Navigating the Future of Insurance Broking

Banking Frontiers organized its annual InsureNext conclave in January in Mumbai. The third fourth panel discussion explores broking from the perspective of expanding horizon, increasing penetration, customer mindset, etc. Edited excerpts:

Bahroze Kamdin set the tone for the discussion by challenging the traditional perception of brokers as mere quote providers. She emphasized that today’s insurance brokers are much more than that—they are solution providers, negotiators, and value proposition creators. This redefined role questions the need for an insurance broker in the traditional ecosystem, where insurance companies and the insured exist.

Shashank Mohan Agarwal provided a historical perspective, noting that insurance broking has been integral to the insurance industry since its inception. It’s not merely about being an intermediary; it’s about finding the right solutions for clients among multiple options and helping clients understand their needs.

Suresh Kumar Sethi further elaborated on this by comparing insurance brokers to doctors in the pharmaceutical industry. Just as doctors prescribe the right medicine, dosage, and regimen to patients, insurance brokers guide customers in selecting the right product from the right company at the right price. Moreover, like doctors who assist patients with side effects, brokers support clients in claim lodgment and settlement, highlighting the indispensable role of brokers in the insurance process.

Geeta Datta concurred, emphasizing the ease and cost-effectiveness of selecting appropriate policies with technical expertise. She highlighted the support system that brokers provide, spanning from product selection to claim settlement, which proves invaluable for customers.

Suresh Kumar Sethi added that insurance broking firms are equipped to assist corporate clients with risk assessment studies, often provided free of cost by insurance companies. Many MSMEs, corporations, and manufacturers are unaware of this facility, underlining the broker’s role in risk assessment and solution provision.

EXpAndInG thE horIZon

Bahroze Kamdin, bringing attention to the statistics from the IRDA website, pointed out that there are only 643 live brokers and relatively small number of insurance companies in India catering to India’s enormous population.

Shashank Mohan Agarwal highlighted a critical gap in the Indian market— its underpenetration at the retail level. According to Agarwal, India’s insurance market, especially in B2B and B2C segments, is ripe for expansion, necessitating a more robust distribution network facilitated by competent brokers and agents, particularly for MSMEs and SMEs.

In Suresh Kumar Sethi’s analysis, the mere number of insurance brokers doesn’t fully address the issue of market penetration. He observed that the concentration of brokers is predominantly in six metro cities, leaving vast regions and several districts without any brokerage services. Sethi argued for a strategic regulatory approach to incentivize insurance brokers to establish branches in these underserved areas, thus enhancing insurance penetration in India’s interiors.

This lack of penetration is starkly evident i n the i nsurance coverage of vehicles, with an estimated 60% of vehicles in India being uninsured, largely due to the absence of insurance brokers in nonmetro areas. Sethi’s remarks underscored a critical need for a solution that extends the reach of insurance brokerage to the farthest corners of the country, beyond the saturated markets of the metropolitan areas.

G e e t a Da t t a e mph a s i z e d the importance of enhancing service quality through regulation rather than merely increasing the number of brokers. Datta’s stance underscored the need for the market to foster competent brokers who can ensure clients receive the appropriate policies, coverages, and products at fair prices, ultimately benefiting society at large.

Suresh Kumar Sethi added a nuanced layer to this dialogue, drawing an analogy with the healthcare sector in India, which boasts a diverse range of medical practitioners from highly specialized doctors to traditional healers. Sethi highlighted the critical need

for penetration and accessibility of insurance services across India’s vast demographic. While acknowledging the importance of quality, he pointed out the challenge posed by the prevalent `lowest price syndrome’ affecting consumer behavior. According to Sethi, the primary objective should be to extend insurance coverage to the masses, even if it means initially compromising on the premium quality usually associated with higher costs. This approach, he argued, would pave the way for broader insurance adoption among the population, setting the stage for gradual improvements in service quality.

EnhAncInG pEnEtrAtIon

Shashank Mohan Agarwal shed light on the geographical disparities in insurance penetration, pinpointing the lack of broker presence in tier 2 and tier 3 cities as a significant barrier. While acknowledging the solid infrastructure at the enterprise level with multinational and Indian brokers, Agarwal stressed the necessity for a strategic expansion in the B2B sector, particularly among MSMEs and SMEs, where the potential for growth remains largely untapped.

