a study on the status of the indian insurance advisory

AIR Country Profile – India

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January 2008

Roadmap for LiberalisationProfessional advice and intermediation are an integral part and parcel of the financial services. Thanks to nationalisa-tion of life (1956) and general (1972) insurance businesses, this important dimension of insurance business was rather stunted in the Indian context. In order to bring back competition, innovation and the highest service standards, the high-powered Malhotra Committee (set up by the Government of India) recognised the role of professional intermediation as a catalyst of change in this direction. The Committee’s recommendations (1993) became the roadmap for liberalisation of the insurance industry. It, however, took another 10 years for the insurance broker to arrive on the scene, two to three years after the first batch of private insurers.

Scope of the StudyOn behalf of the Bombay Chamber of Commerce and In-dustry (BCCI is one of India’s oldest industry associations), the General Insurance Committee recently undertook a “Study on the Status of the Indian Insurance Advisory. Function & Services rendered to Corporate Customers”. A questionnaire eliciting responses from Chamber mem-bers was posted on the official website. The aim was to understand the:• Risk profile of different industries• Services provided by intermediaries and satisfaction

level of organisations• Expectations from intermediaries and

suggestions on overall improvement• Future of the insurance advisory

Emerging PatternsA broad spectrum of industry rep-resentation emerged from those who responded. These being pharmaceutical, motor, consultancy, gems, oil, travel &

tour, fast moving consumer goods (FMCG) and financial ser-

vices. The risk profile of re spondent s wa s more skewed towards “medium” (59.50%). “High” being 12.5%

and “ low” being 2 8 % . Me mb e r feedback was also sought on various coverages availed,

A Study on the Status of the Indian Insurance Advisory

Mr Praveen Gupta, FCII, Chartered Insurer, General Manager, Bajaj Allianz General Insurance Company Ltd, shares findings of a recent study by the Bombay Chamber of Commerce and Industry (BCCI) on the status of the Indian insurance advisory and what needs to be done to take the nascent sector to the next level of development.

ranging from the commodity types (motor and fire) to more speciality covers (directors & officers’ liability), with 47% confirming having availed D&O cover.

On whether they had a separate insurance and risk management department, 56.25% responded in the af-firmative. On the one hand, this reflected a high degree of internal resourcing for insurance buying. This ema-nated from the fact that till very recently, there was none or very little external independent advisory available. In terms of what way this in-house resourcing did or could come in the way of outsourcing was not within the scope of this study.

“How does your company handle its insurance require-ments” had 49% confirming that they negotiated with their insurer(s) directly, being a natural corollary to the fact that having an in-house insurance buying mechanism was eminently suited to dealing directly with respective insurers. Again, to what extent this came in the way of nurturing professional intermediation or to what extent the lack was that encouraged the direct transaction was not part of the study’s scope.

Some degree of segmentation, though blurred to an extent, emerged with regard to the balance of 51%. Twelve percent said they used a local broker, 9% an international broker, 7% an in-house broking arrangement and 23% an agent/ broker. Given the early days of intermediation, even in locations like Mumbai, the distinction between the role play of a broker or an agent was not very clearly appreciated.

From Transaction-Based to Value-AddDetails of advisory or broking services availed and/or propose to be availed also gave some interesting insights. 65.63% said they used these, 15.63% did not, while 18.75% chose “not applicable”. The latter included re-spondents who might avail intermediary services in the future as well as those who chose not to comment. The list of services provided by the adviser/broker was fairly comprehensive:1) Advise on risk identification and control2) Risk retention analysis3) Property surveys and audits4) Obtaining quotes and negotiating policies5) Insurance programme design6) Benchmarking on policy limits, etc7) Advice on overseas exposure8) Claims management9) Negotiating coverage wordings



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Assessing an Intermediary Last but not least, given the Indian market’s propensity towards value for money, what do corporates think in this context of the intermediaries they use? Fifty percent of respondents believed they did, 19% did not, and 31% fell in the “not applicable” category. In the quality rating, 18.75% thought they were excellent, 25% were good, 18.75% were satisfactory, 3.13% each was average and poor, the rest were “not applicable”.

