Insurance Broking and its Compliances

ARTICLE
Insurance Brokers Association of India (“IBAI”) is the sole representative body of licensed Insurance
Brokers recognised by the Insurance Regulatory and Development Authority of India (IRDAI). The
Insurance Brokers shall have the word ‘Insurance Broker’/ ‘Insurance Brokers’/ ‘Insurance Broking’
in the name to reflect their line of activity and to enable the public to differentiate Insurance Brokers
registered with the Authority from other non-registered Insurance related entities.

(iii) Direct Broker (Life & General),

(iv) Reinsurance Broker and
(v) Composite Broker.

NUMBER OF INSURANCE BROKERS

As per Annual Report published by IRDAI for the
Financial Year 2022-23, the number of registered Brokers
is 708 as on March 31, 2022. Out of this, the valid
CS Gopi Chitaliya, ACS brokers stood at 562 and remaining 146 are not in force
as on March 31, 2022. The 562 valid brokers comprise
Associate Company Secretary and Lawyer
of 494 Direct Brokers, 63 Composite Brokers and five
Mumbai Reinsurance Brokers.
chitaliyagopi@gmail.com
Total 76 new Certificate of Registrations (CoR) were
issued during the period from April 01, 2021 to March 31,
INTRODUCTION 2022 out of which 74 were Direct Insurance Brokers, one

A
Composite Insurance Broker and one Reinsurance Broker.
n Insurance Broker acts as a middlemen During the period, 166 Insurance Broker registrations
between Insurance Companies and people were renewed.
who are in search of purchasing insurance
policies. They are experts who help people INSURANCE BROKING COMPLIANCES
in buying the suitable insurance policies as
per their needs and requirements. The Insurance Brokers 1. Capital Requirement for Insurance Brokers
also suggest and guide people about the nitty-gritties of
Respective Insurance Broker is required to have a
the policies which are beyond the understanding of the
minimum paid-up capital of:
layman.
Insurance Brokers are regulated by Insurance Regulatory i. In Case Of Direct Broker- Rs. 75 Lakhs;
and Development Authority of India (“IRDAI/Authority”) ii. In Case Of Reinsurance Broker- Rs. 4 Crore;
and provides advice-giving services to their clients on the
matters related to Insurance. iii. In Case Of Composite Broker- Rs. 5 Crore.
Insurance Brokers Association of India (“IBAI”) is the 2. Net-Worth Requirements for Insurance Brokers
sole representative body of licensed Insurance Brokers
recognised by the Insurance Regulatory and Development The net-worth of an Insurance Broker shall at no time
Authority of India (IRDAI). during the period of certificate of registration fall
below:
The Insurance Brokers shall have the word ‘Insurance
Broker’/ ‘Insurance Brokers’/ ‘Insurance Broking’ in i. Rupees Fifty Lakh for Direct Broker;
the name to reflect their line of activity and to enable
ii. 50% of the minimum capital requirements
the public to differentiate Insurance Brokers registered
or contribution or equivalent specified under
with the Authority from other non-registered Insurance
Regulation 19(1) for Reinsurance / Composite
related entities.
Broker.
CATEGORIES OF INSURANCE BROKERS 3. Deposit Requirements for Insurance Brokers
There are five categories of Insurance Broker which are: Every Insurance Broker shall before the
(i) Direct Broker (Life), commencement of their business, deposit and keep
deposited with any scheduled bank a sum equivalent
(ii) Direct Broker (General), to:

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ARTICLE Insurance Broking and its Compliances