Suresh Kumar Sethi expanded on this by emphasizing the importance of grassrootslevel engagement. He proposed leveraging the networks of traders’ associations, which often comprise thousands of members, to disseminate the message of insurance. Sethi highlighted the plight of MSMEs—a sector that, despite its vast contribution to the Indian economy, remains vulnerable due to inadequate insurance coverage. The personal stories of small business owners facing ruin after unforeseen losses underscored the urgent need for comprehensive risk management solutions.

Sethi further advocated for a broadbased approach to insurance, suggesting that coverage should extend beyond the conventional employer-employee paradigm to include affinity groups such as religious bodies, alumni associations, and other community organizations. This strategy, he argued, would not only enhance coverage but also foster a culture of insurance across diverse segments of society.

For India to achieve its ambitious goal of universal insurance coverage by 2047, a multipronged strategy is essential. This includes expanding the geographic footprint of insurance brokers to underserved areas, building partnerships with trade and community organizations to raise awareness, and innovating in product offerings to cater to the unique needs of different market segments. By adopting these approaches, the insurance industry can significantly contribute to financial i nclusion and resilience for individuals and businesses across the country, paving the way for a more secure and prosperous future.

AddrEssInG chAllEnGEs

Geeta Datta identified the ever-changing needs of customers as a significant challenge. She illuminated a pervasive dilemma in the industry: the quest for high-quality coverage at the lowest possible cost. This relentless pursuit of discounts, despite the demand for quality, represents a conundrum for brokers striving to meet client expectations while maintaining service standards.

Supporting Datta’s observations with concrete examples, Suresh Kumar Sethi delved into the impact of de-tariffing since January 1, 2007, particularly highlighting the extreme discounts offered in property and marine insurance. This practice, while initially appealing due to cost savings, often leaves customers dissatisfied in the event of a claim due to inadequate support and settlement issues. Sethi pointed out the detrimental effect of a single dissatisfied customer’s experience on the reputation of insurance companies and brokers alike, emphasizing the far-reaching implications of prioritizing low costs over quality and comprehensive service.

Sethi advocated for a more informed approach to purchasing insurance, where customers, guided by knowledgeable brokers, select the right product at the right price from the right company. Furthermore, Sethi underscored the importance of expanding the insurance brokerage network to more districts and engaging with affinity groups to enhance the penetration of group term and health insurance.

consuMEr MIndsEt

Agarwal highlighted that i nnovation in product offerings could significantly enhance the industry’s ability to cater to a broader customer base with varied needs.

Geeta Datta further expanded on the topic of product innovation by addressing a distinct challenge: the prevalent mindset among Indian consumers that “nothing will happen to me.” This attitude poses a considerable barrier to convincing potential clients of the need for adequate insurance coverage. Datta pointed out the difficulty in persuading individuals to invest in policies that match their actual needs, such as substantial term or health insurance coverage. Despite the efforts of brokers and regulators to educate and guide customers, acceptance remains slow, underscoring a cultural hurdle that the industry must overcome.

The discussion underscored a dual challenge facing the insurance brokerage industry: the need for regulatory agility to allow for the rapid introduction of new and tailored insurance products, and the task of shifting consumer perceptions about the importance of insurance. The panelists expressed optimism that with concerted efforts from brokers, regulators, and the industry at large, these challenges could be addressed, leading to broader acceptance and adoption of insurance products across India.

EMBrAcInG nIchE MArKEts

By drawing from his extensive experience, Sethi illustrated the innovative approaches that insurance brokers can employ to meet the diverse needs of clients while ensuring costeffectiveness and comprehensive coverage.

Highlighting a practical solution to the demand for high-value health insurance policies, Sethi explained how a

combination of a base policy with a super top-up could offer substantial coverage at a fraction of the cost of a traditional one crore rupee policy. This approach not only demonstrates the broker’s ability to tailor solutions to individual client needs but also their role in facilitating claim settlements efficiently.

