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What are the different categories of Insurance Brokers?

Anushka Saxena
28 Jul, 2023 28 Jul, 2023
Categories of Insurance Brokers

There are a number of categories of Insurance Brokers. The categories of Insurance Brokers include Direct Brokers, Reinsurance Brokers and Composite Brokers. This piece of discussion provides the meaning and functions of different categories of Insurance Brokers.

Who can work as an Insurance Broker in India?

  • A registered business as defined by the 2013 Companies Act.
  • A cooperative society that has been registered in accordance with the Cooperative Societies Act of 1912 or another cooperative society registration statute.
  • A limited liability partnership (LLP) created under the Limited Liability Partnership (LLP) Act of 2008 in which none of the partners isa foreign limited liability partnership as defined by the Foreign Exchange Management Act of 1999.

‘Insurance Broker’, ‘Insurance Brokers’, or ‘Insurance Broking’ must appear in the registered name of an insurance brokerage firm. Insurance brokers registered with the Insurance Regulatory and Development Authority of India (IRDAI) may be distinguished from other unregistered insurance-related firms by the language on their business cards, which indicates their field of work.

Categories Of Insurance Brokers

There are five categories of Insurance Brokers, which have been listed as follows:

  1. Direct Broker (Life)
  2. Direct Broker (General)
  3. Direct Broker (Life & General)
  4. Reinsurance Broker
  5. Composite Broker

Who Is a Direct Broker?

A direct broker is an Insurance Broker registered with the Insurance Regulatory and Development Authority of India (IRDAI)1. The direct broker asks for remuneration or charges a fee for soliciting and arranging insurance business for his clients with insurance located in India. He also provides claim consultancy, Risk Management services or other similar services which have been permitted under IRDAI (Insurance Brokers) Regulations, 2018.

What Are The Functions Of Direct Brokers?

The following are the functions that an insurance broker needs to perform:

  1. To obtain details of the client’s business and risk management philosophy
  2. To familiarize himself with the client’s business and underwrite information which can be explained to an insurer and others
  3. To render advice on appropriate insurance claims and terms
  4. To maintain detailed knowledge of available insurance markets, the ones that are applicable
  5. To submit quotes received from insurers for consideration of a client
  6. Provide requisite underwriting information required by an insurer in assessing risk to decide the pricing terms and conditions for cover
  7. Act in a prompt manner on client’s instructions and provide written acknowledgements and progress reports
  8. To assist clients in paying premium u/s 64VB of Insurance Act, 1938
  9. To assist in the negotiation of claims
  10. To maintain proper records of claims
  11. To assist in the opening of e-insurance accounts
  12. To assist in issuing e-insurance policies
  13. Any other function which the authority may specify

Who Is A Reinsurance Broker?

A Reinsurance broker is also an insurance broker among the different categories of Insurance Brokers. A reinsurance broker is an Insurance Broker registered with the Insurance Regulatory and Development Authority of India (IRDAI). The reinsurance broker asks for remuneration or charges a fee for soliciting and arranging reinsurance business for his clients with insurers or reinsurers with reinsurers who are located either in India and/or abroad. He also provides claim consultancy, Risk Management services or other similar services which have been permitted under IRDAI (Insurance Brokers) Regulations, 2018.

What Are The Functions Of Reinsurance Brokers?

The following are the functions that a Reinsurance broker needs to perform:

  • The reinsurance broker must be familiarized with the client’s business and its risk retention philosophy
  • Maintain proper records of the insurer’s business so that the same can be used to assist the reinsurer(s) or other
  • To render advice based on technical data on the reinsurance covers which is available in the international markets of insurance and reinsurance
  • To maintain a database of available reinsurance markets which includes solvency ratings of the individual reinsurers
  • To render risk management services for the purpose of reinsurance
  • Select or recommend a reinsurer or a group of reinsurers
  • To negotiate with a reinsurer on behalf of a client
  • To assist in case of commutation of reinsurance contract placed by them
  • Act in a prompt manner on client’s instructions and provide written acknowledgements and progress reports
  • Collect and remit premiums and claims/refunds within the time as agreed upon
  • Maintain proper records of claims
  • Assisting in negotiations and settlement of claims
  • To exercise diligence and due care at the time of selecting reinsurers and international insurance brokers with regard to their respective security rating and establish individual responsibilities at the time of engaging their services
  • To create market capacity and facility for stresses, new and existing businesses and asset class for and from both direct insurers and reinsurers
  • Rendering preliminary loss advice within a reasonable period of time
  • Separate norms have to be followed for both Inward and Outward business based on the nature of business

A. Inward business

  1. The broker needs to have specific knowledge of the country whose business is being offered regarding political stability, tax laws, local regulations, economic position etc.
  2. Introducing new business/ products based on reinsurers’ business plans and risk appetite

B. Outward business

  1. Market credibility and rating of the insurer
  • Ensuring prompt collection and remittance of funds, following up for funds before the due dates for settlement from cedant to reinsurer and from reinsurer to cedant
  • To comply with the relevant laws and other requirements of local jurisdiction at the time of arranging insurance/ reinsurance for clients/ insurance companies based outside India
  • Any other function which the authority may specify

Who Is A Composite Broker?

