Role in the Past
An insurance broker is seen as one of the intermediaries who operates in the insurance market. The term insurance broker finds a mention in the definition of the term intermediary or insurance intermediary in the Insurance Regulatory and Development Authority Act, 1999. The definition intermediary includes and limits itself to insurance brokers, reinsurance brokers, insurance consultants, surveyors and loss assessors. It would be pertinent to note that there is no mention of the term agent in this definition as of date.
The description “intermediary” is usually synonymous with the concept of a third party whose role is to ensure that both the parties to a contract obtain what they want, the third party working for both parties for their joint benefit. However, in the Indian context, the insurance broker has been seen since the introduction of the Broking Regulations as a person who will represent the insured and add value to the transaction. The relationship is almost invariably contractual supported by a mandate from the insured and is usually intended to be paid for the services rendered, by way of brokerage which forms part of and emanates usually out of the premium.
The upshot of this view was that although the broker owes his loyalty primarily to the insured, the broker gets ultimately paid by the insurer for services being rendered primarily to the insured. This leads to a dichotomy of sorts with the poser as to how an insured could trust the loyalty of his broker when the latter was being actually paid by the insurer. In the light of this method of receiving compensation, the scenario could be ripe for an unprincipled insurer to step in and take advantage of the situation vis-à-vis the insured by justifying his stance that it was the insured who desired to approach the insurer directly despite the presence of the broker owing to alleged loss of confidence and trust in the broker by the insured. Of course, in the international arena there were departures from this norm with consultancy assignments being undertaken on a Fee basis with payments made by the insured to the broker. The transition into this phase in India is seen in some segments where the role of the broker is perceived rightly by the user of such services by seeing value creation by the broker in the transaction.
As regards general insurance business in the tariff regime, the function of the broker was to advise the insured on a suitable insurance programme by improving the current programme and to attract suitable insurers on the best terms. In the absence of opportunity being provided to the intermediary to bring to the table his experience in drafting the policy wordings or for that matter in improvising the rates, a question was often raised as what is the value addition that the broker can bring to the transaction. The most important and crucial role that a broker played, which all would appreciate, was to increase the level of informed “decision making” by the insured in transferring the risk to the most competitive insurance company.
However, in the detariff scenario the role and responsibilities of the insurance broker has multiplied in the sense that he not only has to get the right price for the insured to enable him to take informed decision to select the right underwriter, but he also has a duty towards the underwriter to ensure that all parameters of rating a risk have been rightly applied. This is only to ensure that a clear balance is maintained so that one does not impinge on the other in the event of a catastrophe.
The Way Forward: Thrust towards developing and cultivating consumer loyalty
Advances in technology are transforming the traditional roles of the broker and the consumer. The broker is gradually evolving into the new role of the facilitator. He facilitates the satisfaction of the needs felt by the insured. In the process, the underwriter, broker and the consumer are forming symbiotic relationships in which their mutual loyalties are recognised and nurtured.
In the earlier era, when the broker was absent, the consumer was taken for granted. He was a docile underdog in the world of insurance. Business opening hours, mode of payment, suite of products, range of services was all decisions dictated by the underwriter at his sole discretion. Dissatisfied insured’s were pushed aside and the queue for buying the products continued to be filled in by the less demanding and more subservient consumers.
However, the unprecedented sea change brought in by the private insurers both in life and general insurance business post liberalisation of the insurance industry has resulted in a new movement where consumer delight is the buzz word. We have witnessed this in the banking and telecom sectors in our country in the last two decades and there is no reason why it will not catch up with insurance sector in the next decarde.
Shift Towards Retaining the Client
Handling over zealous and well informed consumers who are increasingly demanding to satiate for themselves the best of services, thanks not only to the purchasing power but also due to the variety of choice confronting them is going to be the order of the day. We have seen new patterns of consumption with the spread of electronic media and consumer activist groups. Though quality of product becomes the focus area together with price sensitivity, the moves made by the different players in the market clearly herald a drive towards consumer retention.
Today, as environmental awareness is on the rise and further, the media reporting of any managerial misadventure prompt and instantaneous, consumer reactions impinge far more swiftly on purchasing patterns. At times, the immediate fall out of this is that the consumer forms pre conceived notions with regard to supply side of insurance. In this context, the broker will have to play an important role to play as he will do the cementing of relationships with the right information. The true role of a broker will get tested and be up for judgement by those who would avail of his services.
Adequate Data Based Experiences
In the wake of the discussions above, a broker’s office would be expected to deliver far more than what has been delivered in the past. This would call for a high degree of qualified professionals with hands-on experience manning the brokers’ offices and the brokers’ offices functioning with a combined strength of the extended marketing arm of the underwriters and the erstwhile risk management role played by the in house team of the insured’s.
Implementing such schemes requires a high degree of professionalism, infrastructure to understand the forces that are redesigning the concept of the insured’s and dynamism into the market brought in by the changing roles of consumer group activists. A broker’s office therefore will have to be built on these foundations on which it is expected that the consumer loyalty will be built and sustained.V Sithapathy, Director and Principal Officer, VIG India Insurance Brokers Pvt Ltd Mumbai Director and Hon. Secretary, Insurance Brokers Association of India, Mumbai