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| Post rally, insurers offer more discounts to brokers |
| Shilpy Sinha / Mumbai Jun 02, 2009, 00:07 IST |
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The change in the fortunes of the stock market has made things easier for brokers, as they would be getting higher discounts on their business indemnity covers that would be effective from on Monday.
Insurance companies are now offering bigger discounts to stock brokers. Sources said that discounts have increased from 15-20 per cent last year to 25 per cent now. For example, on a policy cover of Rs 5 lakh, insurers were charging a premium of Rs 35,000, which after discount will come down to slightly over Rs 26,000.
Also, the average cover size has doubled to Rs 2 crore. Sources said that the big brokerage houses such as ICICI Direct, Sharekhan and Edelweiss have taken covers of Rs 5-10 crore. Since 2001, the Securities and Exchange Board of India (Sebi) has made it mandatory for brokers to buy a minimum cover of Rs 5 lakh. However, most of the brokers chose to buy larger covers against errors and omissions during trading hours.
Typically, such covers kick-in when a broker makes a mistake while executing orders. For instance, instead of buying, they sell some scrip. In such a scenario, the client needs to be compensated. Though the claim ratio is quite high on these policies, insurers encourage brokers with low or no-claims record with good discounts. “We have given no-claim bonus and loyalty discounts to brokers,” said a senior executive of Oriental Insurance.
Last year, two brokerage houses, Credit Lyonnaise and Religare Securities, claimed Rs 11 lakh and Rs 29 lakh, respectively.
Sources said brokers have been keen to increase their cover size as they expected their business to improve after the recent rally. “A brokerage house raised its cover size from Rs 5 lakh to Rs 1 crore on the back of expectations of higher volumes,” said an insurance broker.
New India Insurance, Oriental Insurance and Iffco Tokio General Insurance are the three big players in this space. Oriental Insurance has the largest market share of 60 per cent.
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