Delving into the broader potential of the insurance market, Sethi shared compelling case studies that underscored the importance of exploring niche insurance markets. The first case involved the unique challenge of insuring London’s black taxis, which faced high insurance costs due to a higher accident rate. A specialized insurance company emerged to address this issue by partnering with specific workshops to manage repair costs effectively, showcasing an innovative approach to a seemingly intractable problem.

The second case study highlighted the difficulties in obtaining health insurance for spouses joining their partners on merchant navy ships. This scenario revealed a gap in the traditional insurance market, eventually filled by a London-based insurer specializing in covering this unique risk group. These examples underscored Sethi’s argument for the insurance industry to diversify beyond conventional products like motor and health insurance and tap into specialized markets with distinct needs.

InnovAtIvE products

Shashank Mohan Agarwal highlighted the emergence of parametric insurance solutions in India, a concept widely adopted globally but still gaining traction in the Indian market. Parametric insurance, which offers payouts based on the occurrence of predefined parameters or indices rather than traditional claims processes, represents a significant innovation in the insurance landscape, promising

Suresh Kumar Sethi contributed further to the discussion with the case of pet insurance in India. He critiqued the design limitations of these policies, such as age restrictions, which hindered broader adoption among pet owners. Sethi’s observations pointed to a disconnect between product designers and the actual needs of potential policyholders, emphasizing the necessity for those designing insurance products to have direct experience or deep understanding of the needs they aim to address.

Moreover, Sethi addressed the broader issue of data accessibility and transparency in the insurance industry. He criticized the practice of categorizing diverse policies under a miscellaneous umbrella, arguing that it obscures the visibility and understanding of specific insurance products like cyber insurance, liability coverage, and pet insurance. By advocating for open access to insurance data, Sethi underscored the importance of data-driven decisionmaking in the development and marketing of innovative insurance products.

The discussion underscored a pivotal opportunity for insurance brokers to act as catalysts for innovation within the industry. By leveraging their unique position at the intersection of insurers, policyholders, and regulatory bodies, brokers can not only facilitate the introduction of novel insurance solutions but also ensure these products are tailored to meet the evolving needs of the market. Furthermore, by championing greater transparency and data sharing, brokers can contribute to a more informed and responsive insurance ecosystem, ultimately driving growth and accessibility in the sector.

BoostInG trAnspArEncy

Suresh Kumar Sethi highlighted the importance of specialization and the untapped potential within niche markets, such as gem and jewelry insurance. By sharing a compelling case study, Sethi illustrated how specialized knowledge and expertise can lead to successful claim settlements, emphasizing the critical need for brokers to cultivate specialized skills to cater to diverse market segments effectively.

Shashank Mohan Agarwal emphasized the importance of transparency and clear communication among brokers, customers, and insurers. He advocated for brokers to articulate the intangible value they bring to the table, justifying their commissions with a clear demonstration of the benefits to the clients.

Bahroze Kamdin reiterated the vital role of insurance brokers beyond mere sales. She stressed that brokers play a crucial role in advising customers, helping them design tailored insurance policies, and facilitating claim se ttlements. This perspective challenges the traditional view of brokers as mere intermediaries, positioning them as essential partners in risk management and financial planning for individuals and businesses alike.

Suresh Kumar Sethi expanded on the idea of insurance brokers as integral members of the client’s financial and risk management team. He illustrated this by discussing the complexities of managing insurance needs across various assets and policies, advocating for the consolidation of insurance needs with a single, competent brokerage firm. This approach not only simplifies the insurance landscape for consumers but also ensures comprehensive coverage and support.

The panel’s discussion underscored a paradigm shift in the insurance brokerage industry. Brokers are envisioned not just as intermediaries but as trusted advisors, risk assessors, and claim settlement facilitators. The emphasis on specialization, transparency, and customer-centric approaches highlights the evolving dynamics of the industry. As the sector moves forward, with an aim to achieve the vision of insurance for all by 2047, the insights from the InsureNext & InsurTech Awards & Conclave 2024 serve as a guiding light for insurance brokers, urging them to innovate, specialize, and deepen their engagement with clients to meet the complex demands of the modern insurance landscape.