How to start a insurance firm in india

How to Start an Insurance Brokerage Firm in India?

Insurance

Ever since 2003, plenty of insurance brokers have entered the insurance industry in India and pushed it to great heights. The insurance business sector has always been highly profitable and risk free. Here are some statistics proving the same:

 The gross insurance premiums collected in the FY 2019 summed at a whopping INR 962.05 billion, for non-life insurers. And for life insurers, it touched INR 1.09 trillion, i.e. underwent a hike of 3.66% within a year, as per ibai.org.

The total premiums amassed via insurance brokers expanded at 17% CAGR in the span of 2014 to 2019. Moreover, as per a report by primefeed.in, 469 insurance brokers stand licensed by the insurance governing authority IRDAI, as of July 2020.

All these facts clearly prove that the insurance broker companies in India are experiencing a steady growth. Hence, this small startup business idea is worth a try! Also, there is not much risk involved here and the Government also has been steadily pushing the insurance business in India. 

If you are someone who wants to start an insurance brokerage business, then you have landed at the right page. This article tells you how to start an insurance brokerage firm in India, everything you need to know for that, and every other related aspect. So, let’s get started with it. 

What is meant by an Insurance Brokerage Firm?

An insurance brokerage company works as an advisor of insurance plans. You might have often struggled with decisions like whether to choose an investment plan or an insurance. Or whether to buy a family health insurance plan or an individual health insurance. This is exactly what insurance brokerage firms help you with.

Such companies have qualified staff who partner with the insurance companies and possess good knowledge about insurance and related laws. Insurance brokers guide people regarding their insurance needs. They act as an intermediary between the insurance company and the person willing to buy an insurance policy

What is the Work done by Insurance Broker Companies?

An insurance brokerage company is highly experienced in handling different types of insurance and managing insurance-related risks. Such a company needs to possess an insurance broker license. Now, getting the license involves having to pass certain examinations. Hence, educational requirements ensure that insurance brokers possess a significant level of expertise in the field.

Moreover, the chief officers of such companies are well informed about all types of insurance plans and how they work. They can guide you correctly when it comes to choosing the right policy as per your requirements. Be it life insurance plans, health insurance plans, family health insurance plans, or any other type of insurance, they have got your back. For instance, an insurance broker can properly explain to their client about all the risks involved and the specific coverage provided by the insurance in question. Also, they have a better idea of what type of or which insurance you need. They explain the liabilities and risks involved in different types of plans and how to manage them.

Unlike insurance agents whose only job is to sell the insurance policy to the customer, insurance brokers hold a higher amount of responsibility. In fact, the client can even sue a brokerage company if they fail to deliver the promised results.

What are the Types of Insurance Broking Companies?

1. Direct Insurance Broker

A direct insurance broker tries to obtain insurance policies. They assist their clients with the policy buying procedure. They also help you choose from a bunch of policies and earn a commission for selling a policy. Direct broker insurance companies also render market information about insurance. Now, again, Direct Brokers can be further divided into 3 types:

  • Direct Life Insurance Broker
  • Direct Non-Life Insurance Broker
  • Direct Life and Non-Life Insurance

2. Reinsurance Broker

A reinsurance broker, as the name suggests, purchases reinsurance for a company. The procedure involves negotiating rates and looking for the best policies.

3. Composite Insurance Broker

Such insurance brokers have a valid license for providing insurance services. They can provide both life and general insurance policies. The insurance companies or the authorities selectively provide a license to such applicants.

Eligibility Required to Apply for Insurance Brokerage License

In order to secure an Insurance Broker License, you need to get registered with the IRDAI. Besides, the Government has put forward some minimum criteria for obtaining an insurance broker license. So, you need to fulfill these eligibility requirements to be able to apply for an insurance brokerage license. 

Who Can Apply for an Insurance Brokerage License?

The following people are eligible to apply for an insurance broker license:

  • Companies registered under the Companies Act of 2013 or any prior version of it.
  • Limited Liability Partners (LLPs) registered under the Limited Liability Partnership Act, 2008. If the applicant is a registered LLP, then they are not eligible to become in the following cases:
  1. If they happen to be a non-resident entity
  2. A foreign LLP registered in that country
  3. If the applicant does not reside in India
  • People recognized by the authority
  • Registered co-operative society registered under the Co-operative Societies Act, 1912, or other variants.

