What is an Insurance Broker?
An Insurance Broker is defined as an intermediary between the Insurance Company and the Policyholder. Insurance Brokers assist clients in crafting comprehensive insurance solutions to secure the Insured from the various risks they are exposed to.
Unlike an Insurance Agent which represents the Insurance Company, brokers work with multiple insurance companies to secure the best quotes and coverage for their clients. Additionally, unlike an Insurance Agent which represents the Insurance Company, an Insurance Broker represents a Client.
Insurance Broker concept was introduced by IRDAI in 2002 under the Insurance Brokers Regulation 2002.
What does an Insurance Broker do?
Insurance Brokers are risk management and insurance specialists who help businesses craft comprehensive insurance solutions to secure them from various risk exposures.
Insurance Brokers perform the following tasks for their clients:
- Evaluate various risk exposures and suggest insurances to mitigate those risks
- Deciding insurance coverages for clients
- Getting and Comparing Insurance Quotes from various clients and deciding the Insurance Provider based on Insurance Coverages and Quotes
- Helps Clients with their Insurance Claims
- Reviewing the Insurance needs of clients on a Periodic Basis
What are the types of Insurance Brokers?
There are 3 types of Insurance Brokers in India:
- Direct Brokers: A Direct Insurance Broker is an Insurance Broker licensed by IRDAI who solicits and places Insurance business for clients with Insurance Companies based in India. The Insurance Broker typically gets a commission for his services. Additionally, he also provides Claims Consultancy and Risk Management services to clients.
- Reinsurance Brokers: A Reinsurance Broker is a licensed Broker by IRDAI who solicits and arranges reinsurance for clients with Insurers or Reinsurers with Insurance Companies or Reinsurance Companies based in India or Abroad. The Reinsurance Broker typically gets a commission for his services. Additionally, he also provides Claims Consultancy and Risk Management services to clients under the IRDAI Insurance Brokers Regulations 2018.
- Composite Brokers: A Composite Insurance Broker is an Insurance Broker licensed by IRDAI who solicits and arranges insurance and reinsurance business for clients with Insurance Companies and/ Reinsurance Companies based in India or Abroad.
Why use an Insurance Broker?
An Insurance Broker is a specialist in Insurance and Risk Management. The Insurance Broker also understands the nitty-gritties of various Insurance Products thoroughly. He is in a position to understand business risk exposures and construct a comprehensive insurance program to mitigate those risks.
Additionally, since Insurance Brokers work with multiple Insurance Companies they are able to negotiate better coverages and quotes for the clients. Additionally, an Insurance Broker also recommends various risk minimization measures which reduce your Insurance Premium
Also, using an Insurance Broker does not increase Policy Premiums and this it is always a wise decision to take assistance of an experienced Insurance Broker
Insurance Broker vs Insurance Agent
Most people often confuse Insurance Brokers with Insurance Agents. However, the two are different.
The main difference is that Insurance Broker represents the client while an Insurance Agent represents the Insurance Company. An Insurance Broker suggests Insurance Policies which are best suited for the client depending on his needs and risk exposures while an Insurance Agent are sales representatives of the company and they reach out to the customers on behalf of the Insurance Company.
Additionally, Insurance Brokers can work with multiple Insurance Companies in India and hence they can negotiate better quotes and coverages for the clients while an Insurance Agent works with one single Insurance Company.
Thus, Insurance Brokers are better suited for complex corporate insurances while Insurance Agents are better suited for Retail Insurance Products like Car Insurance, Health Insurance etc.
How to become an Insurance Broker in India?
The Company wishing to become an Insurance Broker has to get registered with the IRDAI Subsequently, the company has to submit an application online on the website www.irdabap.org.in
There requirements for becoming a licensed Insurance broker in India are listed below:
Corporate Structure
The following entities can register for an 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; and
- Any other individual or company that is allowed to conduct the business related to an Insurance Broker.
Capital Requirements
The applicant must satisfy the below mentioned capital requirements for applying for a Broker’s License:
- Direct Broker – Rs75 Lakhs
- Re-insurance Broker – Rs4 Crore
- Composite Broker – Rs5 Crore
Net Worth Requirements
The Networth Requirements for becoming an Insurance Broker are as follows:
- Direct Broker – Rs50 Lakhs
- Re-insurance Broker – Rs2 Crore
- Composite Broker – Rs2.5 Crore
The networth of an Insurance Broker shall at no time during the period of certificate of registration fall below:
- Rs50 Lakhs for a direct broker;
- 50% of the minimum capital requirements or contribution or equivalent specified under Regulation 19(1) for reinsurance / composite broker.
In case of non-compliance of networth criteria, the Insurance Broker shall immediately restore the net worth to the limits given above and report compliance of the same. The Insurance Broker has to submit to the Authority a net worth certificate duly certified by an Auditor every half-year.
Deposit Requirements
Every applicant before the commencement of the Insurance Broker business must maintain a deposit with a scheduled bank. The amount which has to be deposited is as follows:
- Rs10 Lakhs for a Direct Broker; and
- 10% of the minimum capital/contribution is required for Reinsurance/Composite Broker.
This deposit cannot be released to the applicant without the prior written permission of the IRDA.
Purpose of the Business
- The applicant should ensure that the main objects of the business is Insurance Brokering which 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.
Conclusion
The article has explained the concept of Insurance Broker and what they do in detail. It is always advisable to work with an experienced insurance broker for your business insurance needs.
Qian is a licensed Insurance Broker with experience of working with top corporates across diverse industries. If you want any assistance for any type of Insurance, be it Cyber Insurance or Commercial General Liability Insurance, Group health Insurance etc, feel free to reach out to us at insurance@qian.co.in or call us on 022-22044989.
We would be glad to assist you