Vedanarayanan Seshadri, CEO of the insurance broking arm of Mahindra Finance, reveals trends in the non-traditional business opportunities and the enabling data and technologies:
In financial year 2021-22, Mahindra Insurance Brokers Limited (MIBL) brokered roughly Rs28 billion of premiums. This year it expects to reach Rs40 billion, reveals its CEO Vedanarayanan Seshadri (friends call him Veda).
MIBL is geographically present across most of India, with particular strengths in North, West and East. It has a network of 450 branches, which cover close to 200,000 villages. The retail distribution spans across rural, urban and semi-urban, but 70-80% of the business is semi urban & rural, given the large customer base in tractor and commercial vehicles.
Among corporates, MIBL’s largest customer segment is the manufacturing sector. Property, Engineering, marine are the traditional areas which continue to be showing good traction among corporate clients of MIBL.
Beyond the traditional business, the new emerging area is the liabilities business – both at an corporate level and at the individual level. That’s becoming a very large and most important area of interest. Firms in services as well as manufacturing, are increasingly seeking liability protection in terms of risks which arise due to product failures, legal action initiated against any of the employees, directors and officers, liability covers to protect against cyber risks etc.
Veda deep dives into some of the newer liability related offerings: “Warranty related issues arise for M&A related transactions and for transactions where there is a change of shareholding. Transacting entities are seeking to make these areas more watertight for disclosure related claims with a coverage and that’s one of the fastest growing segments. This can be extended to IPO offerings as well where company is going in for an IPO makes disclosures in the prospects. Now there is a fundamental assumption that the data/information being provided by the company is correct. But if later some error is found or there is omission of data, then the company needs to protect its directors and officers against lawsuits by investors against wrongful disclosure related claims are some examples.
India is seeing huge traction in terms of new enterprises being set up and existing enterprises going to the markets to seek funds. They will seek to provide the correct information, but they need a backstop in case of inadvertent errors. It is a standard product now in global markets, but in India it’s an area which is of great interest and MIBL is seeing good transaction in this area, says Veda. Whereas earlier 20-25% of the companies were showing interest, today almost all companies planning to enter the market are seeking protection for these risks. This is not just for equity, but also for a range of securities offerings where representations are being made and data being provided by the company which plans to list to potential investors
Veda also gives some examples of enterprise covers which are now becoming more sought after – fidelity covers protects a company from any fraudulent acts or where someone has misrepresented and done a fraud with the customer and therefore the company is liable to pay. There is also a crime cover. These are not large from a premium perspective, but definitely important.
To summarize, property is the largest segment by premium for MIBL while liability is among the fastest growing product lines.”
LINES OF BUSINESS
Mahindra Insurance Brokers Limited (MIBL), a subsidiary of Mahindra Finance, is a composite insurance broker, ie it is present in insurance as well as reinsurance. It was born in 2004, and has been in existence for 18 years.
MIBL’s business has 4 major lines. First is the retail business, which comprises personal line products like motor, health and life insurance. Second is the advisory business which is essentially for corporate clients who are looking at insuring larger risks for their business operations – eg Property, Engg, Marine etc. Third is for companies for their own people, such as liability for directors and officers of the company. Fourth is cyber insurance, for their protecting their entire enterprises, from cyber risks. Between retail and corporate, the split is now about 80:20, but the corporate business is a significant one and it continues to be a large growth driver.
MIBL also has a reinsurance arm which essentially provides a backstop for insurers for their portfolios and supports corporate clients for their large, complex risks. This line was started in 2012 and while a fledgling business is growing rapidly as well.
TECH DRIVES CX
Insurance sees tech being used in 3 key areas. First is the customer on-boarding process where there is a lot of focus on CX and making the right kind of recommendations. Here there is big scope to deploy AI & ML to leverage data available from customers and marrying it with the information available outside, with the dual objective of making the best recommendations and ensuring that the customer journey is absolutely frictionless. Retail has seen a lot of focus on customer on boarding.
The second area where tech is making an impact is claims servicing. The prime example of this is a vehicle accident claim which is supported with images and video, processed by AI & ML to determine the parts and labor cost, and that is used to derive the total estimate. This is now being used to process 60-70% of all such claims at MIBL. This technology runs at the insurer with integration with MIBL.
Veda explains the role MIBL plays as a broker in the tech enabled journey: “Ours is more of an interface to the insurer platforms. We are an intermediary and we can’t adjudicate on a claim, but we can ensure that the customer experience is consistent across all insurers. So, what we do is bring all the insurers on our platform and we ensure consistency. The variables which are being assessed for the customer, the service standards which are being set by various insurers – those are areas which we focus on while also providing integration. As far as the customer is concerned, he/she sees only one face and that is MIBL. So that’s the role tech is playing on the claim side.”
TECH DRIVES PURPOSE
One area which MIBL handles itself is property assessments. If there is a risk which the broker needs to evaluate and give information to the insurer, the earlier process was to physically go and inspect the risk and make an assessment as to whether the property has the right kind of safety measures from the point of view of electrical wiring, flammable materials, layout, etc. Veda explains the new process: “What we are doing today is we are using technology where we use a remote device to make an assessment of the entire plant premises, get photographs, get detailed information about how the physical facilities are. Then, at the back end, we compare it with similar facilities and we’re able to give a risk analysis to the customer and the insurer.”
