`INSURERS HAVE BEGUN TO COLLABORATE MORE OFTEN THAN TO CONFRONT': C. RADHAKRISHNA, CO-PROMOTER, INDIA INSURE

Has insurance broking really taken off in India? The answer to this really depends on one's expectations, says Mr C. Radhakrishna, co-promoter, India Insure. "It is a brand new industry segment, born (unlike as in other countries) in a regulated and restricted market, where it has been difficult for the broker to demonstrate value addition to the demanding corporate customer," he adds.

"Under these circumstances, a growth from `nil' to around 15 per cent of the market (Rs 4,000 crore plus of brokered premium) seems quite reasonable." One of the earliest entrants into the insurance broking industry, India Insure Risk Management & Insurance Broking Services P Ltd (www.indiainsure.com) started off with a focus on retail customers but quickly shifted its strategy to the corporate space.

The firm, which offers `total insurance solutions', ranging from assessing and developing the risk profile to critically analysing the terms of insurance and ensuring that the policies meet with the risk management plan of the corporate, has nine offices across the country and a base of over 300 customers. India Insure has a 100-plus employee team; and interestingly, the company spends over 40 per cent of its revenues on its people.

India Insure, which has consciously stayed away from the retail space, is now making a re-entry into this segment with the aim of becoming the single largest distributor of insurance products in India in five years.

Mr Radhakrishna believes that there will be a shakeout in the industry. In an in-depth email interview with Business Line, he shares his views on the growth of the insurance broking industry in India, the issues relating to tapping the rural market, and the consolidation that is likely in the industry.

Excerpts from the interview:
What have been the reasons for this rather late entry, in India, of insurance broking firms?

The industry was opened up for private insurers only in 2000-01. It took some time for the IRDA (Insurance Regulatory and Development Authority) to settle down and release guidelines for `broker licensing,' which finally happened in October 2002. Considering the priorities of the regulator and the Government, this wasn't all that bad a delay.

What have been the early trends you have seen in this space?

The broking industry is now 5-1/2 years old. The early stage saw a rash of licences (138 licences in the first 12 months), with a mix of serious (read long term) and not-so-serious players. Concept selling to corporates ("why you need a broker?" or "how we can handle your insurance portfolio better than you can on your own") and head-on collisions with insurers were the distinguishing features in this phase.

CFOs were beginning to hear the "broking" word for the first time. Expectedly, early support came from private insurers, who were both sensitised to the concept (through their foreign partners) and, more importantly, had everything to gain and nothing to lose.

The second stage saw corporates, agreeing to deal with brokers - some for the right reasons (price bargaining; outsourced administration; claims handling) and some for the wrong ones (pass back of brokerage). Awareness and acceptance of broking increased manifold.

One of the ancillary trends noticed in phase 2 was the diversification of several large brokers into retail business. The third and current stage is that of post de-tariffing. With pricing deregulation and free wording round the corner, and with clients having benefited from the services of large, professionally managed broking firms, broking business is finally coming into its own. Clients have moved from `tolerance' to `believing'. Insurers have begun to collaborate more often than confront.

Is there any learning we can take from overseas and well developed markets in helping grow this (insurance broking) space?

Benefits from broking are best seen when different underwriters are free to write their own policy wordings. India differs fundamentally from developed markets in terms of the absence of a truly free market, which means there is a problem of choice and therefore the need for expert advice. Complete de-tariffing should give a big boost to broking.

Are there specific industry verticals that you are going after?

We have all-round capabilities that will suit any type of industry vertical. Our focus currently is on the IT-ITES industry, and the manufacturing and infrastructure sectors. Also, we have constituted specialty verticals to take care of employee benefits, liability, projects and clinical-trial insurances.

How do you go about picking an insurance company? Are there certain metrics that you go by, or is it pure pricing-based decision?

The decision is not always based on pricing. When it comes to smaller corporates with a lower premium payout, it may be linked to pricing. As far as bigger deals are concerned, pricing is not the only factor influencing the decision. We have a fairly good knowledge of the insurance players in the market and their relevant capabilities (underwriting as well as service) in various types of insurances. We typically discuss these with the corporates and guide them to an informed decision.

