Travel Insurance

Will It Be The Agents’ Beacon Of Opportunity?

Having buried the hatchet with airlines to delay a zero commission regime only recently, do travel agents now risk losing their travel insurance commissions too, owing to their ‘flexible’ relationship with clients? Bhisham Mansukhani asks principals and agents for insight...

With the emergence of the travel insurance market in India, agents have another chance to mend their old ways. And more, this nascent market implies that agents can now have another source of revenue - the travel insurance commission.

This becomes more important in context of the previously fledgling relationship between the agents and the airlines. Now that this is bound irreversibly for nil, its shadow is already beginning to build on the currently placid relations between agents and insurance principals.

While spending squeezes and distribution cost trimmings in the travel insurance space are still a far cry, these may not be the factors that insinuate a picture of woe yet again for the agent who is trying to move on from the loss of airline commissions. But their erroneous approach might cost them. Again.

Golden Goose Chase

One isn't exactly sure when the culture of commission remittance by agents to clients broke down the neat tripartite arrangement between the agents, clients and their `most popular travel partner' (read airline). But we know that it triggered the beginning of the end of this transactional triangle.

An industry expert who is associated with the travel as well as the insurance sector, on condition of anonymity, said, "Travel agents had a clear choice between selling tickets at discounted rates or upholding IATA’s legal sanctity. Instead, they chose to lynch the golden goose because this practice opened up the option for the principal, in this case the airline, to clip commissions down to zero when the going got tougher."

There is a presently binding clause by the Insurance Regulatory & Development Authority (IRDA) of a 15 per cent flat pay out to all agents irrespective of business volumes. That regulation, however, has already snowballed into a key mandate for discussion between the IRDA and the private insurance lobby - a clear indication that the principals are regarding their distribution costs as dispensable.

Manish Jaiswal, business manager (Insurance & Card Products) at Thomas Cook Insurance Services (India), says, "The private insurance companies are currently in dialogue with the IRDA regarding the rationalisation of commissions. They want market forces and business volumes to determine the commission rates as is the case in European markets, the Americas and the Far East."

The fact that discounting insurance for clients to the extent of commissions receivable is technically illegal is reflected in a prohibitive clause to this effect stated in the insurance policy itself. This makes this legislative framework even more sinisterly reminiscent of the one put in place for the airlines and agents by IATA before the rot set in.

The cautioning salvo is swiftly discounted by Manish Kotian, deputy agency manager for Tata AIG. He says, "The private insurance industry in this country is just under three years old. Besides, the parting of commissions is something that many agents across various insurance categories have been doing for some time. On a general basis, the commissions will stand simply because the administrative cost of issuing an insurance policy justifies it."

According to Krisia Holidays managing director, Suraj Dalwani, insurance companies are still dependent on the agent as insurance is the last buying cycle in getting a travel package. Further, this space, currently valued at Rs 200 crore, has much room for growth. This figure might be relatively small compared to the strength of the entire industry. But the entire circuit of IATA agents make for potential points of distribution, not to forget the country's international terminals that will handle outbound traffic that is annually mounting by 25 per cent.

Thomas Cook has already opened outlets at the country's international air terminals under the brand Insta Care for travellers who buy their insurance at the last minute. Arup Sen, executive director of Cox and Kings, underlines the importance of travel insurance. He says, "Any unforeseen calamity like accidents, illness or death, in an alien country can be a big drain financially. The cost of medication, hospitalisation and in case of death a whole host of other expenditures like ambulance, etc and that too in USD can be very unsettling. Therefore, it has become imperative for tour operators to look at ways of covering any eventually in the interest of the traveller."

Corporates have already made insurance compulsory for their executives. FIT travellers are also actively buying insurance. It must also be pointed out that insurance companies are now making it easy for the customers by providing insurance premiums on a per day basis. "Consequently," Sen claims, "Ninety per cent of our clients purchase travel insurance along with the package."

Jaiswal agrees. He reveals that 99 per cent of all Thomas Cook clients buy travel insurance - a figure that grew from just 15 per cent in 2001. "We have also bagged sizeable corporate insurance business from companies that outsource their insurance needs," Jaiswal says. The aforementioned, another industry expert insists, turns the argument 360 degrees over and asks insurance principles whether they would be willing to kill their golden goose, by clipping agent commissions.

Passing The Buck

While these factors are enough to insinuate an explosion of travel insurance retail, they also augur perilously for the loss ratio (quantum of claims paid out) of insurance companies.

The first place, claims an anonymous insurance company insider, that the principals will look if the loss ratios hit the roof, are distribution costs. Now, while the principal-agent relationship in case of general insurance companies (GIC) is different from its agent-airline parallel and unequivocally similar to the one the former shares with agents, the handling fee template that travel agents are transcending to, opens the door for history to repeat itself.

Agents, though, still border on the innocent. Sharvan Gupta of Air Travel Pvt Ltd, claims, "We are retaining the 15 per cent commission in totality. Agents are not yet diverting commissions to their clients and are instead giving the value-add of integrated packages. That said, the long run remains open to uncertainty."