Educational requirements

The following qualification and training requirements are necessary to apply for an insurance brokerage license in India:

  • The applicant must possess a bachelor’s degree or a master’s degree. They could also hold any equivalent degree.
  • Else, the applicant could be an associate of the Insurance Institute of India, Insurance Institute of Risk Management, or Insurance Brokers Association of India.
  • Need to possess an adequate amount of theoretical and practical training as per the guidelines of the Insurance Regulatory Authority of India
  • Once the training gets over, appear and pass the exam held by the National Insurance Academy
  • Possess a minimum capital as per the regulations of the authority

Financial Criteria

There are certain financial eligibility criteria too that you need to meet in order to obtain your Insurance broker license. Find them listed below: 

Insurance Broker Type Financial Requirement Net-Worth Requirement Deposit Requirement
Direct Insurance Broker INR 75 lakhs INR 50 lakhs INR 10 lakhs
Reinsurance Broker INR 4 crores 50% of the Minimum Capital Requirement 10% of the Minimum Capital Requirement
Composite Broker INR 5 crores 50% of the Minimum Capital Requirement 10% of the Minimum Capital Requirement

Other Conditions

Given below are the conditions that must be satisfied by the applicant company before they can obtain an Insurance Broker License are:

  • The company’s name should end with ‘Broking’
  • The applicant company needs to have satisfied the basic financial, capital, and deposit requirements
  • The company’s foreign investments should not exceed 26% of the sum of all the paid-up capital
  • 20% of the initial capital must be deposited with the registered bank.
  • The Memorandum of Association (MOA) of the company needs to state that the insurance broking activities are its principal objective.
  • The principal officer of the company should have cleared the broker’s exam and gone through the training required
  • A minimum of two individuals with the required qualification and training need to be hired by the company
  • In order to run the insurance brokerage business, the applicant must possess the infrastructure along with trained employees.

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Documents Required to Get an Insurance Broker License

The applicant must provide the mandatory documents and other required information as per the Form C of Schedule I. This is done according to the specifics of the IRDA Regulations of 2018. So, the documents required are given below:

  • Filled in insurance broker application in addition to all the necessary information in Form B. 
  • Copies of MOA (Memorandum of Association) and Article of Association of the article company.
  • Form G of Schedule I contains information about the Principal Officer. This would include details like if the potential Principal Officer fulfills the criteria mentioned in Form G or not. Also, he must have finished the training requirements before filing the application.
  • Form C of Schedule I
  • Declaration stating that the PO and the directors, partners, etc. are not excluded as per the Section 42D of the Insurance Act
  • Details about the partners, directors, promoters, advertisers, etc.
  • A list of the qualified agents with their qualifications
  • Details of the company’s bank account
  • List of shareholders (current + proposed)
  • Principal Bankers’ details plus details of the statutory auditors.
  • Audited company balance sheet
  • Copy of the board resolution passed by the shareholders for promoting the company
  • Details of the company’s infrastructure including specifics like office space, work power, IT infrastructure equipment, and so on.
  • Other details as and when required

Fees Involved in the Insurance Broker Application

The applicant needs to submit certain mandatory fees as stated in Schedule I of the application form. These include non-refundable, registration, and renewal fee:

Sl. No. Type of Insurance Broker Non-Refundable Fees Registration Fee Renewal Fee (for renewal after 3 years)
1. Direct Broker INR 25,000 INR 50,000 INR 1 lakh
2. Reinsurance Broker INR 50,000 INR 150,000 INR 3 lakhs
3. Composite Broker INR 75,000 INR2,50,000 INR 5 lakhs

How to Apply for an Insurance Brokerage License in India?

Once you have all the documents in place for the insurance brokerage application, you need to finally apply for an insurance broker license. This involves two stages: First, you need to apply for the grant of certificate of registration and then you can proceed with the insurance broker license registration

Step 1. Submit the Application

You will have to submit a duly filled in Insurance Broker License Application Form (Form B) of Schedule I. Other necessary documents along with the application fee need to be submitted to the Insurance Regulatory Development Authority of India (IRDAI).

Step 2. Examination of Documents

Your submitted documents will be examined thoroughly by the authorities. They can also raise some queries and in turn ask for extra documents, if required.

Step 3. Submission of Additional Documents

After being informed by the authority, the applicant has to submit the additional documents asked for. The due time given for this is generally 30 days.

