
Create an environment that
encourages capital investment:
The investment into broking, both
domestic and FDI, is small.
Worldwide broking is a highly
acquisitive industry. Brokers grow
by acquiring other brokers with
complementary skills and
presence. There are several broker
networks that operate in
international markets. A
significant number of leading
international brokers are owned
by private equity firms.
How can we create such an
environment in India while
preserving our fit and proper
criteria? One approach could be to
set a higher threshold for the
shareholder approval process.
Perhaps investment or share
transfer up to 26% could take place
automatically. FDI limits for both
insurers and brokers could be
increased in tandem to 49%.
Insurance broking is a cornerstone
for any insurance market. The
right steps taken today will yield
excellent long-term benefits for
the industry.
irda journal April 2014
I
The author is Managing Director,
SecureNow Insurance Broker Pvt.
Ltd.
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