Innovation in Insurance- Regulatory...
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The importance of insurance in modern economies is very vital and has been acknowledged and recognized for many centuries. Insurance intermediaries are nothing but entities that facilitate the selection and purchase of insurance policies, and render services to insurance companies and consumers that complement the insurance placement process.
Although the insurance sector has been privatized, the insurance companies can deal with intermediaries only if they are holding a valid registration issued by the authority (IRDAI) as per the norms laid down for licensing of intermediaries to function in this sector. They have been defined by IRDA Act, 1999 under section2 (1) (f) of the act as
“Intermediaries or insurance intermediary includes insurance brokers, insurance consultants, surveyors and loss assessors.”
The “intermediary” can be best described as a third party whose main job is to ensure that both the parties to a contract get what they want and the third party works for both parties for their joint benefit. However, with the Indian reference, the insurance broker has been recognized since the introduction of the Broking Regulations as a person representing the insured and adds value to the transaction. Such a relationship is inevitably contractually agreed by a mandate from the insured and is generally purposed to be paid for the services rendered, by way of brokerage. Such brokerage also forms part of and emanates usually out of the premium paid or payable over a period.
Insurance Brokers: Insurance brokers typically act for the policyholder in the insurance process and act totally independent in relation to insurers. Brokers help their clients in the choice of their insurance policies by presenting them with alternatives in terms of insurers and products. Acting as “agent” for the buyer, brokers usually work with many companies to place coverage for their clients. Brokers collect quotes from various insurers and help the clients in selecting the adequate policy from a range of products.
Insurance Agent: Insurance Agent is another such intermediary in the sector. Insurance agents are those entities who have been licensed to conduct business on behalf of insurance companies. Such agents represent the insurer in the insurance process and generally work under the terms of an agency agreement with the insurer. The insurer-agent relationship can assume a number of different forms. In some markets, agents are “independent” and work with more than one insurance company (usually a small number of companies) without any restriction; in others, agents function exclusively – either representing a single insurance company in one geographic area or selling a single line of business for each of several companies. Agents can work in many different forms like independent, exclusive, insurer-employed and self-employed.
Insurance Intermediaries have a broad knowledge of the insurance marketplace, including products, prices and providers available in the market. Further, they have an acute sense of the needs of insurance purchasers and play a unique role – in fact, many roles – to play in the insurance markets in particular and, in the functioning of national and international economies in general.
Intermediary’s role benefits the overall economy at both the national and international levels. The role played by insurance in the overall health of the economy is well-recognized. Without any protection from risk that insurance provides, the commercial activities would slow down and perhaps grind to a halt. This would in turn stunt or eliminate economic growth and the financial benefits to individuals/businesses and industries that such growth provides.
The role of insurance intermediaries in the economy is, essentially, making insurance and other risk management products. These are widely available, thereby increasing the positive effects of insurance generally – risk-taking, investment, provision of basic societal needs and economic growth. There are many factors that intermediaries bring to the insurance marketplace that help to increase the availability of insurance in general. Insurance intermediaries having expertise bring innovative marketing practices to the insurance marketplace. This helps insurance markets by increasing consumers’ awareness of the protections offered by insurance. Further, customer’s awareness of the multitude of insurance options, and their understanding as to how to purchase the insurance they need for a particular purpose. They also disseminate the information to consumers. Intermediaries furnish customers with the necessary information needed to make educated purchases and informed decisions for purchase. Intermediaries can explain the needs of the consumer, and what the options are in terms of insurers, policies, and prices. With the existence of such intermediaries and their knowledgeable client base that has multiple choices, insurers will offer such policies that suit their customers’ needs at competitive prices. Intermediaries collect and evaluate information regarding placements, premiums, and claims experience of policies. When such information is combined with an intermediary’s understanding of the needs of its clients, the intermediary is well-positioned to encourage and assist in the development of new and innovative insurance products and to create markets where it did not exist. Increased consumer knowledge finally helps increase the demand for insurance and improve insurance take-up rates. Quality of business is very essential to all insurers for many reasons like profitability, regulatory compliance, and, ultimately, financial survival. Insurance companies are required to be sure that the risks they cover are insurable and further spread these risks appropriately so they are not susceptible to catastrophic losses if any happens at any time. Intermediaries assist insurers in spreading the risks in their portfolio. Intermediaries are also associated with multiple insurers, a variety of clients, and, in many cases, in a broad geographical spread also.
Thus, Insurance Intermediaries play a very vital role in the insurance sector.