Insurance Broker License is regulated and managed by Insurance Regulatory and Development Authority (IRDA). An Insurance Broker is an individual or a company that is registered under IRDA and provides advisory on the matters related to insurance. IRDA also manages all the required functions and operations of Insurance Broker License. It helps the client in the process of getting insurance coverage from an insurer. An insurance broker is that who is a qualified, expert and professional individual who works with the motive to provide insurance cover. An insurance broker acts as the bridge between the insurance company and the clients who are wandering in search of purchasing an insurance policy.
Categories of insurance broker
"Direct Broker" refers to an Insurance Broker registered by the Authority, who, in exchange for compensation and/or a fee, actively seeks and organises insurance transactions on behalf of their clients with insurers situated in India. Additionally, they may offer claims advisory, risk management services, or similar services, as allowed by the Insurance Regulatory & Development Authority of India (Insurance Brokers) Regulations, 2018.
"Reinsurance Broker" signifies an Insurance Broker authorised by the Authority, who, for compensation and/or a fee, actively seeks and manages reinsurance transactions for their clients with insurers and/or reinsurers situated in India or overseas. They may also provide claims consultancy, risk management services, or related services in accordance with the Insurance Regulatory & Development Authority of India (Insurance Brokers) Regulations, 2018.
"Composite Broker" represents an Insurance Broker registered by the Authority, who, for compensation and/or a fee, actively engages in arranging both insurance and reinsurance deals for their clients with insurers and/or reinsurers located in India or abroad. Additionally, they may offer claims consultancy, risk management services, or other similar services in accordance with the Insurance Regulatory & Development Authority of India (Insurance Brokers) Regulations, 2018
Important Key Terms
"Broker Qualified Person" refers to an individual employed by or serving as a director of an insurance broker, responsible for the solicitation and acquisition of insurance business. They must have completed the required training and passed the prescribed examination.
"Key Management Person" encompasses top-level executives, including the Chief Executive Officer, Chief Finance Officer, Chief Marketing Officer, Head-Reinsurance, Chief Technical Officer/Head-IT, and Compliance Officer.
"Person" can be understood as:
- A company was formed under the Companies Act, 2013 (18 of 2013).
- A cooperative society which is registered under the Co-operative Societies Act, 1912, or any relevant law governing cooperative societies.
- A limited liability partnership that is established under the Limited Liability Partnership Act, 2008, with the condition that no partner is a non-resident entity/person as defined in clause (w) of section 2 of Foreign Exchange Management Act, 1999 (FEMA), and it is not a foreign limited liability partnership registered under FEMA.
- Any other entity recognized by the Authority to operate as an insurance broker.
"Principal Officer" signifies an executive officer appointed for the purpose of carrying out the responsibilities specified in these regulations on behalf of an insurance broker. This individual typically holds the position of Chief Executive Officer, whole-time director, managing director, managing partner, managing trustee, or someone exclusively engaged to perform the functions of an insurance broker.
Functions of Direct broker and Reinsurance broker and Composite Broker
The functions are as follows:
Functions of a direct broker
The functions of the direct broker shall include the following:
- Gathering comprehensive information about the client's business and their approach to risk management.
- Becoming well-versed in the client's business and the details relevant to underwriting, ensuring the ability to explain these aspects to insurers and other parties.
- Offering advice regarding suitable insurance coverage and terms.
- Keeping up-to-date with knowledge of the available insurance markets as applicable.
- Presenting insurance quotes received from insurers for the client's consideration.
- Supplying the necessary underwriting information requested by an insurer to assess the risk and determine pricing, terms, and conditions for coverage.
- Acting promptly on client instructions and providing written acknowledgments and progress reports.
- Assisting clients in fulfilling premium payments in accordance with Section 64VB of the Insurance Act, 1938 (4 of 1938).
- Aiding in the negotiation of insurance claims.
- Maintaining accurate records of insurance claims.
- Assisting in the establishment of e-insurance accounts.
- Facilitating the issuance of e-insurance policies.
- Performing any other functions as specified by the Authority.
Functions of the reinsurance broker
The functions of the reinsurance broker shall include the following:
- Getting acquainted with the client's business and their approach to retaining risk.
- Maintaining organised records of the insurer's operations to aid reinsurers or other parties.
- Providing advice based on technical data about available reinsurance options in both the international insurance and reinsurance markets.
- Keeping a comprehensive database of available reinsurance markets, including the solvency ratings of individual reinsurers.
- Offering risk management services related to reinsurance.
- Recommending and selecting a reinsurer or a group of reinsurers.
- Negotiating with reinsurers on behalf of the client.
- Assisting in situations involving the commutation of reinsurance contracts that they have placed.
- Acting promptly on client instructions and furnishing written acknowledgments and progress reports.
- Collecting and forwarding premiums and claims/refunds within the agreed-upon timelines.
- Assisting in the negotiation and resolution of reinsurance claims.
- Maintaining accurate records of reinsurance claims.
- Exercising due care and diligence when choosing reinsurers and international insurance brokers, taking into account their respective security ratings and establishing clear responsibilities when engaging their services.
