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Insurance Broker's Licence Exam and Training - Registration with IRDA

How to set-up an


Insurance Broker Firm

?







by:

insurancemocktest.in

2024

Who is an Insurance Broker?

Insurance Broker is a firm or an organisation who solicits and arranges insurance business for its principal, an insurance company (and/or a re-insurance company) and may also provides claims consultancy, Risk Management services or other similar services for a remuneration or fee. Insurance Brokers in India need to be registered with Insurance Regulatory and Development Authority of India and obtain a registration certificate before acting as Insurance Broker. An Insurance Broker acts as a middleman between the general public and insurance companies. They assist people in buying the most suitable insurance policies per their financial needs.

Categories of Insurance Brokers

There are five categories of insurance broker which are:

• Direct Broker (Life),
• Direct Broker (General),
• Direct Broker (Life & General),
• Reinsurance Broker and
• Composite Broker.

In case of direct brokers, they arrange business for an insurance company whereas in case of re-insurance broker, they arrange business for a re-insurance company. And a composite broker authorised to do both.

Registration & Licence:

No person or a firm or a company shall act as an Insurance Marketing Firm without being registered under IRDA Regulations.

And only following type of entities can be registered as Insurance Broking Firm:

  1. A company formed under the Companies Act, 2013; or
  2. A limited liability partnership (LLP) formed and registered under the Limited Liability Partnership Act, 2008; or
  3. A Co-operative Societies registered under Co-operative Societies Act, 1912 or under any law for registration of Co-operative Societies; or
  4. Any other person as may be recognized by the Authority to act as an Insurance Marketing Firm.

Every eligible person/organisation intending to act as an Insurance Broking Firm in respect of insurance business shall apply to the Authority for grant of registration in the Form as may be specified by the Authority.

The registration granted shall be valid for a period of three years.

Eligibility Criteria:


Only resident Indian or an Indian Entity is entitled to register as Insurance Brokers.
A Non-Resident Entity, An Individual Resident outside India; and A foreign partnership that is registered under the laws of a foreign country can not be appointed as Insurance Broker.
However Foreign Direct Investment is presently allowed upto 100%.

Capital Requirements:

• Direct Broker- 75 Lakhs.
• Re-insurance Broker- 4 Crore.
• Composite Broker- 5 Crore.
(Foreign Direct investment is currently allowed upto 100%)

Minimum Net Worth:


• Direct Broker- 50 Lakhs.
• Re-insurance Broker- 200 lakhs.
• Composite Broker- 250 Lakhs.
The net-worth shall at no time fall below 100% (i.e. Rupees Fifty Lakhs) for direct broker; and 50% of the minimum requirements for reinsurance and composite broker. The Broker shall immediately restore the net worth to the limits given above and report compliance of the same.

Other requirements for registration:

Deposit Requirements
Every broker shall maintain with a scheduled bank a deposit of Sum of Rs. 10 lakhs (for Direct Broker) and 10% of Minimum requirement (for re-insurance and Composite Broker). The sum which has to be deposited is as follows:
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.
Professional indemnity insurance
Every insurance broker shall take out and maintain at all times a professional indemnity insurance cover throughout the validity of the period of the Certificate of Registration issued to them by the Authority, as specified in Schedule II – Form S of the IRDAI (Insurance Brokers) regulations.

Qualification

At least two qualified individuals (known as Broker qualified person) are to be appointed who have the necessary training to function as insurance brokers. 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 person have relevant and necessary qualifications in both life and general insurance.
The Principal Officer must be a key management executive of the company, whole-time director, partner, or office, which requisite experience. 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.

Training & Exam:

Candidate has to undergo mandatory 50 / 25 hours of Brokers’ Training before enrolling for the examination. Candidate has to pay separately for registration of examination by paying stipulated fees. As per IRDAI (Insurance Brokers) Regulations 2018 candidate should take exam within one year from the end of the period of Training.

Online Exam Pattern as below:
Section-I Compulsory Section-II General Section-III Life Section-IV Reinsurance Total No. of Questions TIME
Direct - General Insurance 40 40 80 90
Direct - Life Insurance 40 40 80 90
Direct - General + Life Insurance 40 20 20 80 90
Direct - Re-Insurance 40 40 80 90
Composite 40 20 20 40 120 120

Duration
90 minutes for Life/General/Life + General/Reinsurance Brokers and 120 minutes for Composite Broker.
Passing score
Principal Officer/ Broker Qualified Person – 50% , Authorised Verifier – 35%

Registration Process

The eligible person or entity, shall get registered with the IRDAI where in applicant is required to register in the portal and username and password would be generated by the system and sent to the user in the registered email id. Subsequently, an application can be submitted online by accessing the website www.irdabap.org.in The application for new broker’s registration shall be accepted only through on-line mode.
Fees:
For granting the certificate of registration, e fees specified in FORM D- Schedule I of the IRDAI(Insurance Brokers) Regulations has to be paid both at the time of rendering application and also on receipt of in-principle approval. The fees that has to be paid for application for an insurance broker is as follows:

