Financial Intermediaries

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The Background :

Financial Intermediaries like insurance brokers and mutual fund distributors sell insurance policies and mutual funds for multiple insurance companies and fund houses respectively. They generate revenues by way of brokerage received from the insurance companies or fund houses. For insurance brokers, the brokerage is paid as a percentage of the insurance premium on every renewal of the concerned policy, with different brokerage rate for different types of policies. Similarly, for mutual fund distributors the brokerage varies as per the scheme and as paid as a percentage of the assets-under-management (AUM) for each specific folio, calculated based on the average prevailing NAV of the scheme during the period.

The Problem Statement :

Insurance brokers and mutual fund distributors have historically faced huge challenges in ascertaining whether they are receiving the correct amount of brokerage from insurance companies and fund houses respectively. Same is true for other agency-based businesses that generate revenues by way of commissions for the sale of products or services in the capacity of agents.

Reconciling insurance policies with insurance companies has always been a challenging task for insurance brokers due to various mismatches in policy-related details, brokerage rates and the timing of the payouts. For mutual fund distributors, the challenge is even higher as the reconciliation process also involves calculating the AUM for each folio by applying the NAV of the concerned scheme and applying brokerage rates prevailing in the month in which the inflow was made, under a first-in-first-out (FIFO) assumption. The presence of SIPs and partial redemptions make it even more complex.

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The Solution :

Reconcify offers a completely automated solution for insurance brokers and mutual fund distributors and provides and assurance that the right amount of brokerage is received from the insurance companies or fund houses respectively.

Reconcify carries out a multi-field matching between the policy records of the insurance broker and the insurance company on fields such as policy date, policy number, endorsement number, policy type, sum assured, premium amount, brokerage rate, brokerage amount and taxes.  Policies not matching in a certain period get carried forward to the next period to handle timing differences.

With regard to mutual fund distributors, Reconcify calculates the AUM for each folio during the period under consideration by taking the NAVs for the respective schemes. Using the FIFO assumption, it breaks down the AUM into the periods of inflow and applies the appropriate brokerage rate applicable for that scheme and for the period of inflow. It reconciles the brokerage so calculated with the brokerage paid by the fund house at a folio level and highlights any differences. 

The Impact :

The reconciliations required to be performed by the insurance brokers and mutual fund distributors involves complex calculations and advanced matching requirements, and is therefore quite challenging to be performed in a manual mode.  After automating reconciliations with Reconcify, insurance brokers and mutual fund distributors can expect to plug revenue leakage of around 4-5%.

Reconcify is extremely scalable and can handle data sizes running into lakhs or millions of transactions.  It saves valuable time of the CFO's team and increases the overall productivity and efficiency.

"A desk is covered with financial documents, currency stacks, coins, and a cup of coffee, indicating an in-depth financial analysis or audit process "