- Establishing market capacity and facilities for new, stressed, emerging, and existing business and asset classes, serving both direct insurers and reinsurers.
- Providing preliminary loss advice (PLA) within a reasonable timeframe.
- Ensuring the timely collection and remittance of funds, initiating fund follow-ups well before settlement due dates from the cedant to the reinsurer and vice versa, as applicable.
- Adhering to local jurisdiction laws and other regulatory requirements when arranging insurance or reinsurance for clients or insurance companies based outside India.
- Performing any other functions as specified by the Authority.
Functions of the composite broker
A composite broker must carry out the functions mentioned above.
Suppose a client designates a composite broker to function as a direct insurance broker. In that case, the composite broker should refrain from exerting any influence on the insurer involved to appoint them as a reinsurance broker for procuring reinsurance for the same contract. However, if, through a fair and transparent procedure, the insurer independently decides to engage the composite broker as a reinsurance broker for securing reinsurance on the same risk for which the composite broker initially acted as a direct broker, it is the responsibility of the composite broker to establish effective systems and controls. These systems and controls should ensure that the interests of both the client and the insurer are safeguarded and not compromised.
How one can get registered as a Broker
The following is the eligibility criteria as well as requirements given below:
The government has established specific minimum prerequisites for obtaining an insurance broker licence. Additionally, brokers must complete the registration process with the IRDAI. To do this, applicants should visit the portal, where the system will generate a username and password and send them to the registered email address. Afterward, applicants can submit their registration applications online through the website www.irdabap.org.in. Please note that new broker registrations will only be accepted through the online mode.
The following must be registered under the Insurance Broker License:
- A company formed under the Companies Act 2013 or the preceding Company Law of 1956.
- A partnership duly registered under the Limited Liability Partnership Act, 2008.
- A cooperative society as registered under the Co-operative Societies Act of 1912.
- Any other individual or company permitted to conduct business activities associated with an insurance broker.
The applicant requires satisfying the capital requirements for applying for a Broker's Licence:
- Direct Broker requires 75 Lakhs.
- Re-insurance Broker requires 4 Crore.
- Composite Broker requires 5 Crore.
Net Worth Requirements
For the purposes of the regulations of "net worth" must have the meaning assigned to it in Companies Act 2013 and as amended from to time from 50 Lakhs/200 Lakhs/250 Lakhs for Direct and Reinsurance and Composite Brokers
- The net-worth of an Insurance Broker must at no time during the period of certificate of registration do fall under the below category:
- Rupees 50 lakhs for the direct broker;
- The minimum capital required of 50% or contribution or equivalent as per Regulation 19(1) for reinsurance/composite broker.
- In case of non-compliance the Insurance Broker must immediately restore a net worth to the limits and then report compliance.
- The Insurance Broker must submit to the Authority a net worth certificate duly certified authorised by an Auditor every half-year.;
Every applicant before the commencement of the insurance broker business must ensure that a deposit has been maintained with the scheduled bank. The sum has to be deposited is as follows:
- 10 Lakh Rupees for a Direct Broker
- The minimum capital contribution is 10% that is required for re-insurance/composite broker. Fixed deposit must not be released to them without a prior written permission of the Authority.
Office Space/ Facilities
- The applicant must apply for an Insurance Broker License required to satisfy necessary infrastructure such as adequate office space, trained manpower, equipment, and IT infrastructure to effectively discharge its activities.
- The applicant must have to ensure that at least 2 qualified persons with the necessary training to function as insurance brokers are present. This is required to conduct the business of the insurance broker. Suppose an applicant is carrying out insurance broker business related to both the life insurance and general insurance then In that case, the applicant has to make sure that the 2 qualified individuals must have relevant and necessary qualifications in both life and general insurance.
- The principal officer of any business requires to have requisite qualifications. He must have the necessary certificate and skills for carrying out the insurance broker business.
- Principal Officer is the key management executive of the company, whole-time director, or office, that requisite experience.
Purpose of the Business
- The applicant has to ensure that the main purposes of the business are insurance brokering. It must be mentioned in the objects clause of the Articles of Association (AOA) and (MOA) the Memorandum of Association.
- Foreign investors must also allow investing in an insurance brokers business.
Professional indemnity insurance
- Every insurance broker has to take out and maintain a professional indemnity insurance cover for the validity period of Certificate of Registration issued to them by the Authority, mentioned in Schedule II – Form S of IRDAI (Insurance Brokers) regulations.
- In appropriate cases, the Authority must allow a newly registered insurance broker to produce the policy within 12 months from the date of issue of registration certificate.
Procedure for Applying for Insurance Broker License
Application for Grant of Certificate of Registration:
The applicant is required to make an application regarding the type of insurance broker business.
- The application for the Insurance Broker License requires to be made in FORM B- Schedule I of IRDAI (Insurance Brokers) regulations.
- The application has to be submitted with documents mentioned in the FORM-C Schedule I of IRDAI (Insurance Brokers) regulations.
