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What are the different categories of Insurance Brokers?

Prabhat Nigam

| Updated: Mar 28, 2022 | Category: Insurance License

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.

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 Direct Broker?

A direct broker is simply an Insurance Broker who has been 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?

Following are the functions that an insurance broker needs to perform:

  1. To obtain details of client’s business and risk management philosophy
  2. To familiarize himself with 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 who 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 negotiation of claims
  10. To maintain proper records of claims
  11. To assist in 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 Brokers?

Among the different categories of Insurance Brokers, Reinsurance broker is also an insurance broker. A reinsurance broker is simply an Insurance Broker who has been 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 re-insurance 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?

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 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 respective 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 in terms of political stability, tax laws, local regulations, economic position etc.
  2. Introducing new business/ products on the basis of reinsurers’ business plan 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 that based outside India
  • Any other function which the authority may specify

Who is a Composite Broker?

A composite broker is simply an Insurance Broker who has been 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?

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 a composite broker has been appointed by the client to act as a direct insurance broker, then he shall not influence the concerned insurer to appoint him as reinsurance broker for arranging 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.

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.

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

Prabhat Nigam

Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.

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