Professionals who suggest a suitable insurance cover for the clients by determining their specific needs and by evaluating the risk involved are insurance brokers. According to the IRDA annual report, “ insurance brokers, as professionals, are expected to fill the void in terms of providing for specific insurance needs of the client, by assessing the risk on behalf of the client, advice on the mitigation of the specified risk, identifying the optimal insurance policy structure, bring together the insured and insurer, carry out work preparatory to insurance contracts and where necessary, assist in administration and performance of such contracts, in particular when claim arise.” The report further states, “ the advent of brokers on the scene is likely to result in improvement in customer service, transfer of technology and managerial know-how, benefits to insurance companies through increased market penetration and facilitate increased retention capacities by optimising reinsurance programmes.”
Certain guidelines are suggested for the issue of licence to the insurance brokers and consultant by the IRDA. According to which brokers are categorized as follows:
- Insurance consultant
- Composite broker
- Direct general insurance broker
- Direct life insurance broker
- Reinsurance broker
- Solvency margin– a statement from the auditor must be supplied to the authority, i.e. higher of the gross brokerage/fees received in previous year or ₹ 25 lacks.
- Functions and rules- the functions to be performed and rules to be followed by a broker are specified in the guidelines.
- Books of accounts- records of books of accounts of at least last 5 years must be preserved and a final audited statement must be submitted annually after the end of an accounting year within 60 days.
- Net worth- the net worth must be submitted to the IRDA according to the following requirement, reinsurance broker- ₹2 crores; composite insurance broker- ₹2.5 crores; direct brokers ₹50 lakh; and ₹5 lakh for insurance consultants.
- Brokerage- it is to be paid by broker to insurer, it is set by the IRDA and cannot exceed 30%.
- Disclosure- brokers have to provide inspection if required and also disclose certain information whenever required.
Advantages of brokers in Indian market (introduction of brokers):
- gains to insurance company:
Broker facilitates an insurance company by making its job easy and less tedious. Brokers save time wasted in managing the industrial risks and other concerns by insurance awareness, market penetration and improve customer service thereby, acting as a catalyst to increase competition.
- improvement in customer service:
Brokers are motivated to offer better and new products to the customers, provide high quality services and actively respond to customer needs.
- foreign exchange consideration:
Brokers can optimise the reinsurance programme thereby saving in foreign exchange outflow, resulting into higher retention capacity.
- transfer of technology and managerial know-how:
There is a huge gap between the demand and supply of trained brokers in the business, this gap can be bridged by introduction f insurance brokers as they will provide best technical skills and products, systems and technology, training programmes and managerial techniques.