i. Rupees ten lakhs for Direct Broker; iii. Insurance Brokers shall file periodical returns,
without fail within the time specified, as per the
ii. 10% of the minimum capital/ contribution formats/ returns prescribed under Authority’s
specified under Regulation 19(1) for Reinsurance Business Analytical Project. Any failure to
/ Composite Broker in fixed deposit, which shall comply with this regulation without sufficient
not be released to them without the prior written reason beyond 15 days shall attract penal action
permission of the Authority. as specified under these regulations.
4. Compliances of Various Laws iv. Any false or wrong certification or concealment
The Insurance Broker shall comply with IRDAI of facts in the certificates submitted to Authority
(Insurance Brokers) Regulations, 2018, Insurance shall attract penal action as specified under these
Regulatory and Development Authority Act, 1999, regulations.
Companies Act, 2013 or applicable act as per its 7. Appointment of Compliance Officer
constitution and, Circulars, Guidelines and any other
instructions issued thereunder from time to time by i. In case of Reinsurance and Composite Brokers
the Authority. it is mandatory that the Insurance Broker shall
have internal audit systems and designate a
5. Maintenance of Professional Indemnity (PI) Compliance Officer who is an employee of the
Insurance insurance broker.
Category of Limit of indemnity ii. It is mandatory for an Insurance Broker who
insurance broker in a financial year earns more than rupees five
Direct Broker Two times remuneration received at crore remuneration (including reward) to have
the end of every financial year subject a designated Compliance Officer who will be
to a minimum limit of rupees one crore responsible for the internal controls and systems.
and at least Rs 50 crore, if twice the
remuneration limit is equal to or more Company Secretary can also act as Compliance
than Rs 50 crore. Officer of Insurance Broking Company,
Reinsurance Two times remuneration received at the
end of every financial year subject to 8. Reinsurance / Composite Brokers Sharing
Broker a minimum limit of rupees four crore of Brokerage With A Foreign Broker for The
and at least Rs 75 crore, if twice the Placement of Risks
remuneration limit is equal to or more
than Rs 75 crore. The Reinsurance/Composite Brokers registered with
Composite Two times remuneration received at the Authority shall not share more than 50% of the
the end of every financial year subject remuneration with the foreign Insurance Broker for
Broker to a minimum limit of rupees five crore the services obtained from them.
and at least Rs 100 crore, if twice the
remuneration limit is equal to or more
9. Remuneration and Reward to be Received By an
than Rs 100 crore. Insurance Broker from an Insurer

Under Professional Indemnity Insurance it is to i. For Direct Insurance Business:

be noted that the un-insured excess in respect The payment of remuneration and/or reward
of each claim shall not exceed five percent of to an Insurance Broker by an Insurer shall be
the capital employed by the insurance broker governed by the below three regulations notified
in the business and the AOA: AOY limit shall by IRDAI vide Notification dated March 26, 2023:
be 1:1.
a. IRDAI (Payment of Commission) regulation,
Further, the retroactive date shall begin from 2023;
the date of grant of license/ certificate of
registration. b. IRDAI (Expenses of Management [EOM]
of Insurers transacting general or health
6. Filing of Returns With IRDAI insurance business) Regulations, 2023; and
i. Every Insurance Broker shall on or before 15th of c. IRDAI (Expenses of Management [EOM] of
April / July/ October / January each year furnish Insurers transacting life insurance business)
to the Authority quarterly return. Regulations, 2023 which has come into force
ii. Every Insurance Broker shall before 31st October with effect from April 1, 2023.
and 30 th April each year furnish to the Authority ii. For Reinsurance business─
the certificates duly certified by the Auditor
along with half yearly return. (Certificate under As per market practices prevalent from time to
No 1-A,1-B,I-C,1-E, 1-F) time.

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 Insurance Broking and its Compliances

ARTICLE
The settlement of accounts by Insurers in respect
of remuneration of Insurance Brokers shall be
done on a monthly basis and it must be ensured
that there is no cross settlement of outstanding The Insurance Brokers are not permitted to
balances. receive remuneration and reward under IRDAI
Regulations 2016 and fees for the same Risk
10. Risk Management Services: Insurance Broker Management Services.
Compliance

i. Insurance Brokers can charge client fees in lieu

of its service to the client for Risk Management
Service or other identical services which is not a ix. Anti-Bribery and Anti-Corruption Policy,
percentage of premium or claim amount, as per
the regulations and the Broker may undertake the x. Prevention of Sexual Harassment Policy,
activity for commercial risks only upon a written
confirmation from the client. xi. Any other policy to comply with provision of law.

ii. The Insurance Brokers are not permitted to 13. Code of Conduct for Insurance Brokers
receive remuneration and reward under IRDAI i. Every Insurance Broker shall abide by the Code
Regulations 2016 and fees for the same Risk of Conduct as specified in Schedule I –Form H of
Management Services. Broker Regulations.
11. Claim Consultancy ii. In case of a Composite Broker or a Reinsurance
Insurance Brokers may undertake claims consultancy broker, he shall abide by the additional Code of
only for commercial lines of General Insurance Conduct specified in Schedule I – Form I of these
Business, subject to certain conditions: regulations.

