Types of Insurance Brokers

Direct Brokers

A direct broker is an institution that gets detailed information regarding the clients for an insurance business. Apart from this, the direct broker renders advice on the appropriate insurance and the policies available. The direct broker also obtains market information on the insurance business. The direct broker acts on the instructions provided by the client, such as helping the client open an e-insurance account and helping clients pay the premium on the insurance business.

Re-insurance Broker

A re-insurance broker performs similar functions to the direct broker. Re-insurance broker manages the business of re-insurance. A re-insurance broker also maintains the market statistics of re-insurance markets. Negotiating on behalf of the client is another responsibility of the re-insurance broker.

Composite Broker

A composite broker is an institution that carries out all the functions of a direct broker and a re-insurance broker. Therefore this form of broker carries out the combined role of a direct broker and a re-insurance broker.

Why Insurance Broker License is required

• To ensure that a significant number of insurance products are sold on behalf of the Insurance Business.
• To ensure that there is compliance with relevant laws and regulations related to insurance products.
• To monitor activities and conduct market research on insurance-related products.
• To act on behalf of clients to negotiate for insurance-related products.
• To ensure that a nodal authority regulates the insurance business.
• Insurance broker license would also assure clients regarding the genuinely of the broker.
• To negotiate policies and premiums on behalf of clients.

Eligibility criteria for Insurance Broker License

The Government has prescribed minimum requirements for securing a Insurance broker license. Apart from this, the broker has to ensure to get registered with the IRDAI.

Corporate Structure

The following can be registered under the Insurance Broker License:

• Company that is established under the Companies Act 2013 or the previous Company Law 1956;
• A partnership that is registered under the Limited Liability Partnership Act, 2008;
• A cooperative society which is registered under the Co-operative society act 1912;
• Any other individual or company that is allowed to conduct the business related to an Insurance Broker.

Capital Requirements

The applicant must satisfy the capital requirements for applying for a Brokers License:

• Direct Broker- 75 Lakhs.
• Re-insurance Broker- 4 Crore.
• Composite Broker-5 Crore.

Net Worth Requirements

The applicant must also satisfy the net worth requirement for applying for a broker license:

• Net worth of the insurance broker must not fall below:
• 50 lakh Rupees for a Direct broker; and
• 50% of the minimum capital requirements or contribution or equivalent for a re-insurance broker and composite broker.

Deposit Requirements

Every insurer (applicant) before the commencement of the insurance broker business must ensure that the deposit has been maintained with the scheduled bank. The sum which has to be deposited is as follows:

• 10 Lakh Rupees for a Direct Broker; and
• 10% of the minimum capital/ contribution is required for re-insurance / composite broker. Fixed deposit shall not be released to them without the prior written permission of the Authority.

Office Space/ Facilities

• The applicant applying for an Insurance Broker License must also satisfy necessary infrastructure such as adequate office space, equipment, trained manpower, and IT infrastructure to effectively discharge its activities.

Qualification

• The applicant must ensure that at least two qualified persons are present who have the necessary training to function as insurance brokers. This is required to conduct the business of the insurance broker. If the applicant is carrying out insurance broker business related to life insurance and general insurance, then the applicant has to make sure that the two qualified individuals have relevant and necessary qualifications in both life and general insurance.
• The principal officer of the business must also have requisite qualifications. He must possess the necessary certificate and skills for carrying out the insurance broker business.
• Principal officer must be a key management executive of the company, whole-time director, partner, or office, which requisite experience.

Purpose of the Business

• The applicant should ensure that the main objects of the business is insurance brokering. These must be mentioned in the objects clause of the Articles of Association (AOA) and the Memorandum of Association (MOA).
• Foreign investors are also allowed to invest in an insurance brokers business.

Process / Procedure for Applying for an Insurance Broker License Application for Grant of Certificate of Registration:

• The applicant should make an application regarding the type of insurance broker business.
• The application for an Insurance Broker License must be made in FORM B- Schedule I of the regulations.
• The application must be submitted with documents mentioned in FORM-C Schedule I of the regulations.
• For granting the certificate of registration, an application must be submitted along with the fees specified in FORM D- Schedule I of the Insurance Regulations. The fees that has to be paid for application for an insurance broker is as follows:
• Direct broker Rs.25,000.
• Re-insurance broker Rs.50,000.
• Composite broker Rs.75,000.
• Apart from this, there are mandatory fees that has to be paid for the registration requirements:
  • Direct Broker- Rs. 50,000/- after granting of an in-principal approval where the application is new. In case of renewal of registration, the fees will be Rs 1,00,000/- for a period of 3 years.
  • Re-insurance Broker- Rs. 1, 50,000/- after granting of an in-principal approval where the application is new. If there is a renewal of registration, then the fee to be paid for renewal is Rs. 3,00,000/- for 3 years.
  • Composite Broker- Rs.2, 50,000/- after granting of an in-principal approval where the application is new. If there is a renewal of registration, then the fee to be paid for renewal is Rs. 5,00,000/- for 3 years.
• The fee payable as the mandatory fee would be for the validity period of the certificate of registration.
• Fees must be paid through electronic means or demand draft (DD) payable in favor of the Insurance Regulatory and Development Authority of India, Hyderabad.

Procedure for Issuing Insurance Broker License (registration)

• If the authority feels that all the requisite information complies with the Insurance broker license, then an in-principal approval would be provided to the applicant for complying with the requirements related to the certificate of registration.
• The authority will grant the certificate if the applicant has complied with the laws and regulations.
• The certificate of registration as an Insurance Broker License would be given to the applicant when the applicant satisfies that the code of conduct would be adhered to.
• The broker applying for a certificate of registration can also apply for any other registrations under the IRDAI. Such other registration would only be granted to the applicant after issuing the certificate of registration for the first instance.
• An applicant can make a new application if the certificate of registration has been canceled/ repealed due to a change in law or held by a Securities Appellate Tribunal or any court of law. An application under this can only be made after one year to the concerned authority.

Documents required for Insurance Broker License

• Submission of relevant information as required in the Schedule I – Form B.
• Copy of the Memorandum of Association and Articles of Association should be according to the requirements of the Companies Act 2013.
• Remittance of the Fee for the particular category of Insurance broker license.
• Training for the employees starting an insurance broker business
• Schedule-I Form F should have the relevant data of the principal officer.
• Fit and Proper certification, which is required as per Schedule-I Form G.
• Declaration submitted by a key management executive, principal officer, director of the company that they are not having any form of disqualification under the Act.
• Details of Directors/ Partners, Promoter and Key Management Personnel are to be provided in the Form.
• Schedule I- Form F- List of qualified persons responsible for managing and procuring brokerage business along with their qualifications.
• Details of statutory auditors and Principal Bankers along with the Bank Account Number of the applicant.
• Details of infrastructure, including IT infrastructure along with supporting evidence thereof like ownership or lease agreement evidencing that sufficient space is present for managing the brokering business.

Validity for Certificate of Registration for Insurance Brokers License

• A certificate granted by the IRDAI would be valid for three years from the date of issue. This would be subject to the order from the authority.

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