What is the potential of the insurance broking market?

The potential that the market holds out to the broking fraternity is quite large. In developed markets, we find that 90-95 per cent of the insurance business is brokered and only a minor portion of the overall insurance is placed directly with the insurers.

We envisage that in due course of time (probably 3-5 years down the line) we should see about 65-70 per cent of the insurance business in India being brokered. Total dismantling of the tariffs will facilitate the faster growth of insurance brokers in India.

Is rural market an opportunity for your firm?

At present, the costs far outweigh the benefits of looking at rural markets for brokers. The IRDA regulations stipulate a minimum level of post-sale service and compulsory insurance training for all marketing staff. Further, IRDA does not permit a franchisee-type of business model. All these regulations taken together demand a high level of capital and revenue expenditure commitment, which is a disincentive.

Retail is said to hold great potential in India. Will you be looking at this market in the future?

We had strategically decided to stay away from the retail market and remained completely focused on the corporates' insurance requirements. After having established ourselves as one of the leading players in the corporate sector, we have decided to foray into the retail segment.

The market has witnessed shrinking of premiums on property insurance as a consequence of the de-tariffication. The insurers, therefore, have started concentrating on the retail market in India.

Our decision to also occupy space in the retail segment is in sync with the dynamics of the insurance market in India and is fuelled by our mission of becoming the single largest distributor of insurance products in India over the next five years.

This year, we will launch a pilot project in one or two cities, marketing retail insurance products - both life and non life - to employees of our corporate clients using the client's worksite. Our plan is to expand to all our branches in 12-18 months. After WSM (worksite marketing) is established, we will look at hard core retail.

What are your current revenues? Are you also looking at revenue models like a retainer-cum-commission-based model?

We managed a premium portfolio of Rs 270 crore for 2007-08. Our revenue consists primarily of brokerage/commission income, but in quite a few cases, clients have opted for a fee model. The idea is catching on slowly, especially with large customers.

Last year was not particularly good for the insurance industry. How do you see the future of `insurance broking' in the country and, more specifically, what's the outlook for your company?

From a pricing point of view, it might have been a bad year (hitherto-tariffed premium rates have seen drops of 80-90 per cent in many cases). But seen from a claims (losses) perspective, I think the industry has been having a good run the last few years.
The crunch will hit if and when the industry suffers a string of mega losses (catastrophes) riding on a soft market.

Insurance broking is in for a rough but interesting ride. Premium drops for insurers meant steep revenue cuts for brokers too. Finally, the men will be separated from the boys and only those brokers who have long-term ambitions and deep pockets will flourish. I expect consolidation to take place in the industry.

We are on a strong wicket and have been strengthening our internal processes and team quality in anticipation of the shake out. Our specialist claims management team is fully geared to meet the tough demands of large corporates.

We also have plans to grow inorganically this year through acquisition of other broker firms.

Source: D. Murali/S. P. Srinivasarangan The Hindu Business Line

INSURANCE COS WILL SACRIFICE PRUDENCE TO GARNER MARKET: ICRA

New Delhi: Credit rating agency ICRA has expressed the fear that private sector general insurance players will sacrifice prudential pricing norms in their bid to garner market share, following removal of mandatory price restrictions on certain schemes.

"With the price-based competition being intense in the post-de-tariffed scenario, concern for market share is likely to override price discipline in the industry in the near term," said ICRA in its report 'Indian general Insurance Industry- An Update'. After the de-tariffing of the general insurance sector last year, the price-based competition in the market has intensified and unlike earlier times, when private players were growing at the expense of the public sector, there has been a churn in the market share among the private sector players as well, the report said.

This is likely to have a significant impact on profitability and capital requirement of the business as well, it added. The government had gradually removed price controls on major insurance businesses like fire, engineering and own damaged motor insurance. Presently, only third party motor insurance is under price control.

Currently, there are 14 active players in the general insurance business, including four from the public. Over five years, the private sector has captured over 60 per cent market share and the gap between private sector and public sector has "narrowed substantially," the report said.

