As we all know KYC (know your customer) is basically the submission of a few documents, just as...
In these times that we are living in reporting of the information to the authorities is an essential function for any organization. In case of the insurance business world the need for compliance with the regulations is highly critical due to the risks involved with it. In order to ensure better transparency and accountability in the insurance business insurance broker compliance is vital. In this article we shall take a close look at insurance broker compliance.
Insurance brokers are persons who sell insurance products of different companies to customers. They assist the customers in finding the best-suited insurance policy for them and earn a commission based on the number of insurance products sold. Unlike insurance agents insurance brokers have a huge volume of business as they deal with the products of various companies and not a particular company.
For insurance broker registration:
An applicant intending to become an insurance broker is required to have a minimum paid-up capital of–
In case of a company limited by shares and cooperative society the capital will be in the form of equity shares. In case of LLP, the contribution from partners would be in cash only and insurance broker’s shares held as capital/contribution shall not be pledged in any way in case of an LLP or equivalent.
It is the responsibility of the insurance broker to ensure in place a proper internal audit system and that it is adequate for the business. In case of reinsurance and composite brokers the insurance brokers must mandatorily have industrial audit systems. The insurance broker who earns more than 5 crore in remuneration in a financial year must mandatorily have a designated compliance officer.
The insurance broker is required to maintain the following for each financial year:
According to the regulations, the accounts may be maintained on the basis of accrual and the financial period shall be for 12 months.
The insurance broker is required to submit a copy of the financial audited statement along with the auditor’s report to the authority. The time period for such submission shall be within 30 days after holding of an annual general meeting or by 30th September of every year. In case there is any deficiency in the auditor’s report then the insurance broker may within 90 days from the date of the auditor report, correct those deficiencies.
The books of accounts, statements and documents will be maintained at the insurance broker’s head office or such other branch offices. These documents shall be available on all working days to the officers of the authority for inspection. These documents shall be retained for a period of seven years but in cases wherein claims are reported and where the decision of the court is pending, such documents must be maintained till the completion of cases.
The insurance brokers shall provide their financial statements regarding the transactions made by it or to it. The auditor is required to provide a certificate affirming compliance regulations in the format provided in schedule II- Form UA. The insurance brokers are required to submit statutory auditor’s details and the audited accounts as per schedule II- Form V. The insurance broker’s statutory auditors will be appointed for a continuous period of maximum 5 years.
In case the remuneration and any other payments made to the broker go beyond the prescribed limit then the insurer can file a certificate as provided in schedule II- Form W with the authority. It must be signed by the insurer’s CEO and CFO. Another similar certificate from the broker’s CFO and principal officer must be filed certifying it in the same format as provided above.
These regulations under the IRDAI set the plan for insurance broker compliance that must be complied with strictly by the insurance brokers. Non-compliance with it may invite penalties.
See Our Recommendation: Process for IRDAI Broker License.