by teamrecThe industry is passing through one of its most turbulent times ever. The losses are piling up as a result of the reduction in premiums and giving it a spiral effect is the rising costs of operations. Each player is piping the other to the post by offering a higher discount. In fact, on a lighter note, the term UNDERWRITING is nowadays referred to as “WRITING” a premium cost which is “UNDER” (or below) the competitor. In the hot race to build a top line over the years, every body seems to have forgotten that bottom line is equally important and unless there is a clear focus on bottom line the business can not carry on endlessly. Even the international reinsurance markets, which were very glad to accept Indian treaties till a few years back, have taken a very cautious approach on accepting the treaties of Indian companies. The insurers are already facing the heat and the consequent effect on the insurance brokers is getting visible. There have already been moves to reduce brokerage on several products, the recent one being the reduction in brokerage fee for group insurance products. Also, in an effort to reduce costs many companies are trying to engage with the clients directly. For the brokerage firms, the hit is also from the core, as what used to be their brokerage amount is now virtually the premium size. While the blame game is on among the industry players, the only segment which is smiling, as of now, is the customer. However, even this smile is temporary as the current situation may not last long.
So, what exactly is ailing the industry? Where is the situation leading towards and is there a solution in sight?
The first thing to understand is that the present situation has not emerged overnight. It is a result of a series of events since the privatization.
Prior to the privatisation the market was absolutely controlled by the PSU players. As the private players aggressively expanded, a majority of them did so by offering unofficial discounts or paybacks to the clients (as the market was still tariff driven and no discounting was allowed).The PSUs market share was hit in a big way but they couldn’t do much , as being government owned , they couldn’t manage such pay backs . Another important thing to note here is that, in the case of private sector, while the premiums were still high on record, they were actually much lower.
Then came the detarriffing move and the hell broke lose. The PSUs who were till now only the bench sitters seized the opportunity and pounced back with steep discounts. It seemed that they would leave no stone unturned as they wanted to make up for the lost time .The ongoing price war ensured that there was only one way street for the premiums…down ..and further down. As it happened, the balance sheets of all insurers, whether public or private, started bleeding profusely .In this scenario the PSUs were slightly better off because of their reserves (built up during the golden pre liberalisation era). Now was the time for private players to call for a fowl .The tables had turned topsy turvy. As more new players entered the scene, the situation became messier and FREE FOR ALL FIGHT emerged. In the middle of all this, the brokers’ revenues were hit in a big way – by the reduction in premium size / amount, on account of reduced brokerage % and direct approach with the clients by the insurers.
The premiums continue to dip as of now and the situation is likely to continue for some more time .It is expected that the situation is likely to improve only around the second half of year 2010 .That is the time around which the premiums will start stabilizing at the lower levels and it will take another 18- 24 months before they start rising moderately and will return to a healthy level. This is based on the assumption that the insurers will mature and stop cutting each other in the price war and follow an approach based on the balance between the underwriting and commercial needs of business. During this period, the Darwin’s law- SURVIVAL OF THE FITTEST – is bound to come in to play and thus a lot of consolidation activity (including a few mergers & acquisitions) is bound to happen.
The insurers will also realise that their primary role is that of an underwriting and not marketing. That’s the way the international markets operate .A typical international underwriting organisation (insurer) will have only a core team of employees in underwriting, claims and operations. The few people in the marketing department are those which take care of branding, market research and channel development .The underwriters marketing teams focus is just to ensure that they have an alignment with all the independent marketing channels including bankers, brokers / Agents and institutions. There is absolutely no need to develop a huge marketing organisation, which only bloats the operating costs. The Higher growth of life insurance market and its leader in India, LIC, is a clear case to establish this point. While the general insurance industry in India created its own huge marketing force (adding to the fixed costs) , the LIC focussed clearly on growing their agency force ( which works on commission basis and thus does not add to the fixed costs ) . The insurers may also look at outsourcing as much of non core activities as possible to reduce the fixed/ operating costs. The need of the hour is to look inward and propose ways to ensure faster and convenient service levels, especially those relating to claims. The insurers need to emerge out of the shackles of past, shed their flab and become lean.
Nature teaches us the basic rule of co existence – which each and every living species has a role to play. We should focus on our own role and ensure that we do not over step on each other. The only way for a healthy future is to cooperate and co exists. The insurers need to understand this basic principle .They need to become customer centric and broker friendly. For a long term and healthy growth of insurance market, all the activities should be mutually beneficial to all the parties concerned (Insurers, Brokers and Customers). That’s the only way ahead for a glorious future .
The international trends in the past suggest that sanity will prevail and a healthy market will emerge out of the ashes of the current markets. Here’s looking at a path breaking year 2010, which is definitely going to be a benchmark year for the insurance industry.
ABOUT THE AUTHOR
Mr. Rajiv K. Raizada is working as Head – Strategy & Business Development, for ICICI Lombard General Insurance Co. Ltd. He has 22+ years of Sales and Marketing experience in Financial Industry.
A Management Graduate from IMT Ghaziabad and Diploma from IIFT, he has played a key role in the rapid growth of the organisations he has worked for.
He is a rare combination of Dynamic Leadership, Result Orientation, Hardcore Selling Skills, Client Servicing, CRM, with a Good Knowledge of Strategy and a Rich Experience in the Insurance Industry.
Rajiv understands the importance of skill development, training and improvement and invests considerable amount of time and effort in such programs. He has undergone various certifications in Insurance Industry, Licenciate General Insurance, Composite Brokers Examination, International Programme in Reinsurance.
He has worked with leading organisations from ICICI Lombard to Hero Corporate, SREI and Shriram Group etc.
