The insurance brokerage industry in the UAE is set for a shake-up with more regulations coming in a rapidly changing insurance landscape with smaller players facing the prospects of marginalisation or natural death in a possible consolidation in the market, leaving much scope for professional brokers.
Mr Mustafa O. Vazayil, Founder and Managing Director of Gargash Insurance Services, has definite views on the brokerage ecosystem by virtue of his more than 35 years of experience in the Middle East insurance industry .
Excerpts from an interview:
Q: What’s the importance of good brokerage in this market?
Brokerage is much beyond arranging insurance as in the olden days.
It's more of risk management solutions, risk transfer mechanism or risk mitigation mechanism and giving solutions to the client.
In that sense, it's more of risk management service.
I consider us, brokers, as insurance doctors who diagnose the issue and provide multiple options of treating the diagnosed issues.
This is what good professional brokers should do. A professional broker should understand the business of their clients, their risks, tailor the products and then go into the market to get the right underwriters, the right price and place it.
However, there are others who still feel their job is just to get an insurance policy at a cheaper price for a client from an insurance company. If you look at most of the small businesses, this is what is happening. As a result of which they do not represent the real functions of a broker.
Q: But there has been mushrooming of smaller brokers who bring ill-repute to the industry. Your comments.
There was a situation when any one could be a broker. It was the case till the UAE Insurance Authority brought in the regulations stipulating lots of requirements such as professional qualification, compliance, internal audit and qualified managers.
The market carries the legacy of the old laissez-faire regulations. This has now changed.
That is why you are seeing most of the not so good brokers, small and mid-sized, being pushed out of the market They do not have a place in the market scenario today, they will die a natural death.
Q: There have been cases when brokers retain the premiums, leaving the insurance companies in the lurch. What’s the reality?
That’s true. Brokers collect premiums on behalf of insurance companies. That money, the fiduciary amount which they keep, is not their money.
Some of these guys think it is their own money and start spending on luxury cars or buying apartments or investing in their home countries.
They are playing with policyholders' money and rolling it. Insurers should also take part of the blame in giving extended credit period to financially weak brokers.
Q: What was the regulator doing about it?
Then the regulator came and said “no it (the premium) has to be kept in a separate account, you cannot touch that money; you can only handle your revenue part and not the premium part.”
If you do so, you are breaking the rule and you are liable to be suspended, licence withdrawn and penalties imposed.
Q: There has been rampant misselling of investment products, bringing bad name to brokers. What’s your view?
The premium is collected directly by the providers in their name so the broker, the consultant or the person who is selling it, is not getting cash.
Misselling is happening because the so-called consultants are primarily paid through commissions on the policies they sell.
They don’t sell tailored solutions, instead they sell the policies on which they can earn more commission. In this market, at least 70 per cent are unqualified persons. But that is changing.
Q: What's the future of smaller brokers? Will there be a consolidation?
There are now very basic requirement that needs money to run a broking company such as capital, bank guarantee, qualified people, IT solutions, etc.
In the current market situation, if somebody is earning a revenue of say at least AED5 million, they might survive.
( If they earn a brokerage revenue of AED5 million or AED6 million, they will find it difficult to run the business.)
Q: What's the solution?
The solution is either small brokers coming together or bigger brokers buy them out. Or these guys will slowly wind up.
Q: Can the smaller players survive?
We are already seeing smaller brokers winding up or joining together. But most of the portfolios are not attractive.
They deal with small businesses, they give extended credit, do not have quality portfolios for anyone like us to go and have a look at. They will die naturally.
Q: What is a model successful brokerage? Is there a code of conducts?
There is no code of conducts for brokers. Gargash is perhaps the only broker which follows a regulated code of conducts because we are certified as a chartered insurance broker by the Chartered Institute of Insurance (CII) of London.
CII gives a series of code of conducts which needs to be complied with to ensure professionalism and consumer protection. At Gargash we follow that.