Source: PTI, The Economic Times

IRDA TO FRAME BENCHMARKS FOR VALUING INSURANCE FIRMS

Hyderabad: Valuation of insurance companies is back on the regulator’s radar. The Insurance Regulatory and Development Authority (IRDA) is on course to develop commonly-accepted benchmarks and disclosures to value insurance companies as this would be crucial when Indian partners dilute their shareholding.
The present regulation requires Indian promoters with a majority shareholding to dilute their stakes through an initial public offering (IPO) at the end of the tenth year of operations. The value of insurance companies hinges on several assumptions which could result in wide variations. It is different from valuing, say, brick-and-mortar companies listed on the stock exchange. Their valuation is generally based on the price-earning multiple — a measure of the price paid for a share relative to the profit earned per share. A high PE multiple suggests that investors expect higher earnings growth in the future. But this exercise is much more complex for insurers. Once an insurance company receives the premium from the policy holder, it has to fork out money for commission and other marketing expenses. The balance is invested in debt and equities and interest is added to the original investment. Then, on the date of valuation the solvency margins and mathematical reserves are deducted from this corpus. Solvency margin is the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policy holders. Mathematical reserve is the provision made by an insurer to cover liabilities on long-term insurance contracts. The balance amount in the corpus is used to pay claims and the net money that is available is the profit. If the insurance product is a participating product — eligible for bonus — only 10% of the profit belongs to the shareholder. The balance is used to declare bonus and belongs to the policy holder. If it is a non-participating product, the entire profit belongs to the shareholder. Hence, the profit can vary widely as the actual experience may differ from what has been assumed in pricing — cost, claims experience, investment yield and so on. In the worst-case scenario, the projected profit will be much lower than what has been assumed in the pricing. Valuation of insurers, hence, hinges on the assumptions and hidden profit which can fluctuate wildly. “It is important for the industry to follow some uniform method in estimating various components. This, in turn, will bring some closeness in the final outcome on valuation between various companies. Internationally, this issue has gained prominence with professional bodies setting valuation norms. Rating agencies event comment on these norms. In the days to come, the same will happen in India,” Irda member actuary R Kannan said. Irda chairman J Hari Narayan also reckons that issues such as valuation of companies will take the centre stage when the industry consolidates through mergers and acquisitions. Mr Narayan’s predecessor C S Rao had set up a panel to suggest ways to value insurance companies. Irda may now set up a broad-based committee to look at such issues. “There is a case for significant improvements in transparency and disclosure standards of the insurance industry. As a run up to the prospective initial public offerings, there is a need to agree on common disclosure practices, financial ratios and operational benchmarks so that there is a consensus among analysts to have a proper valuation for different companies”, Watson Wyatt managing director R Krishnamurthy said. Currently, the new business achieved profit — which reflects the value of a company’s earnings potential under a set of assumptions — is used for the valuation of insurers. Another method is the embedded value method or the value of the existing business in the books of the company. India’s insurance sector accounts for around 5% per cent of the GDP and has the largest number of life insurance policies in force in the world.

