Neil Mathews, CEO of Aon Global, part of the $9.8-billion Aon Corporation, outlines his company's business plans in India. 

Aon Global, a joint venture between Chicago-based Aon Corporation (turnover in 2003 : $9.8 billion) with operations in 120 countries and Global Insurance Services, was the first multinational in India to get a composite broking licence in March 2003. It began operations in July 2003 and has a combined budget (reinsurance and direct broking) from brokerage revenue in excess of $4 million. Neil Mathews, CEO, Aon Global, talks about broking in India, Aon's business plans and what it hopes to achieve in a detariffed regime, which is expected to begin from April 1, 2006. Interviewed by Shubha Madhukar.

Insurance broking is a new concept in India. What is the need for an insurance broking company?
In the past 50 years, insurance has been done the old-fashioned way In India. As a result, there was no opportunity to evolve new products, new services and new ways of deliveries. The evolution of those trends and products in, say, Singapore, Hong Kong, New York or London was totally lacking in this market. The liberalisation and entry of brokers has created the catalyst to rapidly change and catch up with rest of the world.

How do customers benefit from brokers?
Unlike earlier, people now have several choices, which can be confusing. The professional broker earns by adding value to the customers. He can access products from every single insurer unlike agents who are tied to one company. The broker's role is first to understand the customer's needs, the complexity of it and the solutions required. Taking an insurance policy is just one solution to a range of requirements a client faces.

Since the products are regulated by law and cannot be changed, how does the client benefit?
In India there is a limiting factor because we have something called tariff. The ability of a broker to customise a product in these specifications is very limited because there is very little a broker can do to change the parameters or pricing of those products to suit your business needs. Tariff is very inflexible and inefficient.

How do you see the broking business to flourishing in this scenario?
The Insurance Regulatory and Development Authority (IRDA) is in the process of dismantling and proposes to detariff the whole tariff pricing structure. With the tariff regime going out effective April 2006, things would be different. For example with motor insurance, don't you think that if you have been a careful driver for over 25 years, have a concern towards driving, do not drive a sports car, haven't had an accident for 20 years, you shouldn't be paying the same premium as the 18 year old who has actually had six accidents in the last six years?

Once tariff goes, insurers will be able to introduce scientific writing and reward the good risk and penalise the bad risks. That gives an incentive to people to drive better, to be more careful and to keep their costs down.

What are the advantages a customer gets associating with a broker vis-à-vis an agent?
The agent is the representative sales person of the insurer who is remunerated on every sale. He does not hold himself as an expert and has no further responsibility. Brokers on the other hand are business partners - experts providing clients a 24-hour, 365 days service even after selling the policy. Their responsibilities include understanding business, restructuring products that suit business, finding an insurer, picking the best product and turning it into a package. We also take on the responsibility of insuring that documentation is done correctly, doing reviews on a periodic basis, presenting policy documents, handling claims, maintenance, manuals, etc.

Secondly, as a broker we can access products from any insurer, customise products for clients by mixing, matching, bundling and unbundling products. In no-tariff areas we can bring price differentiator.

But in India where we have a tariff regime, how do brokers add value?
Only half the products in the market are price-controlled and we can't do anything there. But outside it, we can tabulate all the secondary services that a broker brings to the client, which is not price sensitive - organisational interaction with the market updates, the documentation, the claims, etc.

In fact, IRDA imposes a strong set of responsibilities on the insurance broker. Brokers are exposed to risks of lawsuits, which agents are not. We are also required to buy on our own costs a professional indemnity insurance, based on three times our business liability. It's the difference between a professional approach on a professional platform of provision and service.

The brokers invest in infrastructure, training, indemnity, while agents do not. With the commission being the same for both, where is the profitability for brokers?
The brokerage is not quite the same. It is 2.5 per cent higher than for agents. Bearing in mind the overall responsibility, the capital and various other requirements that we need to adhere to by the regulations of a broker, the anomaly between rates of remuneration is unfairly in favour of the agent as opposed to the broker. The brokers' association is quite vocal about it. The 2.5 per cent difference that regulations permit in terms of brokerage is not justifiable. It should be much higher.

Why is the capital requirement to get a broking licence so high?
Simply to keep out the people who consider this as an old fashioned dalal type of operation or a good way of making money with next to no investment. I think the intention is to make a high entry point for only people who are serious in the long-term and intend making insurance broking an enduring commitment. It is not an easy ride.

What, according to you, would be the effect of increase in foreign direct investment from 26 per cent to 49 per cent to the insurance and broking business?
For any multinational organisation a 26 per cent interest does not allow us to bring the level of expertise. We hope it will move to 49 per cent. It will certainly allow risk carriers to bring more capital, strengthen our ability to carry more risk, enable their ability to compete, and give us a much stronger stake in terms of a long term commitment. If we cross 50 per cent of the business through them we would become a full subsidiary of Aon, at the moment we are associates for Aon.

What are Aon Global's business plans in India?
Our focus is to provide quality service to our global partners and new clients. We hope to achieve a growth of 20 - 25 per cent every year. Currently we have four offices and 58 employees, over the next two years we plan to expand it to eight offices and 120 employees.