This is now becoming a very important tool because it reduces the time and cost to do an inspection. However, more important is that MIBL can now make comparisons across sectors, geographies, clients, etc, making its role as a broker more meaningful. Says Veda: “Our job as a broker is just not to transfer risk from one end to the other, but also to give advice, something which the industry often forgets. We play a fairly important role in telling the client that if they want to actually bring down the premium cost, it works best to improve the management practices of the risk on the ground – and that is the area which you should use our expertise. The more you improve the quality of the risk, the lower the premium, as the frequency of incidence comes down. That’s the fundamental advice which we give to our clients and that is where they see value.”
Globally some of the large brokers have what is called an underwriting pen, which means that for some lines, they actually underwrite the risk on behalf of the insurer. India has not evolved to that level in terms of the ability or the regulatory comfort but that is the direction the industry can take.
BOOSTING PORTFOLIO QUALITY
The big thing MIBL brings to insurers is portfolio quality.
MIBL has to find a way to communicate to the insurer how to differentiate between a good customer and a bad customer, a good area and operation of bad area of operation, and so forth. For that, it looks at its portfolio of the book of business and looks for the fine cuts. It answers questions such as which portfolios are losing money, where the pockets of good customers are, where potential fraud risk are coming up, which areas should the insurers be more cautious and which areas they can perhaps take a little extra risk by bringing down the premiums.
Adds Veda: “The advantage we have is that while an insurance company will have data for its customers, we have data across the 30 insurers. So our assessments are that much stronger and widespread for us to have a more clear view on how to write the risk better. Beyond risk, we can also look at customer propensity for renewal, making claims, etc. We are actually working with a Chennai based startup for building a propensity model for customers who are likely more likely to renew.”
The propensity models are separate for motor and health and others. This is one area which differentiates one insurance broker from another, because a 5% improvement in customer lifetime value every year has a cascading effect. MIBL is also beginning to look at the data relating to interactions across channels to figure out how to further improve the customer experience and to improve upsell and cross sell. Veda describes all this as work in progress at MIBL.
CUSTOMER CONSENT
All this data analytics rests on an important pillar of customer consent, which is very important given the privacy related issues gain prominence. MIBL, being part of the M&M Group, has an additional advantage of having potential access to customer data from the group companies, such as the vehicle buying data, the vehicle financing data, and so on. Veda underscores a key point: “Anytime a customer interacts with us, the first thing is that consent is taken and then there is a team which uses this, which allows us individual companies to use data ethically.”
MIBL combines all this data with credit scores, vehicle type, customer occupation, claims data, etc, to find interesting correlations in terms of buying, renewal and more.
FOCUS ON CLAIMS
There are solutions today that can figure out the health of a person based on iris scan, face scan, etc. which basically use AI. MIBL is partnering with some health providers for providing risk scores to its potential customers when recommending to an insurer.
MIBL’s in-house team is focused on improving the claims interface because that’s a place where there is a lot of pain even today. So the team is focused on claims related information for both into cashless and reimbursement claims for both health and motor insurance, as health is the fastest growing insurance segment in the country and motor has been traditionally the largest.
There are off-the-block solutions available because there are readymade actuarial models for portfolio solutions. But for customer lifetime value and propensity modelling, while one has to use the base level models available, one needs to refine it based on the incoming data. Adds Veda: “There will be a need to keep doing iterations until you come to a certain level of probability which you’re comfortable with. You can start with let’s say an 80% probability of the outcome being at a particular level. But you would want to refine it to 90-95% and that takes time.”
HR MOMENTUM
MIBL has won a series of awards in the area of HR and Best Place to Work. Veda gives the credit for this to his predecessors. He comes from an engineering and marketing/finance background, but has worked in organizations where he had to manage a large number of people. So he doesn’t see a people assignment as a different one from what he has been doing. He outlines 2 important elements from a people / talent perspective. First: “If the place of work has a very strong purpose, that is a magnet for the younger talent. So profit and purpose are not exclusive.”
Veda’s second observation is that talent attracts talent, and that is an important consideration. He points out that this industry is consistently going to get disrupted in the next few years. So, in the next 4-5 years, the industry will see different skill sets coming in, requiring consistent retraining and reskilling as distribution models and business models change at great speed. Veda details: “So, if we have to get our people to stay committed, invested and deliver the way we want, at least one of my responsibilities will be to give them enough opportunities to reskill, retrain and realign themselves as the business models keep evolving. And that’s critical for us.”
IMPACT OF WAR
As covid ebbed, a new crisis emerged – war. War in Ukraine is the defining event of 2022, for the individual as well as for business, and more so for the insurance sector. The Ukraine war has had such a big impact that even some countries have gone bankrupt because of the rising prices of food and fuel, and the supply chain disruptions. Just imagine the chaos if another war take place, even as the world grapples with the ongoing war!
Veda adds: “War fundamentally brings uncertainty on the table, across societies and wherever uncertainty comes in, perception of risk rises. That drives people to start protecting themselves and insurance is a part of the. If there is no protection for the containers and ships to move from one destination to other, then revenue generation stops.”
Every time a war happens, the risk premiums have gone up, because war impacts property, transaction and transit. Once the cost of insurance goes up and it is unlikely to come down until the risk has materially changes /improved. Veda sees war coverage remaining more of an exclusion, and if the client wants to include, the pricing will rise as war is an unforeseen event which is not budgeted for or planned for. Catastrophes are planned for, but not wars.
THE TERM BROKER
“The term ‘broker’ unfortunately does not carry a great positive connotation in India. In some of the other parts of the world, a broker is someone who gives advice and finds something proper for the customer and represents his/her interests. In India the term is typically associated with the real estate guy who who’s just an intermediary trying to make a fast buck. We have a lot to do to change the perception of brokers and start defining insurance brokers as representing customers first. That’s part of my job,” concludes Vedanarayanan Seshadri.
_________________________
Read more-
