Insurance Broking – Will it Pick up Pace in 2018?
The insurance industry is set to undergo a massive change, moving from a seller’s market to a buyer’s market, with insurance broking being the only channel to represent the customer.
The insurance sector in India is still at an early stage, with a penetration rate of just 3.42%, far below the global average of 6.2%. The nature of the business of insurance is such professionalism in the industry needs to be encouraged not just through legal standards, but also through ethical conduct. Though the Insurance Regulatory & Development Authority of India (IRDA) grants licenses to insurance brokers, it is the self-regulation at the level of brokers themselves that can bring in higher professional standards. Therefore, to build a higher level of trust and professionalism in the field, technology seems to be the catalyst to bring about this change.
Online insurance penetration is abysmally low in India, though it has shown immense potential in the past two years, with rapid evolution and exponential growth happening in this space.
With the meteoric rise of ecommerce and quick adoption of internet based transactions in India, the online insurance industry is definitely finding favour among the urban consumer. This has opened the market for insurance broking in direct, reinsurance and composite segments. Globally, direct brokers help their client plan their insurance needs, identify insurance companies, negotiate prices and place business. They also provide post-sales services like changes in policies, negotiation with insurers in case of claims, policy renewal support etc. Risk management is another significant area where insurance brokers look at the businesses in totality and identify risks, plan out remedial steps and recommend suitable ideas for handling contingencies. Insurance constitutes only a part of overall planning and is best suited for large but infrequent risks.
In most developed nations, Insurance brokers market share is over 70% of the total insurance industry. However, in India this figure stands at just 30% for the general insurance industry and less than 1% for the life insurance industry. The field of insurance broking is being positively looked at by the Indian government as well, which is considering allowing 100 per cent foreign direct investment in insurance broking with a view to giving a boost to the sector and attracting more funds. At present, the FDI policy allows for at present, allows 49 per cent foreign investment in the insurance sector that encompasses insurance broking, insurance companies, third-party administrators, surveyors and loss assessors. The removal of foreign investment limit will encourage more players in the market with high technology, and also increase insurance penetration in India.
The insurance sector is being impacted due to weak distribution networks, generating the need to strengthen the distribution network to support the sector as a whole. The industry is also marred by issues faced by the consumer such as complicated policies, policies being ‘mis-sold’, and hassles with claims. It could be due to information asymmetry between the insurance players and the customers. Traditional channels (agents) have been unable to resolve this, and have sometimes, unwittingly, even added to the problem. Through technology powering the buying of insurance products across insurers in a simple, quick and personal manner for the user, these issues can be addressed in a seamless manner.
The Way Forward
The insurance industry is set to undergo a massive change, moving from a seller’s market to a buyer’s market, with insurance broking being the only channel to represent the customer. Though broking registered the highest CAGR of 27.7% between FY10 and FY15 among the major channels in non-life insurance, the channel is still evolving and needs to meet risk management requirements of customers comprehensively. Besides some concerns about regulations, most brokers are optimistic about their growth in the coming years.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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