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Note on IRDAI Insurance Broker

WHO IS AN INSURANCE BROKER:

An insurance broker is a professional who represents customers, ensuring they get the best insurance policy suited to their needs. An insurance agent, on the other hand, sells the products of the insurance company to customers in exchange for a commission.

The Insurance broker are regulated by the Insurance Regulatory and Development Authority of India (‘the IRDAI’)

 

TYPE OF INSURANCE BROKER:

  1. Direct Broker
  2. Reinsurance Broker
  3. Composite Broker

Direct Brokers

Direct brokers are licensed by the IRDAI and familiarize themselves with the insurance business of the various clients so as to explain and arrange the same with an insurer. A direct broker provides advisory services with regard to the most appropriate policy and its related terms and conditions.

Reinsurance Brokers

Reinsurance is an insurance for insurance companies. A reinsurance broker arranges reinsurance contracts between direct insurers and reinsurers. Since he/she works on behalf of both parties, he is contractually obligated to both.

Composite Brokers

Composite brokers are a combination of direct brokers and reinsurance brokers, thus, have a double role.

 

CAPITAL REQUIREMENT AND NET WORTH

Type of Brokers Capital Requirement Net worth
Direct Broker Rs.75 Lakhs Rs.50 lakhs
Reinsurance Broker Rs.400 Lakhs Rs.200 lakhs
Composite Broker Rs.500 Lakhs Rs.250 lakhs

 

WHO CAN BE AN INSURANCE BROKER:

  1. A Company formed under the Companies Act, 2013 (18 of 2013)
  2. A Co-operative Society registered under the Co-operative Societies Act, 1912 or under any law for the registration of co-operative societies
  3. A Limited Liability Partnership formed under the Limited Liability Act, 2008 (6 of 2009) with no partner being a non resident entity/person resident outside India as defined in clause(w) of section 2 of the Foreign Exchange Management Act, 1992 (42 of 1999) FEMA, and not being a foreign limited liability partnership registered there under.

 

WHAT IS THE DEPOSIT REQUIREMENTS FOR DIRECT BROKER/REINSURANCE BROKER/COMPOSITE BROKER:

Type of Brokers Deposit Requirements
Direct Broker Deposit of Rs.10 lakhs with any scheduled bank and the deposit shall have a lien with the Authority.
Reinsurance Broker Keep 10 per cent of the minimum capital/contribution specified under Regulation 19(1) in fixed deposit, which shall not be released to them without the prior written permission of the Authority
Composite Broker Keep 10 per cent of the minimum capital/contribution specified under Regulation 19(1) in fixed deposit, which shall not be released to them without the prior written permission of the Authority

 

 PROCEDURE TO APPLY FOR INSURANCE BROKER REGISTRATION:

Application for grant of Registration Certificate

Application is to be made in Schedule I – Form B of the regulations along with the type of insurance broker business clearly specified. The documents to be submitted along with the application are mentioned in Schedule I – Form C of the regulations.

Particulars Application Fee On grant of in-principal approval For renewal

(3-year validity)
Direct Broker Rs. 25,000 Rs. 50,000 Rs. 1,00,000
Reinsurance Broker Rs. 50,000 Rs. 1,50,000 Rs. 3,00,000
Composite Broker Rs. 75,000 Rs. 2,50,000 Rs. 5,00,000

 

Issue of Insurance Broker License

The grant of the in-principal approval is majorly dependent on whether the authorities find the information provided to be complete in all respects. The registration certificate will be issued only when certain additional compliances are met with. The registration certificate will be issued in Form J of Schedule I.

On Rejection of Application

Where the applicant fails to comply with the necessary formalities, the application shall stand rejected. Moreover, it is the duty of the authority to communicate to the applicant the refusal of granting the application within 30 days of the aforementioned rejection.

Where an application stands rejected, the application may re-apply only after the expiry of one year since such rejection.

 

DOCUMENTS NEEDED FOR INSURANCE BROKER REGISTRATION:

  1. Information as deemed necessary in Form-B of Schedule I of the regulations.
  2. Copy of the charter documents (Memorandum of Association and Articles of Association).
  3. Prescribed fees as per the category of an insurance broker.
  4. Fit and Proper declaration as per Form G of Schedule I.
  5. Details of Directors/Partners, Promoters and Key Management Personnel are to be submitted with the form.
  6. Declaration stating there is no disqualification from the principal officer, director of the company.
  7. Form F of Schedule I containing the details of the qualified persons to manage the business along with their respective qualifications.
  8. Details of the statutory auditors and principal bankers along with the applicant’s bank account number.
  9. Details of the infrastructure of the overall business.

 

WHAT IS THE LIMIT OF INDEMNITY FOR ANY ONE CLAIM AND IN THE AGGREGATE FOR THE YEAR IN THE CASE OF INSURANCE OF INSURANCE BROKER:

Sr. No. Category of insurance broker Limit of Indemnity
1. Direct Broker a.       Two times remuneration received at the end of every financial year subject to a minimum limit or Rs.1 Crore and

b.      at least Rs.50 Crores, if twice the remuneration limit is equal to or more than Rs.50 Crores.
2. Reinsurance Broker a.       Two times remuneration received at the end of every financial year subject to a minimum limit or Rs.4 Crores and

b.      at least Rs.75 Crores, if twice the remuneration limit is equal to or more than Rs. 10 Crores.
3. Composite a.       Two times remuneration received at the end of every financial year subject to a minimum limit or Rs.5 Crores and

b.      at least Rs.100 Crores, if twice the remuneration limit is equal to or more than Rs.100 Crores.