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Major Changes Introduced in Insurance Broker Regulation, 2018: Check Now

Insurance Broker Regulation

Insurance Broker Regulation, 2018

For the insurance sector financial year 2017-2018 brought in a sea of changes and regulations relating to insurance brokers, web aggregators etc. In this article, we are going to discuss the key changes introduced for Insurance Brokers. Before these new regulations were introduced IRDA Insurance Broker Regulation 2013 were in existence. But, after consideration of some few changes and receiving recommendations and comments from various representatives including insurance brokers and other stakeholders the Insurance Regulatory and Development Authority, introduced the IRDAI (Insurance Brokers) Regulations 2018 which repealed the earlier Regulations.

These new regulations have introduced additional compliance requirements, corporate governance and better controls over the activities of insurance brokers. Along with that, the authorities have also aimed to make sure insurance brokers and web aggregators are on the same level.

After due analysis of the new regulations, it was figured out that the following key changes were introduced through the IRDA (Insurance Brokers) Regulations 2018:

Risk Management Services

These 2018 Regulations provide that insurance broker can provide risk management services to for commercial risk subject to certain conditions. Such services will be provided in lieu of a fee. These risk management services will include assessment, advisory, risk minimization or altogether risk mitigation services performed for the benefits of the client. Insurance Brokers were not eligible to perform such risk management services beforehand.

Increase in Limits for Claims Consultancy Services

Insurance Broker has the right to provide claim consultancy for claims made by the insured parties. However, they can provide these consultancies can only be provided in relation to the general insurance business and it depends upon the number of claims made. Under previous Regulations, the limit was set at Rs. 1 Crore insurance claim. However, with the introduction of new guidelines this limit is increased upto Rs. 10 Crores.

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After due approval from the Authority (IRDAI), this prescribed limit of claims for providing claim consultancy services can be exceeded.

Right to Receive Fees

The entire insurance broker has the right to receive remuneration for procuring insurance business and solicitation services. This can be in the form of a percentage of premium paid and claim made. However, after these regulations were approved, the insurance broker has become eligible to receive fees for services rendered like risk management services and claims consultancy.

Change in Outsourcing Policies

These 2018 Regulations have imposed a lot of restrictions on work outsourcing policies. It specifies a list of activities which cannot be outsourced but the Insurance Brokers. And until unless they do not undertake the above-mentioned risk management and claim consultancy services at all, they cannot outsource such activities to any third parties.

As per these regulations, every insurance broker’s Board is required to formulate an Outsourcing Policy. And if annual payment to any of the outsourcing service provider exceeds Rs. 10 lakh, then it must be approved by its Board of the director.

Changes in Capital, Net worth, and Deposit Requirement

There are changes made in the minimum capital, deposit and net worth requirement for registration as an Insurance Broker. Following are the minimum prescribed requirements as per IRDA (Insurance Broker) Regulations, 2018:

Minimum Capital Requirement

  • For Direct Broker – Rs. 75 Lakh
  • For Reinsurance Broker – Rs. 4 Crore
  • For Composite Broker – Rs. 5 Crore

Minimum Net worth Requirement

  • 50 Lakh for Direct Broker and
  • 50% of the Minimum Capital Requirement for reinsurance and composite Broker.
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Minimum Deposit Requirement

  • 10 Lakh for Direct Broker and
  • 10% of the Minimum Capital Requirement for reinsurance and composite Broker.

Solicitation Policy Norms

The Insurance Broker Regulation is required to have a proper policy set in place for soliciting insurance policies. This policy is required to be Board approved and must be reviewed every three years and must entail the following:

  1. The approach relating to tie-ups with the insurers
  2. Products to be sold by the brokers
  3. Mode of Solicitation
  4. Reporting Requirements
  5. Grievance Redressal System etc.

In order to regulate and ensure uniformity in norms online sale of insurance by Insurance Broker Regulation is required to be regulated by E-commerce Guidelines issued in 2017 along with IRDAI (Web Aggregator) Regulations, 2017 with respect to it.

Provisions Relating to Reinsurance

These provisions are for reinsurance and composite Insurance Broker Regulation. They are required to formulate a business agreement with the reinsurers specifying the minimum terms as specified in the regulations.

Approval Requirements in case of Amalgamation, Merger etc.

For any kind of transfer of the business of insurance broker either through amalgamation, merger or acquisition etc. prior approval from IRDA is required. The Regulations have laid out the procedure to be followed in order to obtain such approval.

Investments

There has been no change in the investment provisions in insurance broker entities and maximum allowed foreign investment is 49%. This is done to ensure that they are owned and controlled by Indians.

The only change introduced in 2018 regulations is that at the time of registration the applicant is required to mention if any investor (Indian or foreign) have exited the entity for any reason whatsoever.

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