Aon Eyes Bollywood, Railways for special risk covers
March 13, 2004 - Our Banking Bureau in Mumbai
Business Standard

Aon Global — a 26:74 insurance broking joint venture between the US-based Aon and India's Global Insurance Brokers — is only brokerage outfit today where the Indian partner is an active broker and has had a long standing relationship with the foreign counterpart for the past 17 years.

Aon Global has received a composite broking licence from the Insurance Regulatory and Development Authority (IRDA) and will have an initial capital of Rs 2.5 crore. Currently, brokers have garnered a small percentage of the market, having been allowed only in the area of reinsurance, where their presence amounts to Rs 530 crore in terms of premium income.

Aon Holding BV executive director Clive Bate said, "We will look at the film industry as there are certain specialist risks that need to be insured such as non-appearance of stars that could affect the budget of a movie".

Aon is an active player in Hollywood and in the Hong Kong movie industry and has been talking on venturing into Bollywood as well. Aon has arranged many special covers for movie stars, films and even large blockbusters like the latest James Bond movie "Die another day".

Aon sees immense opportunity in the Indian market considering that the capital assets of top 500 Indian corporates lie unprotected.

This, said Aon Global chief executive officer Neil Mathews amounts to over Rs 31,200 crore in terms of potential insurance premium. Premium income as a percentage of gross domestic product (GDP) in the Indian market is among the lowest in the world at 0.56 per cent compared with China's 0.86 per cent, Japan's 2.21 per cent and US' 4.57 per cent.

Aon Global will also target direct insurance brokerage business, which today amounts to Rs 14,844 crore, said the company's chairman Prabodh Thakker.

This will be in addition to expanding its share in the reinsurance pie and exploring opportunities in terms of insuring assets that today are uninsured. Aside from capitalising on existing 150 multinational clients of Aon, which have a presence in India, the new broking outfit will also tap Global's client base. To date only the world's top two insurance brokers — Marshall and Aon — have forayed into the Indian market.

Many have stayed on the sidelines waiting for the government to permit a higher foreign equity partnership. Bate said that Aon believes in playing by the local regulations and sees great importance in having a local partner in the initial stage. "It is a fundamental philosophy to provide worldwide service with a local flavour," said Bate, adding that the client always comes first.

He pointed out that brokers have the advantage, skill and equipment, which will assist the development of the insurance industry.

"Some might say I am putting insurance brokers on a pedestal, but the current distortion in non-payment of claims will be corrected through the introduction of the broker," said Rangachary.

The New India Assurance Company chairman and managing director, R Beri, however, said that the entry of brokers will see intense competition, which could reduce the premium income and affect the bottomline. This follows the increasing bargaining power of the insured through the intermediary — insurance brokers, he added.

The Irda chief, however, rebutted stating that public insurance companies have had more than four years to prepare themselves, and with the opening up of the sector, "they need to think on their feet".

"Competitive pricing will come about with the forces of competition and skills in underwriting are developed," he said.

Public sector undertakings have till date been relying highly on the five per cent direct discount on premium payable by corporates should they approach the insurer directly. This system will have to go if the intermediary system is to be professionalised, said Rangachary.

There has been a lot of pressure imposed on the regulator for the removal of the directive issued decades ago by the General Insurance Corporation of India (GIC).

With the entry of brokers, which will be paid anywhere between 10-17.5 per cent depending upon the type of non-life business and 30 per cent in the case of life, costs will increase manifold.

Beri said: "The five per cent direct discount costs me three per cent, but the brokerage commission will cost a lot more, and this could exceed the administration charges allowed under the law."

The Irda has received 43 applications for broker licences to date, and has already issued 12 letters of intent, said Rangachary.

Of the 43 applications, a couple of them are from foreign insurance brokers in collaboration with Indian partners. The US-based Aon has tied up with the Indian promoters of Global Insurance to form a 26:74 joint venture called Aon India.

Similarly, HSBC Insurance Services (India) Pvt Ltd is finalising its Indian partners and has already received approval from the London head-office for entry into the insurance broking sector.

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