For granting the registration certificate, an application is required to be submitted along with the fees as per FORM D- Schedule I of IRDAI (Insurance Brokers) Regulations. The fees must be paid for an application of insurance broker is mention below:
- For Direct broker it is Rs.25,000.
- For Re-insurance broker is Rs.50,000.
- For Composite brokers it is Rs.75,000.
Apart from this, there are fees mandatorily has to be paid for the registration requirements:
- For Direct Broker it is Rs. 50,000/- after granting of an in-principle approval when an application is new. In case of renewal of the registration, the fees becomes Rs 1,00,000/- for a time period of 3 years.
- For Re-insurance Broker it is Rs. 1, 50,000/- after granting of an in-principle approval when an application is new. In case of renewal of the registration, then the fee for renewal is Rs. 3,00,000/ for a period of 3 years.
- For Composite Broker it is Rs.2, 50,000/- after granting of an in-principle approval when an application is new. In case there is a renewal of registration, then the fee for renewal is Rs. 5,00,000/- for a period of 3 years.
The fee payable mandatorily would be for the validity period of the registration certificate.
Fees must be paid electronically or in demand draft (DD) in favour of the Insurance Regulatory and Development Authority of India.
Procedure for Issuing Insurance Broker License (registration)
Following is the procedure:
- If an authority feels that all important information complies with Insurance broker licence, then an in-principle approval would be given to an applicant for complying with all the requirements related to the registration certificate of r.
- The authority has to grant the certificate when the applicant has complied with laws and regulations.
- The registration certificate as an Insurance Broker License must be given to an applicant after satisfying that the code of conduct must be adhered to.
- The broker will apply for a registration certificate and can also apply for other registrations under the IRDAI. Such registration would be granted to an applicant after issuing the registration certificate for the first instance
- An applicant can make a new application when the registration certificate has been cancelled/ repealed due to change in law or held by a Securities Appellate Tribunal or any other court of law. An application under this can only be made to the concerned authority after one year.
- An application for an insurance business can be rejected in case the authority feels that an applicant has not fulfilled the necessary requirements.
- The authority requires to communicate the refusal to grant the application for the Insurance broker licence within 30 days of communication of a rejection.
- An applicant requires to make a new application after 1 year of rejection of an application.
Conditions for Granting the Insurance Broker License
The IRDAI gives following conditions before granting the insurance brokers licence:
The insurance broker is required to conduct the business as per the rules of the IRDAI.
- In case the insurance broker business has given false or misleading information regarding particulars of the business, then the same requires to be intimated to an authority.
- Insurance broker businesses have to handle all grievance procedures of clients within the time period of 14 days of receiving a complaint. The business requires to keep information regarding a number of complaints received from the customers.
- Insurance brokers must reasonably conduct their business by the IRDAI rules.
- The insurance broker has to maintain books of accounts.
- Insurance brokers must not conduct multi-level marketing or solicitation.
Documents required for Insurance Broker License
Submission of relevant information as per the Schedule I – Form B.
- Copy of Memorandum of Association and Articles of Association as per the Companies Act 2013.
- Remittance of the Fee for a particular category of Insurance broker licence.
- Training for employees starting an insurance broker business
- Schedule-I Form F must have the relevant data of the principal officer.
- Fit and Proper certification, that is required as per Schedule-I Form G.
- Declaration submitted by a key management executive, director of the company, principal officer, that they are not having any form of disqualification under the Act.
- Details of Directors and Partners, Promoter, Key Management Personnel must be provided in a Form.
- Schedule I- Form F- The List of persons responsible for managing and for procuring brokerage business along with the qualifications.
- Details of statutory auditors and Principal Bankers of the Bank Account Number of an applicant. Details of infrastructure, which includes IT infrastructure along with all the supporting evidence like ownership or lease agreement evidencing sufficient space for managing brokering business.
Validity for Registration Certificate for Insurance Brokers License
- A certificate granted by IRDAI must be valid for the period of 3 yearsfrom the date of issue. It would be subject to the order from the authority.
- An insurance broker must not be permitted to do the Insurance Broker business without getting a proper certificate registered with an authority
Insurance Broker License Renewal
- Applications for renewing an insurance broker licence require to be made to a relevant authority 30 days before expiry of the licence. The application has to be made in FORM K of Schedule –I of regulations.
- In case an application is made after the expiry but before the actual expiry of the certificate, then a payment will be of Rs. 100/- to be made with an application.
- If there is a delay in applying for renewal of registration, then the applicant must do the same. If this case is made within 60 days of the expiry of the registration certificate, an applicant would have to pay Rs. 750/-.
- Any application received after an expiry of the 60 days must be considered only after 1 year. In that one year, the insurer must not conduct any type of business or solicit any form of business.
- An Insurance broker will not be able to apply for renewal after 90 days from expiry of the registration certificate.
- Insurance brokers must conduct business of brokering after the certificate's expiry except to serve existing policyholders.
- The application for the renewal of a certificate for broker insurance must be the same as a new application.
- If an application or renewal is rejected, the same has to be notified to an applicant.
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