Overview of Insurance Broker License

With the wide range of insurance products available in the market today, individuals often find it challenging to make the right insurance choice. An Insurance Broker serves as an intermediary, advising clients on the most suitable insurance products for their needs and helping them make informed financial decisions. They act as a link between the public and insurance companies, assisting clients in purchasing the most appropriate insurance policies based on their financial requirements. To engage in insurance broking activities, a company must obtain an Insurance Broker License.

In India, the legal framework governing Insurance Broker Licenses includes:

• The Insurance Regulatory and Development Authority Act, 1999
• The Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, 2018

Who is an Insurance Broker?

An Insurance Broker is a person or company registered with the Insurance Regulatory and Development Authority (IRDA) who provides advisory services related to insurance. Their role is to help clients secure the best insurance coverage from insurers. Brokers are qualified experts who work as intermediaries between the insurance companies and clients, guiding them to purchase the right policies.

Types of Insurance Brokers in India

In India, Insurance Brokers can be categorized into the following types:

1. Direct Insurance Broker
   Direct Insurance Brokers provide clients with detailed information about various insurance products and companies. They assist in selecting the right insurance policies, help clients open e-insurance accounts, and assist in premium payments.

2. Reinsurance Broker
   Reinsurance Brokers carry out similar functions as Direct Insurance Brokers, but their focus is on reinsurance. Their responsibilities include:

   • Maintaining statistics of the reinsurance market
   • Selling reinsurance products
   • Negotiating on behalf of clients

3. Composite Insurance Broker
   A Composite Insurance Broker offers both life and general insurance-related services. This type of broker is licensed by the IRDAI but is subject to selective licensing.

Functions of Insurance Brokers

The specific functions of each type of broker in India are as follows:

• Direct Insurance Broker:

  • Collects information on the client's business and risk retention strategies
  • Provides advice on suitable insurance covers and terms
  • Gathers comprehensive knowledge about available insurance products and markets
  • Offers quotations based on the client's needs

• Reinsurance Broker:

  • Understands the client's business nature and risk management strategy
  • Maintains accurate records of the insurer's business
  • Advises on available reinsurance covers and options
  • Builds a database of available reinsurance markets, including solvency ratings
  • Proposes reinsurers or groups of reinsurers
  • Negotiates with reinsurers on behalf of clients

• Composite Broker:
  A Composite Broker performs all the functions of both direct and reinsurance brokers.

Importance of Insurance Broker License in India

• Ensures compliance with relevant laws and regulations concerning insurance products
• Provides assurance to customers about the broker's professionalism and reliability
• Helps sell a variety of insurance products on behalf of insurance businesses
• Acts on behalf of clients to negotiate insurance products and premiums
• Monitors insurance-related market activities and conducts research
• Negotiates policies and premiums for clients

Eligibility for Insurance Broker License

The following entities are eligible to apply for an Insurance Broker License in India:

• Any company registered under the Companies Act, 2013
• Any registered co-operative society incorporated under the Co-operative Societies Act, 1912
• Any Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008
• Any other entity recognized by the Insurance Regulatory and Development Authority (IRDA)

For an LLP applicant, the following restrictions apply:

• Non-resident entities are ineligible to become partners
• Foreign LLPs registered under the laws of a foreign country are not allowed to be partners
• Individuals who reside outside India cannot become partners in the LLP

Minimum Requirements for Insurance Broker License

In India, the following are the key requirements for obtaining an Insurance Broker License:

Capital Requirements:

• Direct Insurance Broker: Rs 75 Lakh
• Reinsurance Broker: Rs 4 Crore
• Composite Broker: Rs 5 Crore

Net-worth Requirements:

• Direct Insurance Broker: Rs 50 Lakh
• Reinsurance Broker: 50% of the Minimum Capital Requirement
• Composite Broker: 50% of the Minimum Capital Requirement

Deposit Requirements: To obtain an insurance broker license, the applicant company must deposit a specified amount with a scheduled bank:

• Direct Insurance Broker: Rs 10 Lakh
• Reinsurance Broker: 10% of the Minimum Capital Requirement
• Composite Broker: 10% of the Minimum Capital Requirement

Checklist for Insurance Broker License

Before applying for an Insurance Broker License, the applicant company must fulfill the following conditions:

1. The company name must include the word “Broking.”
2. The Memorandum of Association (MOA) must include insurance broking as its principal activity.
3. The company must meet the minimum financial, capital, and deposit requirements as outlined in the regulations.
4. The company should not have foreign investment exceeding 26% of its total paid-up capital.
5. 20% of the initial capital must be deposited with a registered bank.
6. The Principal Officer must hold the necessary qualifications, have passed the broker exam, and undergone the required training.
7. The company must employ at least two individuals with the mandatory qualifications and training.
8. The company should have the appropriate infrastructure and qualified staff to operate the insurance broking business effectively.