Irdai's Tripathy cautions against practices by brokers to boost valuation

IRDAI's Satyajit Tripathy highlights the need for sustainable growth in the insurance broking industry, cautioning against practices that may harm the sector in the long run

Amid the growing mergers and acquisitions (M&As) in the insurance broking space, Insurance Regulatory and Development Authority of India (Irdai) has cautioned against practices adopted by players in a bid to increase their valuation.

 

According to the insurance regulator, this may be detrimental in the long run.

 

“The regulator is seeing day by day increased activities in this area. While this is fine by all means, I must add a word of caution that with increased growth being seen, we need not be adopting what we call as sharp practices to increase valuation, get listed, and to do business in a way, which may in the long run prove detrimental to the whole ecosystem,” said Satyajit Tripathy, Member – Distribution, Irdai.

 

Last year, the insurance broking industry saw several M&As, including acquisition of Aditya Birla Insurance Brokers by Edme Services, which is backed by Samara Capital, Norwest Venture Partners and Creador.

 

Also, according to the report published by Insurance Brokers Association of India (IBAI) at the event - the inflow of private equity capital to Indian insurance broking rose nearly 20 times between 2011-17 and 2018-24 to $4.8 billion from $0.2 billion. However, the number of deals during this period dropped almost to half, hinting at higher inflows across the deals. 

 

Tripathy also highlighted the key role played by insurance distributors in penetration and the need for the distributors to nurture and mentor talent to create long-term value in their set up. 

 

“...there is enormous potential for the companies, for the industry to grow and this growth will come with proper backup from the intermediaries themselves. There is no other business where the need for intermediaries to acquire business, advise clients and even extend these services to serviceable claims also is more,” Tripathy said. 

 

He also said that the regulator has envisaged several changes for the distribution space which will enable the distributors to grow business not just within the country but also abroad. 

 

“Once those distribution changes are brought about in the market, you will find a lot of flexibility, a congenial atmosphere to grow, and  increase your business not only in the country but overseas also. While we welcome foreign direct investment into this sector, we also want to see Indian intermediaries grow significantly. They should be in a position to acquire businesses overseas also,” Tripathy added.