Step 4. In-Principal Approval

The documents of the insurance broker company are verified by the authorities. And if the documents and the information provided seem satisfactory, then the authority will issue the in-principle approval to the insurance brokerage firm. The in-principle approval means that you have complied with all the requirements for the certificate of registration.

Step 5. Additional Requirements

Upon receiving the in-principle approval, the company should abide by all the additional requirements and also pay the license fees. The fee can be paid via Demand Draft (DD) or through an electronic medium in favor of IRDAI, Hyderabad. 

Step 6. Certificate of Registration

If all the eligibility requirements and regulations prescribed by the IRDA Insurance Broker Regulations, 2018 are satisfied, then a COR (Certificate of Registration) is granted to the company. This is to certify that the applicant has adhered to the code of conduct.

Step 7: Approval

Then the authorities will examine to verify the data and documents. If the applicant fulfills all the conditions, then the Authority will approve the Insurance Broker Registration application.

If the necessary eligibility criteria are fulfilled, then a license will be issued in the name of the applicant. This license shall hold a validity of 3 years from the date of issuance.

Other Things to Note:

The insurance broker company applying for a COR has full freedom to apply for other registrations as per the IRDAI guidelines. Such an application can be granted only after the certificate for the first application has been issued.

If your insurance broker application gets canceled, then you can make another application after completion of one year. Usually, the reason behind the rejection of the certificate of registration is if you don’t meet the requirements and conditions stated by the IRDAI.

Who is in Charge of Approving Insurance Brokerage Applications?

The regulatory body for approving Insurance Broker Licenses is the Insurance Regulatory and Development Authority of India (IRDAI). The laws regulating this procedure are The Insurance Act of 1938, the Insurance Regulatory and Development Act of 1999, and the Insurance Regulatory and Development Authority of India Regulations of 2018 (also known as Insurance Brokers Regulation).

Rejection of Insurance Brokerage Application

An insurance broker business application can be rejected if the authorities analyze that the applicant has not fulfilled the eligibility requirements. In such a case, the authorities need to inform the applicant about the refusal within 30 days of informing the rejection. Keep in mind that the applicant can apply again only after one year of rejection of their insurance business application.

Renewal of Insurance Brokerage License

An insurance brokerage firm gets its license for 3 years only. So, you need to file a renewal application 30 days before the validity of your license expires. The insurance brokerage company cannot continue business after their certificate expires.

However, they can indeed serve their already existing customers. The renewal application for an insurance broker company is the same as a new application. It needs to be in the Form K of Schedule I. 

Suppose the application is filed after the expiry of the stipulated period but before the license gets expired, then a late fee of INR 100 needs to be paid. If the delay in making the registration renewal application, then a fee of INR 750 has to be paid.

If you exceed the 60 days bar as well, then the application shall be considered after 1 year. And in this span of 1 year, the insurance broker must not conduct any form of business.

If the renewal application gets rejected, then that has to be notified to the insurance brokerage applicant

FAQs

 Q1. What is the role of the principal officer of the Insurance Broker Business?

Ans. Principal Officer is a member of the insurance broker company who contributes more to the business. They are the chief executive officer of the company responsible for executing the major functions of the broking business.

Q2. What is the difference between an insurance agent and an insurance broker?

Ans. An insurance agent and an insurance broker, both are very different definitions. An insurance agent is appointed by an insurance company to represent their insurance policy to you. When you buy the policy they represent, they earn a commission for the same. 

On the other hand, an insurance broker is not appointed by the insurance company. They are separate entities that can give you information about several types of insurance. They help you compare and choose the best plan as per your needs. 

Another key point of difference is that an agent can represent only one insurance while a broker can provide you with several plans of several companies.

Q3. Why does an insurance brokerage firm require an insurance broker license? 

Ans. An insurance broker license is required to ensure several things. These include the idea that a good number of insurance policies have been sold by the company, they comply with the laws and regulations, and they can act on their clients’ behalf to negotiate, and so on.

Q4. How long is an Insurance Broker License valid for?

Ans.  An Insurance Broker License is valid for 3 years. Within 30 days of the expiry of the license, the company needs to apply for license renewal. Otherwise, they will have to wait for a year for renewal.

Q5. Who is not allowed an Insurance Broker License in India?

Ans. An NRI (Non-Resident Indian), i.e. someone living outside of India, and a Foreign Partnership Firm cannot apply for an insurance brokerage license in India.

 

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