We must make india a Global Re-insurance Hub
Prabodh Thakker, chairman, Aon Global Insurance Brokers, speaks about the challenges and opportunities in insurance and broking:
The Manoj Agrawal: We had storm in Orissa and flood in Uttarkhand. From your industry point of view, what percentage of prospective customers turns into actual customers because of the media exposure, not because of the disaster itself?
Prabodh Thakker: Large corporates and the government are always well organized in terms of insurance due to several factors such as investor pressure and being well informed. When it comes to public at large, this definitely raises the question in their minds. Why they buy or not buy is not only about the desire or the momentary information. There is a variety of reasons, why people are not able to buy insurance in the country. It is the distrubition issue. There is reach. There are incentives and disincentives. Following 25 July 2008, when the train bomb blasts took place in Mumbai, we did a survey by employing students. They reached to approximately 187 families that were affected. Each of these families was covered by Indian Express newspaper. The outcome of the study was that 92% of the people had no non-life insurance. However, 45% of these people had life insurance. The premium for life insurance for Rs1 crore is approximately `3-4 lakh. The same premium for personal accident through non-life would be only `6000. The question is why are people spending Rs 3 lakh but not `6000, for accidental death and disability. The issue is that Indians have a mindset that life insurance gives some returns and tax benefits. Non-life does not offer anything like that. For `6000, who will sell you the policy? Agents are highly incentivised. You journalists move around a lot and meet a lot of VIPs and are very vulnerable. All that is insurable. So, media visibility is helpful but is not converting to actual business. But if media can take one step forward in this, ie, apart from showing the disaster related to the problems, they can share what to do in such situation and then compare insured and uninsured scenario. In USA, the Philippines, etc which are vulnerable to cyclones and typhoons, there is a lot of education by media apart from just reporting.
When a natural or man-made disaster takes place, have customers asked for new information or analysis?
Not really. But the Uttarakhand disaster was very unique. Companies buy insurance that covers fire, earthquake, etc. One hydroelectric project was affected to the extent that the flood debris covered its entire property and assets, though the property itself is largely undamaged. That is thousands of tons of debris. To remove that, the cost is not enough to be covered by insurance. Questions are then asked what were the insurance advisors and brokers doing. But insurance is always reacting. Unfortunately, India is a very price centric market. The only way ahead is to have the government make it mandatory.
What happens when you have illegal construction and what role does insurance play?
By and large, the insurance contract will not support anything that is illegal. The 2013 real estate bill will have an impact because it will affect the legality of the land possession. Unfortunately, we don’t have a system of discussing case studies in sufficient depth in forums and conferences. IMC has done a survey after the train bomb blast among the affected looking at parameters like gender, income, age, and submitted that report to the government and regulators. We also brought ruling and opposition parties for a single point agenda discussion – how to make India a re-insurance hub. When we started in 2002-03, the market was `6000 crore and today it is `75,000 crore. Which industry has grown at that pace, apart from telecom? As the market grows, the insurance industry needs the capacity to write large contracts and to protect its own balances. So, these companies buy re-insurance in the international market. What is India lacking to become a re-insurance hub? Our domestic market premium is much larger than Dubai or Singapore. This will help the country bring in foreign exchange and retain our own foreign exchange. Some of the issues holding this back are unpredictability in tax structure, government policy uncertainty, city infrastructure, quality of real estate, quality of people, etc. These things are better in Singapore and Dubai. London has it traditional and institutional values. What we need is the support from Parliament.
What is the most important innovation that has happened in your company in the last 12 months?
I would say affinity and self regulation. These are the 2 areas where we have progressed well. We are giving a lot of importance to compliance and self regulation. It is very costly for agents to reach individuals. So the trend is towards e-commerce. Affinity is like connecting all journalists though some portal. There is a beginning and there is a long way to go. But, we are basically a wholesaler. So we encourage our customers to provide online insurance to their employees. But it is complex as it has to cover buyers, sellers, IT platforms, compliance, service issues, cancellation issues, additions and deletions, etc.
What is the biggest people challenge you face?
Things are favorable for the insurance industry. Lots of youngsters and fresh MBAs are aspiring to be insurance professionals. There are several colleges offering 2 year MBA. This industry needs to manufacture more talent as the PSU talent pool is retiring. There is an acute shortage at middle and senior levels. We hire about 100 people a year.
In the financial sector, the word broker has become tainted in India. If the situation gets worse, what do you see?
The acceptability of brokers among clients is increasing. Those who have good conduct and healthy practices will survive. I think the market is distinguishing between quality companies and fly-by-night operators. Ethical practices are increasing in corporate India, even though we see more of the opposite in the media.
Your industry is highly prone to mis-selling and frauds. What steps are you taking to keep your reputation intact?
The mis-selling is more evolved in life and financial products. It doesn’t happen easily in non-life. What can happen more here is error and omission. I haven’t seen people deliberately mis-selling. It can be ineffective and less knowledgeable sales person. Our annual review covers not only targets but also compliance and errors. Better is to prevent errors by education and training.
What are the challenges in insuring distributed infrastructure, say bank branches?
That is no problem at all. The sophistication comes in say sports and leisure. When you have say, a cricket match,thatis cancelledorcutdown,then the advertisement revenue goes down. That is insurable.
Do you do celebrity insurance, say a singer losing his voice?
What we do is disgrace insurance. Say a company has Tiger Wood as brand ambassador, and suddenly the brand ambassador is disgraced, then the company can protect itself against that risk through insurance. The company also would not inform the brand ambassador about this.
Have you seen any company adopting insurance as a CSR activity?
Every well to do person can do CSR through insurance. Everyone would have heard from their maids/drivers etc about some misfortune at home. There is something called package cover for domestic helpers. Instead of bonus, give these people package cover. Cash can get misused, but this cannot.