The importance of insurance has increased significantly in the last few years, especially when the world went through the pandemic. Insurance has helped in reducing the liabilities arising during an unfortunate event. Moreover, the insurance business has also grown, and various insurance players like insurance brokers have played a crucial role in helping customers make wise decisions when it comes to choosing an insurance policy. Insurance brokers are differentiated into different categories. In this article, we will discuss direct brokers in insurance.
Who are Insurance Brokers?
Purchasing insurance policy can be a complex task hence insurance broker helps the customers to arrive at a wise decision. Insurance brokers refer to those professionals who represent customers while ensuring that they get the best insurance policy. They act as a bridge that connects the insurance companies with customers. Insurance brokers make money by obtaining commissions by selling insurance to individuals or businesses.
Who are Direct Brokers in Insurance?
There are different categories of insurance brokers such as Direct Brokers, Reinsurance Brokers, and Composite Brokers.
Direct brokers are licensed by the IRDAI who, for a remuneration and/or a fee, solicit and arrange insurance business for its clients with insurers in India and/or provide claims consultancy, risk management services or such other services. A direct broker gives advisory services with regard to the policy that is appropriate for its customer.
Direct brokers act in consonance to the instructions provided by its clients. These insurance brokers must keep themselves updated with information on insurance markets, maintain insurance records and help in negotiating claims. A direct broker must have a minimum capital of 75 lakh rupees in order to register and should maintain a net worth of 50 lakhs.
What are the functions of a direct broker?
The functions of a direct broker are as follows:
- The direct broker shall obtain detailed information of the clients’ business and risk management philosophy;
- The direct broker shall familiarize himself with the business of the client and underwriting information as well so that it can be explained to an insurer and others;
- The direct broker shall render advice on appropriate insurance cover and terms;
- The direct broker shall maintain detailed knowledge of available insurance markets, as applicable;
- The direct broker shall submit quotation obtained from insurer/s for consideration of client;
- The direct broker needs to provide requisite underwriting information as asked by the insurer in assessing risk to decide on pricing terms and conditions for cover;
- The direct broker needs to act promptly on receiving instructions from a client and provide him with written acknowledgements and progress reports;
- The direct broker should assist clients in the payment of premium under relevant sections of the Insurance Act 1938;
- The direct broker shall in help in the negotiation of claims;
- The direct broker shall maintain proper claims records;
- The direct broker shall help in the opening of e-insurance accounts and in issuing e-insurance policies.
Registration Process for Direct Insurance Brokers
An application for the grant of registration to act as insurance broker can be made for any of the following, in case of direct brokers-
- Direct broker (Life);
- Direct Broker (General);
- Direct Broker (Life and General).
The following documents are required-
- Copy of MOA and AOA;
- Copy of shareholders agreement, if any;
- Details of infrastructure;
- Projection of administrative expenses;
- Principal officer to submit a declaration providing that the applicant is not suffering from any disqualifications under the Act;
- Details of companies activities
- Any other requirement as deemed necessary by the authority.
- In order to obtain the registration certificate, an applicant needs to make an application to the authority and such application should be made along with the requisite documents and with the payments of fees.
- The authority may ask for additional information and/or clarification, if required.
- The authority shall provide the applicant with an opportunity to submit additional information and/or clarification sought by the authority;
- The authority while considering the application for registration of direct broker will take into account whether the applicant fulfils the minimum requirements for obtaining registration, such as whether the applicant has necessary infrastructure, whether the applicant fulfils capital requirements etc.
- Every applicant needs to pay registration fees within a specified time period;
- The authority shall first issue an in-principle approval if it believes that the applicant fulfils all requirements for obtaining the registration certificate;
- After that, the authority shall issue a certificate of registration on being satisfied of the conditions stated in the in-principle approval.
Validity of the registration certificate
The registration certificate granted to a direct broker will be valid for a period of 3 years from the date of issuance unless it is suspended or cancelled.
Insurance brokers’ role is crucial while determining best insurance policy as they have a thorough understanding of the insurance market and are well versed in complicated insurance policies. Direct brokers in insurance are essentially involved in providing claims consultancy, risk management services or such other services.
Read our Article:An Exhaustive Analysis of Insurance Brokers Code of Conduct
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.