Suresh Pendakur of Cox & Kings only surprises further. He says that his company does not receive commissions on their insurance retail at all. "We do not get any commission out of travel insurance. We build it within the tour cost. It is always better to have the insurance cover be stitched within the tour cost. There may be other small travel agents who are collecting commission but we do not fall in that category."

Navras Travels proprietor Niranjan Gupta is more candid. He warns, "Such indulgence by certain agents would certainly have a trigger effect across the board. I do not know if it is happening just yet. But if it is, then the implications will be widespread."

Insurance principals, on the other hand, are keyed into the travel trade, watching its machinations but better still understanding them.

BN Prakash of Bangalore-based Bajaj Allianz General Insurance, says, "Travel agents do tend to divert their commission towards their clients. But it depends on the amount as well as the individual. If the commission is not much and if the agent shares a good relation with the client, he may not charge the amount. On the other hand, when it comes to a corporate traveller, an agent may charge the 15 per cent commission." Such comments almost reflect an insurer empathy for the agent.

Agents’ Prerogative

Airlines sneaked home their first agent commissions cut in India during the bedlam that ensued in the aftermath of 2001 terrorist attacks in New York and Washington. The next cut followed in May 2005 for no particular reason other than the international trend, which airlines claimed was necessary for streamlining their Indian business.

By comparison, the barely three-year-old private insurance sector is still grappling with the IRDA on certain regulatory issues. And the rationalisation of distribution costs, most relevant to this story, is merely one of them.

According to a confidential source within a leading travel insurance principal, "While officially, insurance companies are unaware of agents passing their commission on to clients, I do not think they would reduce or do away with commissions since the volumes generated by them are huge. Their stand, I think, is that this should be the agent's decision although, I think, the client may not give the agent a choice."

V Dandapani, an industry veteran who has been associated with the travel trade as well as insurance sector, agrees. "Commissions may not fall in the immediate future and that is not only because of IRDA regulations. The costs involved right now are not very huge. Insurance can be processed on the CRS so infrastructure costs to both the principal and the agent are relatively low. Yet, even though the IRDA will not permit private players to rationalise commissions just yet, the time lag is just as well for two reasons. For one, it has already been marginalising agents by dealing with corporates directly, and given that agents are compelled to shift to a handling fee, that model will not allow them to retain any commission paid to them by the principal." There are others who cite problems that they consider no less hazardous. Sen says, "India traditionally has been a low insurance purchaser until recently and travel insurance is no different. The biggest challenge that insurance companies face is educating consumers on the need for travel insurance."

Insurance, deemed a matter of solicitation, requires agents to have extensive product knowledge as well as be aware of the legal nuances. For this, the IRDA has stipulated that all agents must undergo a mandatory hundred hours of training.

Ground realities however do not seem so perfect. An agency manager for a major insurance firm reveals, "We insist on compulsory training though there some companies that flex the rules and allow agents to sell insurance on the pretext of a marketing alliance with them in return for access to their database. Travel agents become principals' representatives without an officer or license. But the IRDA is lenient towards such practices since the sector is still nascent and its objective is to facilitate distribution."

A lack of adequate training renders travellers vulnerable to rejection of claims on account of undisclosed diseases or injuries or losses sustained outside the ambit of what is deemed by the insurance company but not communicated to the traveller by the agent.

Survival Of The Fittest

Another pitfall is that insurance claims, as rare as they might be, may implicitly be the agent's responsibility. Jaiswal feels that this is true particularly for large corporate travel agents. "Our clients expect us to process claims although there is a toll free number provided by insurance companies specifically for this. Our high-end clients in particular will hold the travel agent responsible if the insurance company errs in processing the claim. So in effect, we have to oversee the entire process."

Dalwani agrees but does not see it as harmful. "Yes, the agent certainly runs the danger of that but I believe that he has enough tenacity to be able to facilitate claims even if it is not officially his incumbency. His street smart versatility is what ensures his survival," he says. He however cautions that agents are not exactly keen to see variants of the current vanilla overseas travel policy. "The agent wants to move an insurance as quickly as possible without hard-sell or complications. Variations will complicate things and take marketing back into the realm of the insurance company," Dalwani adds.

The variants, though, are already seeping through. Thomas Cook has already introduced its co-branded product with Tata AIG called Travel Care, an integrated package that covers accident, sickness, medical expenses while travelling, trip curtailment or cancellation under inconvenience and interestingly, even the client's home. It even covers bail bond. Dandapani believes that variants are directly proportional to the size of the market and will inevitably be introduced as the base and diversity of the segment builds.

With forecasts of 22 per cent growth for the travel insurance segment and 30 per cent for the number of travel agents each year selling policies, the variants are a forlorn conclusion. Whether the agent will be pushing policies with as much glee as he is now, considering he may eventually lose the financial incentive, is yet to be seen. If only he could hedge that bet with, perhaps, some sort of insurance.