i. For claims not exceeding Rs.10 crore the 14. Internal Control and System
Insurance Broker may undertake claims It is the responsibility of the Insurance Broker to
consultancy provided such claim does not ensure in place a proper internal audit system and that
emanate from a policy, which has been placed by it is adequate for the business. In case of Reinsurance
the same Insurance Broker. and Composite Brokers the Insurance Brokers must
ii. Insurance Broker shall inform the Authority mandatorily have industrial audit systems.
within 30 days of acceptance of such claims 15. Segregation of Insurance Money
consultancy by providing details.
i. The provisions of Section 64VB of the Act shall
iii. For claims exceeding Rs. 10 crores the Insurance continue to determine the question of assumption
Broker may undertake claims consultancy with of risk by an Insurer.
the prior approval of the Authority.
ii. In the case of reinsurance contracts, a fiduciary
12. Board Approved Policies account need to be maintained to hold
The Insurance Brokers shall have the following Reinsurance money. In these circumstances the
policies: money collected by the registered insurance
broker shall be dealt with in the manner
i. Outsourcing Policy, specified in Schedule II – Form U of Broker
regulations.
ii. Conflict Management Policy,
16. Insurance Broker Compliance With Respect to
iii. Policy for Comparison and Distribution of Maintenance of Books of Account, Records, etc.
Insurance Products,
The Insurance Broker is required to maintain the
iv. Grievance Redressal Policy, following for each financial year:

v. Cyber Security Policy, i. A balance sheet or statement of affairs at the

culmination of each accounting period and Profit
vi. Corporate Social Responsibility Policy if and loss account.
applicable,
ii. A statement on cash or fund flow- direct method.
vii. Business Continuity Policy,
iii. Any additional statement on the business of
viii. Anti-Money Laundering Policy, broking as per the need of the authority.

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ARTICLE Insurance Broking and its Compliances

17. Ceiling on Business from Single Client

The business of the Insurance Broker shall be carried
in such a manner that, not more than 50 percent of the
remuneration shall emanate from any one client in a
financial year.
18. Aggregate Holdings of Equity Shares or
Contribution or Equivalent In The Insurance
Broker By The Indian Promoter, Investor, Indian
Investor And Foreign Investor As The Case May Be
Foreign Investors, including portfolio investors, shall
not exceed such percent of limits as prescribed by
Central Government.
19. Outsourcing of Activities By Insurance Broker
i. An Insurance Broker can outsource the
activities as given in Schedule II - Form X of
Broker Regulation based on a Board approved
policy.
ii. IRDAI do not allow core activities to be
outsourced.
20. Validity of Certificate of Registration
A Certificate of Registration once issued shall be
valid for a period of three years from the date of issue,
unless the same is suspended or cancelled.
21. Disclosures to the Authority
An Insurance Broker shall disclose to the Authority
on their own any material change which has a bearing the functions of an Insurance Broker and who
on their certificate of registration within 30 days of shall be the Chief Executive Officer or a Whole
such change. time Director or Managing Director, Managing
Partner or a Managing Trustee or such individual
22. Co-Broking Agreement appointed / engaged exclusively to carry out the
functions of an insurance broker.
i. Two or more registered insurance brokers
can jointly handle the broking of insurance ii. “Broker Qualified Person” means an individual
requirements of any client with the written who is an employee or Director of the Insurance
consent of the client. Broker engaged in solicitation and procurement
of Insurance Business and who has undergone
ii. Such a situation the registered insurance brokers training and passed the examination specified for
shall enter into Terms of Business Agreement them.
for providing insurance broking services to the
specified client and the Agreement shall include, CONCLUSION
amongst other things, the manner defining the
duties and responsibilities of each registered As per the Insurance Regulatory and Development
insurance broker, the manner of sharing of Authority of India (IRDAI), India will be the sixth-largest
remuneration or fee among themselves, the insurance market within a decade, leapfrogging Germany,
reason for providing insurance broking services Canada, Italy and South Korea. Insurance market in India
jointly IRDAI do not allow core activities to be is expected to reach US$ 222 billion by 2026.
outsourced.
REFERENCES:
23. Apointment of Principal Officer and Broker
Qualified Person i. IRDAI (Insurance Broker) Regulations, 2018
i. “Principal Officer” means - an officer in an ii. India Brand Equity Foundation (IEBF) (https://www.
executive role designated as such for the purpose ibef.org/industry/insurance-sector-india/infographic)
of performing the duties and responsibilities
as specified in Broker regulations to carry out iii. Annual Report published by IRDAI CS

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