Insurance Brokerage
If you are looking for a business model that is sustainable, growth-oriented, and long-lasting, insurance brokering could be your best bet. As the demand for diverse insurance products continues to rise, insurers are increasingly looking for viable brokering partners to push sales and services to newer heights. From finding potential clients to assisting policy seekers with decision-making, an insurance broker is a jack of all trades, providing assistance that bridges the gap between insurers and policy seekers. IRDAI comprehensively governs this business model via dedicated legislation helming different aspects, including registration, corporate governance, annual filing, reporting, operation, audit, capital management, etc. Read on to discover what it takes to start this business model.
What Exactly Does an Insurance Broker Do?
IRDAI introduced the concept of insurance brokering to elevate the market reach of diverse insurance products and streamline the insurers’ operation. These benefits ultimately ease the blow for policy seekers who often struggle to select the ideal policy and address the claim formalities. Being a legal-recognized entity, the insurance broker sits right between the insurers and those seeking ideal policies, catering to a number of tasks such as:
- Rendering expert advise
- Assessing risk threshold
- Assisting clients with claim settlement
- Helping clients with paperwork
Depending on the scope of services, they can serve the role of either direct brokers, reinsurance brokers, or composite brokers.
Check out our stories: Top 7 IRDAI License Services in India
Categories of Insurance Brokers
There are five types of brokering categories available as per the IRDAI. Depending on the scope of services, one of the following options can be picked by those seeking to leap into the brokering business.
- Direct Broker (Life): These brokers focus on life insurance policies, helping insurers find viable clients while providing policy seekers with fundamental support.
- Direct Broker (General): These brokers, as the name suggests, deal with general insurance products, enabling insurers to have a streamlined operation while assisting policy seekers in a number of ways.
- Direct Broker (Life & General): These brokers work for both life and general insurance firms, providing a plethora of services within IRDAI’s purview.
- Reinsurance Broker: These brokers assist insurers in finding viable policies among various options offered by different reinsurers.
- Composite Broker: These brokers offer comprehensive services as they span key domains viz. direct and reinsurance brokerage.
Each category invites a different set of IRDAI norms concerning registration, qualification, documents, operations, etc.
Key Officials Involved in Insurance Brokerage Business
Depending on the broker category and scope of services, IRDAI mandates the presence of the following personals within the management pursuing brokering endevours.
- Broker Qualified Person: A trained personnel specialized in brokering activities and has IRDAI-recommended qualifications.
- Principal Officer: The principal officer with recommended qualifications and experience in the insurance field is paramount for brokering business. Being among the key decision makers, the PO will oversee the broker’s operation and compliance, ensuring the firm runs seamlessly within the IRDAI framework.
- Key Management Personnel: Apart from PO, the brokering firm must have the presence of a CEO, CFO, and Compliance Officer, handling key aspects of the firm for hassle-free operation.
Eligibility Criteria for an Insurance Brokerage License
Opening of an insurance brokerage firm in India requires adherence to the following IRDAI requirements. Keep a note of the guide cum checklist before delving into the registration process.
Corporate Structure
- A company seeking brokering registration from IRDAI must be registered either under the Companies Act, 2013, the Limited Liability Partnership Act, 2008, or the Co-operative Societies Act, 1912.
Capital Requirements
- Direct Broker: Minimum capital of ₹75 lakhs.
- Reinsurance Broker: Minimum capital of ₹4 crores.
- Composite Broker: Minimum capital of ₹5 crores.
Net Worth Requirements
- Direct Broker: A minimum net worth of ₹50 lakhs is mandatory to apply for a direct broker registration.
- Reinsurance Broker: 50% of the minimum capital required (₹2 crores) to apply for reinsurance broker registration.
- Composite Broker: 50% of the minimum capital required (₹2.5 crores) to apply for a composite broker license.
Deposit Requirements
- Direct Broker: A minimum deposit of ₹10 lakhs is mandatory to apply for the direct broker license. m
- Reinsurance and Composite Brokers: 10% of the minimum capital is essential as a deposit to apply for this category.
Professional Indemnity Insurance
Applicants seeking brokering licenses should maintain a professional indemnity insurance policy throughout their service life.
How to register an Insurance Brokerage Business?
Opening an insurance brokerage business invites a host of legalities, which also involves adherence to the following steps:
1. Registration on IRDAI Portal:
- Head over to the IRDAI’s official website to register.
- Use your registered email to receive the login credentials.
2. Submission of Application:
- Fill out the prescribed application viz. FORM Schedule I for the chosen broker category.
- Refer to the FORM C-Schedule I to arrange and attach the key dossiers.
- Depending on the chosen category, pay the IRDAI-recommended fee, which is as follows:
- ₹25,000 for direct brokers,
- ₹50,000 for reinsurance brokers
- ₹75,000 for composite brokers
3. Review and Approval:
- The governing authority i.e. IRDAI shall vet the application and dossiers for compliance with IRDAI regulations.
- Only after a successful assessment, a registration certificate shall be granted.
4. Post-Registration Compliance:
- Keep the tab on norms relating to capital, net worth, and deposits to ensure continuity.
- Annual and event-based filing with IRDAI to ensure compliance is paramount.
FAQs
1. What is the validity period of an insurance brokerage license?
The license stays valid for a timeline of three years. A timely renewal of the license before the deadline is paramount to maintain continuity.
2. Can foreign investors participate in an insurance brokerage business?
Yes, this arrangement can be possible as long as the norms under the Foreign Exchange Management Act (FEMA) are met comprehensively.
3. What is the role of the principal officer in a brokerage firm?
The principal officer serves as a key decision-maker who caters to a number of tasks, including operation management and compliance adherence.
4. Are there penalties for non-compliance with net worth requirements?
Yes, brokers can undergo stringent penalties in case of non-compliance cornering net worth. Some notable penalties include suspension of license and halt of business activities.
5. How is professional indemnity insurance beneficial for brokers?
It protects brokers from potential financial liabilities arising from errors, omissions, or negligence in their professional services.
Conclusion
Opening an insurance brokerage business is a matter of abiding by a host of compliances and establishment rules. Meeting these norms is paramount to transforming your business idea into reality. If you are not a compliance wizard, you can team up with a reliable partner viz. Adviso specializes in IRDAI compliances and insurance business.
Also Read: A Comprehensive Guide to Insurance Brokering: Process, Types, and Legalities
