Brokers Entry Seen Spurring Insurance Sector Competition

Real competition in the insurance sector will emerge not with more players, but with the entry of the insurance broker, who will look into the interests of the client, according to Fali Poncha, vice-president of the Insurance Brokers' Association of India.

The association has received formal approval from the Insurance Regulatory and Development Authority (Irda), recognising the formation of the body.

However, the issue to allow entry of brokers in the insurance sector continues to hang fire, with the government having referred the issue to the parliamentary joint committee. Only when both the houses pass the motion will necessary amendments be made to the Insurance Act of 1938, allowing entry of intermediaries, other than agents.

The association has approached the parliamentary committee to express its views on brokers' entry into the Indian insurance market, as was recommended by the Malhotra Committee report. The report highlights the need to re-introduce a broker system after a span of 62 years and strengthening the tied agency network.

The brokers' association has a membership of 40 and this is expected to increase to 200 to 500 shortly. "The requirement of capital could be the inhibiting factor in becoming brokers," said Fali Poncha. According to the brokers' regulations as proposed by Irda, the minimum capital for a direct broker has been pegged at Rs 25 lakh and Rs 1 crore in the case of a reinsurance broker.

The brokers have been pushing for their cause even before the insurance sector saw the entry of the first private player. However, members of parliament have been skeptical. Some MPs have confused the insurance broker with the stock market broker, expressing fear of a repetition of what has taken place in the capital market in terms of various scams.

Refuting apprehensions that entry of brokers would be the end of the tied agents, the association's president Bharat J Boda said: "Agents and brokers co-exist worldwide -- each serving the interest of the client. Brokers globally account for around 75 per cent of corporate business placed with insurance companies". Banks in India have also expressed interest to become brokers, but are equally awaiting amendments to the Insurance Act.

Brokers and all intermediaries alike are, however, threatened by the five per cent direct discount on premium offered by insurance companies to corporates approaching them directly, Poncha said. The General Insurance Corporation of India (GIC) issued a directive to the erstwhile four state-owned general insurance subsidiaries that in lieu of an agency system, insurance arms could offer a five per cent discount on premium should the corporate directly approach the insurer.