Learning from International MarketsWith more and more Indian corporates operating in-ternationally and many into increasing their merger & acquisition (M&A) mode, it was important to understand functions that they thought were available in other mar-kets which they would like to avail here. This, too, made a long list:• Advisers/agents/brokers must be allowed to issue poli-

cies on behalf of underwriters• Easy availability of trade credit, default liability, liqui-

dated damages• Fine prints, policy wordings, new terms and warranties

on insurance policies consequent to detariffication• Insurance audits• Product liability• Product recall for exports to Europe and the US• Wider/comprehensive policies for all assets • Managing overseas exposure• Deal directly with leading foreign insures/reinsurer on

global insurance cover

Whither Professionalism?Whether adviser/ broker met corporate requirements in terms of professionalism and business ethics, 34% said “yes”, 41% said “no”, while the rest were “not applicable”. Those saying “no” had several expectations:• Clients’ interest must be the focus• Proactive, qualitative analysis of risk needs • End-to-end solutions and not just sales, broker to be a

one-stop shop• Value addition in terms of risk retention, identification,

loss control• Proper product knowledge• Increasingly provide authentic knowledge• Pre- and post-underwriting assistance

In assessing an adviser/broker/intermediary before avail-ing services, there emerged a fairly comprehensive list of expectations:• Policy wordings post-1 April 2008 (after the total de-

mise of the tariff regime)• Exposure of the industry• Risk management techniques• Contacts• Reputation in handling multinational corporation

clients• Past experience• Discount provision, negotiating competitive terms/

rates• Help in claims settlement• Referrals/market feedback• Product knowledge• Quick end-to-end solutions• Client base/list• Cover company’s interest• International affiliations or exposure• Depending on risk cover and area of expertise/ knowl-

edge (need for multiple brokers)• Help at various locations provided• Role of ex-employees of insurance companies as chief

advisers/consultants

In balance sheet terms or percentage value of premium that advisers or brokers would be

placing in the next five years:


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In regard to preparedness of the intermediary, respon-dents were asked whether they were in favour of entrusting them additional responsibilities, and if so, in how many years. Forty percent did not wish to, 16% did in one year, 31% in two years, 13% in three years. Again, on whether brokers qualified for a risk management function when it came to corporate outsourcing of such functions: Forty per-cent said “yes”, 41% said “no”, 19% were “not applicable”. Those who said “no” had the following suggestions:• Brokers must be able to understand the working of every business• A shift from policy focus to risk focus required• Understanding of policy fineprint a prerequisite• Specialisation in specific industry/domain in order to

understand the risks involved• Understanding of liabilities in industries like financial

services and software

Finally, observations on how to improve overall ef-f iciency of insurance advisory/ntermediary function generated these suggestions:• Proper training for product knowledge must be given

to brokers

• They must be constantly in touch and impart informa-tion on new trends and developments, and not just turn up at the time of renewal

• Must act as catalyst in claims settlement• Insurance companies must trust their brokers

In conclusion, with the Bombay Chamber now in its 172nd year of existence, it represents virtually every corpo-rate in Mumbai, a market that represents 40% of all India corporate insurance premiums. Professional advice has the longest tradition and highest penetration in Mumbai vis-à-vis the rest of the country, even before the advent of professional and formalised broking. While the word “broker” has been used interchangeably with “adviser”, “consultant” and “intermediary”, it is the “broker” who epitomises all professional advice. The profession may be nascent to this market, yet the expectations are huge. The number of responses were not as extensive as its member-ship, but reasonably representative of where the corporates expect the Indian insurance advisory to be heading. This is not too different from what a recent Chartered Insurance Institute and Oracle study expected it to be for the UK market, from transaction-based to value-add.

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a study on the status of the indian insurance advisory

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