Cancellation of Insurance Broker License by IRDAI

Prabhat Nigam

28 Mar, 2022

Chapter V of the Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, 2018 contains the provisions of cancellation of Insurance Broker License. This piece of writing discusses how cancellation of Insurance Broker license shall take place.  

How does Cancellation of Insurance broker license take place WITH notice?

The provisions relating to cancellation of registration of notice take place with notice are covered under regulation 49 of Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, 2018^[1] (regulations).

1. The registration certificate of an insurance broker can be cancelled after due notice has been given along with an opportunity of being heard if the insurance broker:

• is in violation of provisions of Insurance Act, 1938 and Insurance Regulatory and Development Authority of India Act, 1999 or any rules and regulations made under these provisions
• failed to furnish any information related to the activities as an insurance broker required by the authority
• does not comply with the directions issued by the authority
• submitted false or wrong information or concealed or failed to make disclosure of material facts in the application submitted for obtaining a registration or during the time when the certificate of registration is valid
• fails to submit periodical return
• does not cooperate with the with any inspection or enquiry conducted by the authority
• fails to resolve the complaints of policy holders or does not give satisfactory reply to the authority regarding the same
• provided rebates or inducements in cash or kind to a client or any of the directors of a client or any other person who is acting as an introducer except as permitted under the given regulations
• is found guilty of misconduct or his conduct has not been in accordance with the code of conduct specified in schedule I
• fails to maintain the requirements prescribed for capital, net worth and deposit
• fails to deposit fees, penalties or reimbursement of expenses under the given regulations
• violates the condition of registration certificate
• fails to carry out obligations mandated under the regulations
• indulges in multi-level marketing for soliciting and procurement of insurance policies
• carries out business with a principal officer who has not acquired practical training and passed the examination within stipulated period of time
• the authority believes that the aim of establishing of an insurance broker is diversion of funds within a group of companies or its associates and this fact is established after due enquiries made by the authority     

How does Cancellation of Insurance broker license take place WITHOUT notice?

The provisions relating to cancellation of registration of notice take place without notice are covered under regulation 50 of regulations.

• The certificate of registration of an insurance broker can be cancelled without giving notice if the insurance broker:

1. Violates the requirements mentioned in the code of conduct
2. Is found guilty of fraud or convicted of a criminal offences
3. Commits certain defaults which requires immediate action from the authority and the authority has communicated the reasons for cancellation in writing
4. Failed to commence business within 6 months from the date of being granted registration
5. In case where a registration certificate of an insurance broker has been suspended without being given notice, then such certificate of registration shall not be cancelled unless an enquiry has been held in accordance with the procedure laid down in regulation 52.

Action taken after receipt of enquiry report   

1. On receipt of report, the authority shall consider the contents of the report and if it deems that the contents of the report warrant a cancellation of registration, then it will issue a show cause notice to them. If provisions of regulation 50 are followed then no need to issue such notice.
2. The insurance broker has to send a reply of the notice to the authority within a period of 21 days.
3. The authority will pass an order not later than 30 days from the date of receipt of reply. If the insurance broker fails to reply to the notice within the stipulated time, then the authority has the power to pass an order on the merits of the case.
4. The authority shall pass ‘final order of the authority’ under sub-regulation (3) to the insurance broker.

Procedure for cancellation of Insurance Broker License   

1. The authority shall issue a final order for cancellation of insurance broker license and the insurance broker shall cease to act an insurance broker from the date of the final order
2. A notification of cancellation of license shall be made through newspapers- one English and one local language and the same shall be displayed on company’s website.
3. The authority has the power to dispose of the deposit of the insurance broker in such a case.
4. An insurance broker whose license has been cancelled shall continue to service contracts already concluded through him for a period of six months from the date of cancellation of registration within which suitable arrangements shall be made to for having the contracts attended by another insurance broker.
5. The insurance broker who undertakes to service the contracts from the insurance broker whose license has been cancelled shall submit an application of request to the insurer to for serving the contracts through the term.
6. Only after obtaining approval for take-over of obligations of policy service from the insurer can the registered insurance broker collect remuneration on current contracts in vogue with prospective effect from the date of service of the contracts.
7. The insurer broker whose license has been cancelled shall pay remuneration to contracts in vogue with prospective effect from the date of allotment of service of the contacts to the insurance broker to whom the insurer has given the authority.

Publication of an order of cancellation of Insurance Broker License  

The order of cancellation of Insurance Broker license shall be published in one newspaper of English language and one newspaper of the regional language as the IRDAI may deem fit. The order of cancellation also needs to be published in the authority’s website.

Effect of cancellation of Insurance Broker License  

1. From the date of cancellation of an insurance broker’s license, that broker ceases to be an insurance broker.
2. However, the insurance broker shall continue to service the contracts concluded through them for a period of six months till the suitable arrangements have been made for the contracts to be attended by another insurance broker.
3. Another registered insurance broker who takes over the responsibility of the previous broker can charge remuneration on current contracts which were not collected by the insurers earlier provided the insurance broker undertakes to service the policies through its term.

Read our Article:How to get an Insurance Broker License in India?