Source: The Economic Times

NIA starts new courses in insurance

Move To Bridge Gap Between Supply And Demand For Insurance Executives

NIA pass out Aftab Khan (right) receives the director’s gold medal from Ezzat Bary and K.K. Srinivasan at the 3rd convocation of the NIA on Sunday. Also seen are (Left to right) K.C. Mishra, Smita Totade, D.K. Mehrotra and Mangesh Patwardhan
Pune: Sample this. The insurance industry in India employs 45 lakh people, directly or through agencies, with the management executives constituting three per cent of this vast workforce. A recent survey by the Confederation of Indian Industry (CII) has projected the requirement of another 27 lakh manpower for the insurance sector by 2012. Demand for executives is pegged at three per cent level. K.C. Mishra, director of the Pune-based National Insurance Academy (NIA), explained, “The CII projection means an incremental growth at over 50 per cent of the existing workforce whereas, the supply possibility by the current rate is barely 5 lakh personnel by 2012.” The demand-supply gap is “huge”, Mishra said and added that bridging the same would take a Herculean effort. “By 2012, insurance and intermediary sector companies are expected to go up from the present 42 to 50 and from 180 to 210 respectively,” he said. Against this backdrop, the NIA, which is an apex training and research institution for insurance and related areas in the Afro-Asian region, has launched a slew of initiatives to partially bridge the gap for insurance executives. An Indo-British MBA course in financial skill development; a school for product developers; finishing schools for executives; and MBA-equivalent accreditation for 200-odd training modules offered by the academy, form part of this elaborate exercise, Mishra told TOI on Sunday. The NIA, set up by public-sector insurance companies with the support of Ministry of Finance, runs a couple of schools in insurance management (NIA-SOM) and executive education (NIA-SEE), which held their third and first convocation ceremonies, respectively, on Sunday. Mishra said, the academy has tied up with the Park Lane College at Leeds University, UK, to offer the one-year post-graduate (PG) level MBA at its Balewadi campus here from January 1, 2009. “The focus will be on social insurance related to health, micro-finance, pension, unorganised pension etc., besides a programme for young executives to mature as senior managers,” he said. The UK-India Education Research Initiative, a joint council of the British and Indian Prime Ministers, has extended an initial fund of Rs 40 lakh for the joint MBA course. The All India Council for Technical Education has approved 120 seats and the National Assessment and Accreditation Council (NAAC) has given an ‘A’ rating to the course, he said. “NIA and Leeds University have jointly worked out the course syllabus that stands scrutinised by the HRD Ministry and the UK High Commission,” he added. Mishra said, entry to the joint MBA course would take place at three levels viz. employees from the UK insurance firms with more than two years experience can seek admission, so can employees from Indian insurance firms with more than two years of service. An online exam, conducted by the Institute of Global Insurance Education (IGIE), which is an international consortium, will be the third option. The admission process would completed in October/November. With 97 per cent of the insurance workforce falling in the support segment such as surveyors, self-sustaining agents etc., an NIA school for product developers (NIA-SPD) is being started on a franchisee basis at the Balewadi campus. This is critical to insurance firms’ attempt to reach the untapped semi-urban and rural markets by designing innovative products and imaginative marketing. Similarly, finishing schools for young graduates to transform them into insurance executives are being started in foreign locations including Dubai, Thailand and West Africa, he said. The academy has got 200 of its training modules of varying durations, accredited as equivalent of the MBAs. “Those undertaking a specified number of training modules would be exempt from classroom studies for MBA,” he said. Smita Totade, NIA’s PG programme co-ordinator, said that beginning 2008-09, the NIA-SOM student intake has been increased from 60 to 75 seats and the MBA course too has gone through a major change. “We have now made project-based life as well as general insurance studies mandatory instead of students taking either one of these areas. They would further select either one of the functional specialisation in marketing, finance, HR and infotech,” she said. In all, 59 students from the NIASOM and four from the NIA-SEE were awarded degrees at the convocation ceremony.

Source: Vishwas Kothari Times News Network

NIASOM CELEBRATES REUNION

17 Aug 08 marked a historial event for NIA(National Insurance Academy) when all 5 batches of NIASOM(National Insurance Academy-School of Management) reunited on the occasion of convocation for batch 2006-08.The event was graced with the presence of some of the eminent personalities from the insurance fraternity. Mr.Srinivasan from IRDA was the Chief Guest at the function. Mr. D.K.Malhotra(M.D. Life Insurance Corporation of India), Mr.H.L.Chopra(Director, Edelweiss Insurance Brokers), Mr.H.R.Ansari were also present.
Dr. K.C. Mishra (Director,NIA) felicitated the students after sharing his thoughts with the gathering. He informed the gathering about the NAAC accreditation and the recent visit of the UGC Committee to the campus. Dr.Smita Totade (PGP Co-ordinator,NIASOM) and Mr. M. Patwardhan(PGP Co-ordinator,NIA-SEE) also shared their thoughts.
Degrees were awarded to the batch of 2006-08.Various awards for academic and overall achievements were also awarded.
All this was followed by the handing over ceremony of the Alumni association of NIA-SOM wherein the batch of 2004-06 handed over the charge of the Alumni association to the batch of 2005-07.Mr. Utkash Kumar has been elected the President of the Alumni association for the current year.