THE COMPLETE PROCESS OF BECOMING AN INSURANCE BROKER

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Introduction

An insurance broker is a company or a person who is registered as an adviser on matters related to insurance and an arranger of insurance who is covered by an insurer on behalf of a client. An insurance broker is a specialist who analyzes and manages risk. They act on behalf of clients and provide advice to them according to interest and requirement. They help finding and identifying risks ( both individual and business) and help in deciding which things need to be insured, how to manage the risks etc. They can give technical advice too in insurance and risk management and are very useful if one needs to make a claim. They have good knowledge on terms and conditions, exclusion and coverages, and costs of a wide range of insurance competition policy, so they also help finding the most proper cover for one’s circumstances. They can help in arranging and placing the cover with the chosen insurer.

Need of Insurance Brokers

The Insurance Broker concept was launched by the Regulator known as IRDAI or Insurance Regulatory & Development Authority of India through the act Insurance Brokers Regulation 2002, the act was amendment in years 2013 and 2018. The Regulations in an act clearly define the code and functions of conduct of an Insurance Broker.

The need for an Insurance Broker Licence

1.To secure that a notable amount of insurance products are sold in favour of the Insurance Business.

2.To secure that there is consent with relevant regulations and laws related to insurance products.

3.To examine the working and perform market research on products related to insurance.

4.To take action on behalf of clients and to arrange for insurance-related products.

5.To make sure that a nodal authority governs the insurance business.

6. The license of the Insurance broker also secures clients the realness of the broker.

7.To negotiate premiums and policies on behalf of clients.

Insurance broker license requirement

If a person wants to be an insurance broker he needs to get a license from IRDAI. And to get the license the insurance broker needs to meet few criteria and the norms and guidelines prescribed by IRDAI. The insurance broker needs to maintain a separate account for the insurance money and an account for his earning and he also has to maintain a few codes of conduct. They also need to keep a solvency margin as mentioned by IRDA in its regulations.

Insurance broker license can be categorized into different types:-

Nevertheless, the key types are as follows:

1. Life Insurance — Direct Broker

2. General Insurance-Direct broker

3.General Insurance and Life Insurance- Direct Broker

4. Composite Broker

5. Reinsurance Broker

How to make an application for a license

1.Fill the application form and submit it to IRDAI along with a scanned copy of the necessary documents.

2. Authorised signatories of the firm need to be done and the form need to be submitted along with it (one need to save the form in draft mode)

3.after submitting the form, another authorized signatory also needs to sign the document before going to IRDAI for approval.

4.IRDAI validated and evaluated the application which can be rejected or approved or closed.

The following organisations can register themselves under Insurance Broker Licence :

1. A Company which is incorporated under the Companies Act 2013 or the previous Company act 1956;
2. A partnership firm which is registered under the Limited Liability Partnership Act, 2008;
3. A cooperative society that is registered under the Co-operative society act 1912;
4. Any other company or individual who is permitted to conduct the business connected to an Insurance Broker.

The following organisations cannot apply for an insurance broker license or be considered as an Insurance broker :

In case a broker(applicant) is a Limited Liability Partnership and wants to start an insurance brokerage business, then the following people cannot be partners in the business:

• A foreign partnership that is registered under the laws of any foreign country.

• A Non-Resident Entity;

• An Individual Resident outside India;

The applicant who is willing to get a license need to satisfy the following capital requirements before applying for a Brokers Licence:

1.Re-insurance Broker- 4 Crore.

2.Direct Broker- 75 Lakhs.

3.Composite Broker-5 Crore.

The Net worth must not fall below:

50% of minimum contribution or capital equivalent or requirement for reinsurance broker or composite broker and Rs 50 lakh for a Direct broker.

Every applicant ( broker) before starting the business of an insurance broker must ensure that the deposit as mentioned has been kept with the scheduled bank.

The amount need to be deposited as follows:

1. 10% of the minimum contribution or capital is required for composite broker or reinsurance broker. Fixed deposit shall not be freed to them without the advance written permission of the Authority and
2. 10 Lakh Rupees in case of a Direct Broker;

A fee of Rs 100 lakhs needs to be paid to the authority for any other business that wishes to be an Insurance broker.

Other things like equipment, necessary infrastructures such as enough office space, IT infrastructure to successfully conduct its activity, and trained manpower need to be satisfied by the applicant who is applying for an Insurance Broker Licence.

