Top Indian companies that were thinking of setting up corporate agency (insurance) and brokerage outfits are taking a relook at the business model. This comes in the wake of amendments made in the agency commissions norms last week. The Insurance Regulatory and Development Authority (Irda) issued a directive to the effect that individual and corporate agents cannot get any commission from insurance business garnered from companies whose net worth exceeds Rs 25 crore.
Considering that the annual insurance premiums of big corporate houses run in excess of Rs 100 crore to Rs 250 crore, this intermediary business had been considered a lucrative proposition by corporate India. However, the change in agency commission means that, on the one hand, no commission can be paid on business of corporates whose net worth exceeds Rs 25 crore, on the other hand the companies have the option to approach an insurance company directly and thereby get a five per cent discount on the premium. This discount could translate into huge savings for corporates considering that premiums run into crores of rupees annually.
"Should the restriction also come for brokers, this will be a setback for us and we will have to evaluate our business plan. If we cannot deal with large corporates and have to tap the retail segment, we will have to study the feasibility," said S K Mitra, managing director, Birla Global Finance Ltd. The Birla group was among the first to indicate its plans of setting up a brokerage arm to tap non-life insurance business and route it to an insurance company. "We plan to offer an advisory and risk management role to corporates," said Mitra.
More From This Section
Several business groups including the Birlas, the Thapars and other heavyweights as well as leading banks such as HSBC had plans for setting up broking arms. Many other entities including banks have already signed memoranda of understanding with insurance outfits for exclusive corporate agency business.
The attraction of setting up captive arm was to get the five to seven per cent of the premium income in the form of commission in the case of corporate agencies. The commission rates would have worked out far higher for brokerage firms. Broking commissions initially identified stand at over 15-17.2 per cent. The recent downward revision in agency rates, however, fails to augur well for the broking community. "I do not see that much of a differentiation existing between agency commissions and broking commissions. With Irda having slashed the former from the earlier 5-15 per cent to the present 2.5-5 per cent in the case of tariff products, a similar range is expected for brokers as well," said a leading broker.
The bancassurance model is not expected to be affected much so long as the business model evolves around penetrating the retail segment. Banks, however, like their corporate agency counterparts, will not be allowed to tap corporate business where the net worth of the company exceeds Rs 25 crore.