New Delhi, June 4: General insurance companies will be approaching the insurance regulator seeking its permission to allow credit rating firms to rate insurance brokerages.
“As the new chairman of the Insurance Regulatory Development Authority (IRDA) comes in next week, we insurers will collectively request him to permit rating companies to rate brokerage firms,” said a senior official from General Insurance Corporation (GIC), the national reinsurer.
He said good brokerage firms do everything from premium collection to claim recovery and also sometimes help in reinsurance businesses. “It is therefore important for brokers to not only be reliable but also to have in-depth knowledge as they practically handle all high-risk portfolios.”
Explaining the benefit of having a rating system, an IRDA official said, “Some brokerage firms have worked for international firms for quite some time while a few have just no experience, knowledge or expertise to back them. This is a major cause for concern for the insurers who will not like to pay remuneration to brokers lacking efficiency.”
Speaking to The Telegraph, Ajit Narain, CEO and managing director of Iffco-Tokio General Insurance Company, said, “In the developed economies, rating of both insurance and brokerage firms is almost like an accepted rule.”
He added, “Any insurer would like to deal with a brokerage firm which has a high level of financial security due to the high risk profile of the entire business and this only comes with huge professionalism. So, it is imperative to rate brokerage companies to give a crystal clear picture of their inherent strengths and capacities.”
Under the IRDA regulations, the functions of a broker not only includes establishing contact between the insurer and the client but also to provide technical inputs. These range from doing risk inspection, providing cost benefit analysis to the client, doing the entire financial planning, underwriting, servicing contract and design project packages.
Till now, IRDA has granted brokerage licences to more than 60 such firms which gives insurers a large pool of brokerages to choose from.
Insurers feel that fierce competition amongst brokers will badly crimp margins and a shakeout through mergers or shutdown of operations is inevitable. Only those brokers who perform multi-dimensional functions and are technically equipped like underwriters will succeed.