An Insurance Broker License Application process

An application to be made to Grant the Certificate of Registration:

• An application in regard to the type of insurance broker business needs to be made by the applicant.
• The application for an Insurance Broker License needs to be made in FORM B- Schedule I of the regulations.
• The application needs to be applied along with the documents as per the FORM-C Schedule I of the regulations.

To get the registration certificate the application needs to be applied along with the fees spe in FORM D- Schedule I of the Insurance Regulations. The fees which need to be paid for application to get an insurance broker registration is as follows:

1. Direct broker Rs.25,000.
2. Reinsurance broker Rs.50,000.
3. Composite broker Rs.75,000.

Other than this, there are mandatory fees that need to be paid for the registration :

1. Direct Broker- After approval of an in-principle approval rs 50,000 in case of application is new and 1,00,000 in case of a renewal of registration and the same is valid for a time period of 3 years.
2. Reinsurance Broker-After approval of an in-principle approval rs 1,500,000 in case of application is new and 3,00,000 in case of a renewal of registration and the same is valid for a time period of 3 years.
3. Composite Broker- After approval of an in-principle approval rs 2,500,000 in case of application is new and 5,00,000 in case of a renewal of registration and the same is valid for a time period of 3 years.

The mandatory fees payable as mentioned will be valid for the time period of the certificate of registration.

Fees must be paid through demand draft or electronic means in favor of the IRDAI ( Insurance Regulatory and Development Authority of India), Hyderabad.

The broker(applicant) can be asked to provide further information by the authority

The applicant needs to submit all these documents within 30 days calculated from the day of receiving the intimation from the authority (if required).

Process of Issuing Insurance Broker registration or License

• If the authority thinks that all the required information in respect of the Insurance broker license is submitted, then an in-principle approval will be given to the applicant to follow with the insurance broker requirements related to the registration certificate.
• The authority will approve the certificate if the applicant has fulfilled the regulations and laws.
• The registration certificate as an Insurance Broker License will be given to the applicant when the applicant fulfills and sticks with the code of conduct.
• The applicant(broker) who is applying for a registration certificate can also apply for any other registrations under the Insurance Regulatory and Development Authority of India. But that registration will only be approved to the applicant after issuing the registration certificate for the first case.
• A broker (applicant) can make a new application if the registration certificate has been held by court of law or securities appellate tribunal or replaced or canceled due to a change in law. But such further application can only be made to the concerned authority after passing 1 year.

Rejection

An application to start an insurance business can get rejected If the authority thinks that the applicant has not satisfied the necessary requirements. In case of rejection the authority will communicate to the insurance broker about the refusal of the application for the Insurance broker license within 30 days of such rejection. But the applicant can make a further application only after 1 year of rejection.

Documents required for Insurance Broker Licence

• Relevant information needs to be submitted as per Schedule I — Form B.
• Copy of the article of association and Memorandum of Association need to be prepared and submitted as per companies act 2013.
• Required Fee as per the particular category of Insurance broker license.
• Employee Training for the people who are starting an insurance broker business.
• Relevant data about the principal office in Schedule-I Form F.
• Proper and fit insurance broker certification, as per Schedule-I Form G( as needed)
• The declaration needs to be submitted by a director, principal officer, key management executive, or the company that they are not disqualified ( as per companies act, both old and new) or is not disqualified in any other form.
• Details of key management personnel or partners or Directors, Promoter need to be provided in the Form.
• List of qualified persons who will be responsible for procuring, promoting and managing the brokerage business along with their qualification in Schedule I- Form F- List.
• Details of principal bankers and statutory auditors along with the Bank Account Number of the broker.
• Details of IT infrastructure with the supportive proof of lease agreement or ownership documents prove that there is enough space to manage the brokering business.
• The applicant also need to submit NOC or no-objection certificate from the concerned authority as per the need to the registrar of companies and the NOC need to have the name as reinsurance broker or insurance broker in the name of the company
• The certificate approved by the IRDAI will be valid for 3 years from the date of issue. But that will be subject to the order from the authority. Without being registered and having a proper certificate with the authority an insurance broker can not commence the insurance broker business.

Conclusion

So we can conclude that being an insurance broker and registering is a complex process and one should choose the type of insurance broker license according to their need. Also, an insurance broker can not carry on any other business apart from the insurance brokerage business at that time. As mentioned by the object clause by the company he must carry objects as per the article of association and memorandum of association.