A composite broker is an Insurance Broker registered with the Insurance Regulatory and Development Authority of India (IRDAI). The composite broker asks for remuneration or charges a fee for soliciting and arranging insurance and/or reinsurance business for his clients with insurers and/or reinsurers who are located either in India and/or abroad. He also provides claim consultancy, Risk Management services or other similar services which have been permitted under IRDAI (Insurance Brokers) Regulations, 2018.

What Are The Functions Of Composite Brokers?

The following are the functions that a composite broker needs to perform:

  1. All the functions performed by both the direct brokers and reinsurance brokers
  2. Where the client has appointed a composite broker to act as a direct insurance broker, he shall not influence the concerned insurer to appoint him as a reinsurance broker to arrange reinsurance on the same contract. However, if the insurer follows a due and transparent process, then he can appoint the composite broker as a reinsurance broker for arranging the reinsurance on the same risk on which the composite broker acted as a direct broker. In order to ensure that the interests of the clients and insurers are not harmed, the composite will see to it that proper systems and controls are in place.

What is the Need of an Insurance Broker?

  • It helps to save time, energy, and effort.
  • Well-equipped with the greatest insurance options on the market.
  • Aids in risk assessment and offers suggestions for risk management.
  • Offers professional advice on a range of insurance plans and assists you in selecting the appropriate level of coverage.
  • Assists you in the claim advocacy and claim settlement processes, and you may communicate with the insured to bargain for the best claim result.
  • Possess the capacity to bargain for you to obtain reasonable premiums.

Procedure to Apply for Insurance Broker License

The stages involved in acquiring an insurance broker licence in India are as follows:

  • The applicant must submit Form B of Schedule I for the Insurance Broker Licence and the necessary paperwork.
  • The Authority reviews the application and related papers at this stage, and if further information is required, it may ask for clarification or request additional documents.
  • The authority grants insurance brokers licence in-principle approval upon approval of the provided documentation.
  • After receiving in-principle permission, the applicant must meet all additional conditions and pay the authority’s licence fees.
  • IRDAI issues a COR (Certificate of Registration) if it is pleased with the application. According to the IRDA Regulations’ Schedule I, the COR is issued in Form J.

Conclusion

From the above discussion, it can be concluded that most of the functions of different categories of insurance brokers are similar in nature. All the functions have an underlying theme of facilitating the client in the best possible manner.

FAQs

Who are called insurance brokers?

An insurance broker is a middleman who, in exchange for payment, sells, approaches, or negotiates insurance on behalf of a customer.

What is the difference between a direct broker and a composite broker?

Any one or more of the tasks listed under the responsibilities of the direct broker or the reinsurance broker above must be performed by a composite broker. The IRDA must issue the brokers with a licence. For this, they must adhere to a set of standards and requirements established by the IRDA.

What is the role of insurance brokers?

An expert in risk management and insurance is an insurance broker. Brokers represent their customers’ interests and act on their behalf while giving recommendations. In order to select what to insure and how to manage those risks in other ways, a broker will assist you in identifying your personal and/or company risks.

What is the work of an insurance broker?

Insurance brokers find and arrange the best insurance coverage for businesses and private clients. Between customers and insurance providers, insurance brokers negotiate the best price for the customer’s insurance coverage.

Who is a broker in IRDA?

An insurance broker who is registered with the Authority and who, in exchange for compensation and/or a fee, solicits and arranges insurance business for its clients with insurers in India and/or who offers claim consultancy, risk management services, or other similar services that are allowed under IRDAI is referred to as a “direct broker.”

Who regulates insurance brokers?

Two organisations regulate the financial services industry, which includes insurers and insurance brokers: • Financial Conduct Authority(FCA) – They establish strict requirements that must be met by anybody who wants to sell, arrange, or provide insurance advice. • The PRA, or the Prudential Regulatory Authority.

What is the difference between an insurance agent and an insurance broker?

Both insurance brokers and agents can assist you in purchasing insurance coverage. However, insurance brokers work to promote and sell products from the one insurance company that employs them. Insurance brokers can assist customers in comparing plans from several providers and act as their representatives.

What is the capital requirement for an insurance broker?

To be eligible to apply for a broker’s licence, the candidate must meet the following capital requirements: 75 lakhs for a direct broker, 4 crores for a reinsurance broker, and 5 crores for Composite Broker.

Can an LLP be an insurance broker?

List of candidates seeking an Indian insurance broker license: • Any business that has a Companies Act 2013 registration. • Any legally recognized cooperative society created per the Cooperative Societies Act of 1912 or any other comparable statute. • Any LLP that the Limited Liability Partnership Act, 2008 have authorized.

What is the difference between an insurance broker and a reinsurance broker?

An insurance broker who acts as a middleman between a policyholder and a primary insurer on behalf of the insured party or a reinsurance broker who serves as the primary insurer’s agent when arranging coverage between reinsurers and direct insurers are two examples of brokers.

Is a broker an insurer?

An insurance broker is a specialist who serves as a liaison between a customer and an insurance provider, assisting the latter in locating the plan that best meets their requirements. Insurance brokers cannot bind coverage on behalf of the insurer since they represent consumers, not insurance companies.

What is the relationship between an insurance company and a broker?

A broker may be judged to be operating as the insured’s agent for some tasks (filling out and submitting the insurance application) or as the insurer’s agent (binding coverage), depending on the specific position they take on in any given transaction. The insured person is the broker’s primary client.

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

References

  1. https://irdai.gov.in/

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