The insurance regulator IRDAI has doubled the capital requirements for setting up different categories insurance broking companies in the country.
The new regulations, which have been unveiled on Wednesday, have specified Rs 75 lakh(earlier Rs 50lakh), Rs 4 crore(Rs 2 cr) and Rs 5 crore(Rs2.5 cr) of capital for direct broker, reinsurance broker and composite broker respectively.
Going by the IRDAI, there are around 420 brokers in the country including 365 direct brokers, 57 cmposite brokers and six exclusive reinsurance brokers. According to TS Vijayan, chairman, IRDAI the domestic insurance broking sector contributed around Rs 30,000 crore to Rs 1.28 lakh crore of non-life insurance premium last year. A study by EY India projected non-life insurance premium to reach Rs 4 lakh crore with broking channels contributing around Rs 1.6 lakh crore on a conservative basis.
A foreign broking company after exiting an Indian joint venture will have a `cooling off' period of two years before it is allowed to re-enters the Indian market.
A license issued by the IRDAI will have a validity of of three years from the date of issue and the Insurance Broker can't undertake multi-level marketing for solicitation and procuring insurance products, said IRDAI.Besides,the business of the insurance broker has to be carried in such a manner that, not more than 50 percent of the remuneration shall emanate from any one client in a financial year.
The net-worth of an Insurance Broker will at no time during the validity of license fall below: i. Rs 50 lakh for direct broker; ii. 50% of the minimum capital requirements or contribution or equivalent specified under Regulation 19(1) for reinsurance / composite broker, said the new regulations..
An Insurance Broker has to take adequate steps for redressal of grievances of its clients within 14 days of receipt of such complaint and keep the Authority informed about the number, nature and other particulars of the complaints received from such clients in format and manner as may be specified by the IRDAI.
Every insurance broker has to take out and maintain at all times a professional indemnity insurance cover – Rs 50 crore for direct broker, Rs 75 crore for a reinsurance broker, Rs 100 crore for a composite broker-throughout the validity of the period of the licenses issued to them by the IRDAI.
An insurance broker may charge the client fee for the services rendered by them to the client for risk management services or other similar services as per the functions defined in regulations. (2) The insurance broker can undertake this activity only for commercial risks based on the written confirmation from client for those fees.
The Insurance broker cannot receive both the remuneration and reward as stipulated under the IRDAI (Payment of commission or remuneration or reward to insurance agents and insurance intermediaries) Regulations, 2016 and fees for the same risk management services as given in Regulation 2(1)(q). (4)
The insurance broker has to obtain a written mandate from the client to offer risk management services and shall keep a record of the risk management services offered to the client which will include details such as name of the client, place of risk, nature and type of risk management services undertaken, amount of fee charged from the client, basis of fee charged, etc
The insurance company and the insurance broker has to maintain arms length distance between themselves. More explicitly, no employee or director of the insurance broker shall be a director, employee, or agent of the insurance company. The insurance broker will not not offer loans or other facilities or incentives to officers or employees of the insurer within the group and vice versa.
The business of the insurance broker shall be carried in such a manner that, not more than 50 percent of the remuneration can emanate from any one client in a financial year
For insurance brokers promoted by Corporate Houses having an insurance company within their group, not more than 25 per cent of the insurance premiums (separately for life and for general (incl. health) insurance business) handled by the insurance broker in any financial year can be placed with the insurance company within the promoter group. The broker shall establish internal machinery to monitor this on an ongoing basis
Promoters of the insurance broker shall give an undertaking that none of the clients within promoter group will be compelled for their insurance requirements
Every insurance broker , within ninety days from the date of the Auditor‘s report, has to take steps to rectify any deficiencies, made out in the auditor‘s report and inform the IRDAI accordingly.
In the case of reinsurance contracts, it may be agreed between the parties specifically or as part of international market practices that the registered reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insurer.
In case of reinsurance and composite brokers it is mandatory that the insurance broker needs to have an internal audit systems and designate a compliance officer who is an employee of the insurance broker. (3) Without prejudice to the above, it is mandatory for an insurance broker who in a financial year earns more than rupees five crore remuneration (including reward) to have a designated Compliance Officer who will be responsible for the internal controls and systems.
-Insurance brokers may undertake claims consultancy only for commercial lines of general insurance business, subject to the following conditions,
-for claims not exceeding Rs. 10 crore the insurance broker may undertake claims consultancy provided such claim does not emanate from a policy, which has been placed by the same insurance broker.
-For claims exceeding Rs 10 crores the insurance broker may undertake claims consultancy with the prior approval of the Authority.
Any dispute between two or more insurance brokers arising out of such claims consultancy arrangements shall, in the first instance, be considered by the Insurance Brokers Association of India (IBAI) and thereafter the IBAI shall forward such dispute together with its recommendation to the Authority for final disposal
An insurance broker can outsource activity to an entity (other than an individual) only where the activity to be outsourced is more than 5% of the total outsourcing expenditure.
In any case, an insurance broker has to take the prior approval of the IRDAI for the following; (a) Change of Principal Officer; (b) Change of Director(s)/Partner(s) provided that in the event of resignation of the Director / Partner, the Authority may be informed;
In the case of reinsurance contracts, it may be agreed between the parties specifically or as part of international market practices that the registered reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insurer. I