Particular Application Fee On grant of in-principal approval For renewal
Direct Broker Rs. 25,000/- Rs. 50,000/- Rs. 1,00,000/-
Re-Insurance Broker Rs. 50,000/- Rs. 1,50,000/- Rs. 3,00,000/-
Direct - General + Life Insurance Rs. 75,000/- Rs. 2,50,000/- Rs. 5,00,000/-

Certificate

• 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

Functions as an Insurance Broker:

    Direct broker
  • Obtaining and familiarizing himself with detailed information of the client's business and risk management philosophy and underwriting information so that this can be explained to an insurer and others;
  • Rendering advice on appropriate insurance cover and terms;
  • Maintaining detailed knowledge of available insurance markets, as may be applicable;
  • Submitting quotation received from insurer/s for consideration of a client;
  • Providing requisite underwriting information as required by an insurer in assessing the risk and decide pricing and terms and conditions for cover;
  • Acting promptly on instructions from a client and providing him written acknowledgements and progress reports;
  • Assisting clients in paying premium;
  • Assisting in the negotiation of the claims;
  • Maintaining proper records of claims;
  • Assisting in opening of e-insurance accounts;
  • Assisting in issuing e-insurance policies; and
  • Any other function which the Authority may specify.
    Re-insurance broker
  • Familiarizing himself with the client’s business and risk retention philosophy;
  • Maintaining clear records of the insurer's business to assist the reinsurer(s) or others;
  • Rendering advice based on technical data on the reinsurance covers available in the international insurance and the reinsurance markets;
  • Maintaining a database of available reinsurance markets, including solvency ratings of individual reinsurers;
  • Rendering risk management services for reinsurance;
  • Selecting and recommending a reinsurer or a group of reinsurers;
  • Negotiating with a reinsurer on the client’s behalf;
  • Assisting in case of commutation of reinsurance contracts placed by them;
  • Acting promptly on instructions from a client and providing it written acknowledgements and progress reports;
  • Collecting and remitting premiums and claims/refunds within such time as agreed upon;
  • Assisting in the negotiation and settlement of claims;
  • Maintaining proper records of claims;
  • Exercising due care and diligence at the time of selection of reinsurers and international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services;
  • Creation of market capacity and facility for new, stressed, emerging and existing business and asset class for and from both direct insurers and reinsurers;
  • Render preliminary loss advice (PLA) within reasonable time;
  • Given the nature of business, separate norms need to be followed for Inward and Outward business
  • Inward business
  • Broker to have adequate specific knowledge of the country whose business is being offered like: political stability, economic position, local regulations, tax laws, etc.
  • Introduce new business/ products depending on the reinsurers business plan and risk appetite
  • Outward business
  • Rating and market credibility of the reinsurer
  • To ensure prompt collection and remittance of funds, follow up for funds to be initiated sufficiently before the due dates for settlement from cedant to reinsurer and from reinsurer to cedant as relevant;
  • To comply with the laws and other requirements of the local jurisdiction while arranging insurance/ reinsurance for clients/ insurance companies based outside India; and
  • Any other function which the Authority may specify.
    Composite broker:
  • A composite broker shall carry out the functions mentioned in for both direct and re-insurance broker.

Commission and Earnings

The payment of remuneration and/ or reward to an Insurance Broker by an insurer is regulated as per IRDA prescribed Regulations
For Direct insurance business:
The payment of remuneration and/ or reward to an insurance broker by an insurer shall be as per IRDAI (Payment of commission or remuneration or reward to insurance agents and insurance intermediaries) Regulations, 2016 notified by the Authority in this behalf;
For reinsurance business:
(a) as per market practices prevalent from time to time.
(b) The settlement of accounts by insurers in respect of remuneration of insurance brokers shall be done on a monthly basis and it must be ensured that there is no cross settlement of outstanding balances.

What is the difference between insurance Agent and Insurance Broker?

Both Insurance agent and insurance Broker are intermediaries that traditionally help in marketing Insurance products and are wrongly assumed to be the same. However, there are a few lines of difference between the two.
An insurance broker is a professional who represents customers, ensuring they get the best insurance policy suited to their needs. Where as, an insurance agent usually represent an Insurance company as he sells the products of the insurance company to customers for a commission. As the insurance agents represents an insurance company they have much higher authorities granted by the insurer for example, they can bind a sale transaction for and on behalf of insurer or can sign and issue a policy documents. A broker can not do that.
However, it is to be noted that the insurance agent represents only the insurance company. And since the agent represents the company, he/she has the right to complete insurance sales transactions. Insurance brokers do not have this right; instead, they will have to hand over the account to the insurance agent or to the company itself.
An Insurance Broker is more interested in finding out the needs and options for his/her clients and then offer a host of options from across a number of Insurance companies as per client’s requirements.

Further information

For further information refer to IRDAI (Insurance Brokers) Regulations, 2018