ifc+22+aug+2006 ramachandran
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Role of Brokers :Redefining Products & Service Excellence
K. Ramachandran, J.B. Boda, Mumbai
Presented to Insurance Workshop Organized ByInternational Finance Corporation22 August 2006, New Delhi
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The HistoricQuestion !
Nationalisation: 1972Consolidation + Marginalisation of the Intermediary
Liberalisation: 30 years later
Private Competition + Whole Range of DistributionChannels
You cannot have chicken
by breaking an egg..
you need to hatch it!
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Internationally share of brokers
varies considerably
Internationally share of brokers
varies considerably Prospects in India
Prospects in India
Brokers likely to capture 20-25% of total market in 3-5years time
India will follow internationaltrends and brokers will be anintegral part of the non-lifecorporate market
Brokers likely to capture 20-25% of total market in 3-5years time
India will follow internationaltrends and brokers will be anintegral part of the non-lifecorporate market65
5040
2015
0
50
100
USA Indonesia Britain Australia Spain
Brokers
(%) Share of GWP for Brokers
Source: Industry Interviews
Other
channels
Brokers` Share !
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Brokers` Share of
Corporate Risks !
Brokers` share of total commercial / corporate
business : - U. S. A. 90 % +
Australia 90 %
United kingdom 85 % Hong Kong 40 45 %
Clearly the broker market scenario is corporateoriented !
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The Origins - England
16th Century England
Drafting policy a specialized and legal task
Direct Approach:
If proposed policy simpleAnd underwriter known
Defining the Product : Intermediary Approach
Often a Book-Keeper or NotaryComplex contractMerchants and Moneylender as risk takers!
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The Origins - Americas
19th Century America
Great Fire of New York 1845
Fire ruined many InsurersDemand for insurance attracted many new insurersSupply exceeded demandInsurers solicited business through brokers
Product Freely Defined Insurers Depend on BrokersBrokers became established
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IRDA`s Expectation
The functions of a direct general insurance broker and direct life
insurance broker:
(a) obtaining detailed information of the client's businessand risk management philosophy
(b) familiarizing himself with the client's business andunderwriting information so that this can be explained to aninsurer and others
(c) rendering advice on appropriate insurance cover and terms
(d) maintaining detailed knowledge of available insurancemarkets, as may be applicable
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Fulfilment of Expectation
Detariff
Market is mature for agents and not brokers A paradigm shift can be expected when intermediary
practice is at the core of insurance buying
Informed processing of proposals leads to serviceefficiencies
Surrogate Underwriter
-upfront risk analysis
- devise a cover
- choose an insurer
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Better Insurance Management
Detariff
Brokers value add:
Customized Property / BI programs
Customized Liability programs An Extension of Risk Management
Less Premium and More Risk Transfer
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Agent vs Broker
Agent
1.Procure premium for his insurer
2. Exclusive single insurer relation
3. Identifies prospective clients.
4. No capital investment
5. Insurer responsible for conduct
6. Straitjacket offer
7. Take or leave
Broker
1.Offers advise for optimal cover
2. Works with any insurer
3. Identifies prospective riskissues
4. Minimum Rs.50 lacs + capital
5. E&O insurance - a must
6. Negotiated covers
7. Coinsurance / reinsuranceoptions
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Value ChainValue Chain
Commercial Lines BrokerCommercial Lines Broker
Assessment /
Analysis of
Clients Risk
Profile
Structuring
of Insurance
Program
Risk
Management
Services
Claims
Management
Policy
Administration
Market &
Negotiate
Program
with Insurers
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New Solutions
A Case Study of Turkey
Earthquake hits Turkey 1996Huge property lossWorld Bank Catastrophe Pool
Standalone EQ policy a selloutIncreases market premium 7 times
Initiative open to brokers
Indian market has seen insurer initiatives for Event Covers,Hospital Cash, P&I brokers are not seen in the forefront
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New Corporate Trends
o Listed companies need formal ERM for compliance
o Developing own internal risk management operations
o Brokers revenue can be commissions from insurers or feesfrom clients or both
o More corporates could move towards In-house brokers
o Clearly, the balance of power between brokers and insurersis changing.
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Major Service Issues
Survey by Deloitte of Regional Brokers in UK :
Good claims service 54% felt claims service by insurers asfair, 29% felt it to be poor ; services provided by solicitorscaused most dis-satisfaction followed by accountants and
insurers; greatest concern was with claims life cycle and thirdparty recoveriesCost of Premium
Deductible 37% of brokers have clients who opt for largevoluntary deductibles
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Brokerage Paid
2004-05 [audited]S.No Insurer Brokerage
> Rs.10 Crores Rs. In Crores
1 National 26.62
2 New India 19.82
3 ICICI Lombard 15.78
4 Oriental 13.91
5 United India 13.25
6 Bajaj Allianz 10.04
Market Overall 124.00
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JBBoda Group
The Grace of Tradition
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