The growing pains of direct premium rebating….

Today the final blow was delivered where the word “members” of Clause 5.3 Inter-Company Agreement (ICA) was deleted after unanimously agreed upon.  This means agents and brokers cannot rebate where insurers are able to; signifying a divergence of focus between intermediaries and principals. The circular further mentioned that rebating is discretionary (for member companies) where corporate, NGOs, business, charities and government accounts (and the likes) are concerned – further hammering the nail where it needs to shut down the past…. By applying this thing called “discretion” larger accounts are certain to move direct, thus brokers would also faced a shut down just like what’s facing the agents.

In addition, any individual-Insureds (or what they termed “naturalised persons”) purchasing non-motor policies directly, they are entitled to a mandatory rebate too….

To make matter worse, the circular was reworded, in particular the clause of 4.3 of Guidelines for Mandatory Rebate, where insurers are to produce renewal notices to their customers (at least for those individual-Insureds) making known to them of such rebating……5% for first year, and 10% for the second year. I supposed this is the final nail.

david-goliathWell… do you think David is going to win the Goliath? Come…on, don’t look at it this way! Look at the situation from the perspectives of this young boy – Yes! I can and I am going to beat the hell out f you!

Perhaps we look at it this way, in the early 90s, commissions were drastically slashed – Fire at 40% down to 15%, Miscellaneous classes at 50% down to 25% and Marine slashed down to 15% from 25%. Underwriting agents disappeared from the face of the nation. Many larger agents could not sustained the sudden drop in commissions, especially underwriting agencies, where they used to have addition commission of 5% to 10%; they folded. But then just when we feel things were down to the worst, business development managers and executives started to spring out from nowhere. You see, many of their principals innovate on new ways to pay their larger agents off so as to maintain their business. New agents also started coming into the industry from nowhere…. The in 1996, the Insurance Act was amended to include Cash-before-cover  for motor business transactions with all the stipulated penalties sticking out like sore thumbs; yet the agents weathered through. This goes to show, the bridge will straighten when we get to it….

Refreshingly, we can also take to US markets to teach us a lesson or two. For all the drastic actions taken to trim down agency commission as well as disclosing their commissions to their customers, agents continue to thrive and still command a 70% premiums contributions of the total combined distribution channels. Progressive Insurance (USA) the third largest Motor underwriter (Annual Gross Premium approximately US10 billion in 2007) thought in 1997 they could do away with agents and slash agency commission for benefits of the customers changed their stance after realising their growth became stagnant after two years of good growth. Today, Progressive still depended on their agents for 60% of their total business.

There you go…. just hang on! Let’s see what Malaysia Insurance Entrepreneurs can do to make things more innovative as well as more gentle for the agent folks to move forward – We are going to launch the insurance-Portal (or iPortal) mechanism for agents to link their websites very soon. If you do not have a website, we will assist you with one affordable websites, courtesy of Bigsignboard.comYou can actually sign in and make your own website immediately with those simple instruction. Anyway put in your comment as well as sign in with your email and we will call your up for a discussion.

While we are still sorting out some viable business concepts, you may like to read through the following article at: malaysianinsurance.comIt is about agency internet-based strategies moving forward…..

Cheers until next time.

 

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2 comments for “The growing pains of direct premium rebating….

  1. Kent
    December 15, 2009 at 02:33

    Hi, How can my agency take opportunity of the so-called innovative insurance portal you mentioned here? How can I set up the website and link to this innovative portal? Is this going to be costly? Thank you in advanced.

    • December 19, 2009 at 00:29

      Kent, you can call me or email me. I do not think the project is easily explained by writing. By the way, we are still in the midst of testing the i-Portal engine – once ready then we will start to work on the internet marketing engine.

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