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Insurance Broker License: Important facts that you need to know about it

An insurance Broker License is an authorization to operate as an insurance broker in India. In this article, you’ll know most facts that you should know about this permission.

Insurance companies provide insurance services that are quite diverse and complex. To understand the terms and conditions of these services, a customer needs an intermediary known as the Insurance Broker. To ensure that only the capable become insurance brokers, IRDA, as per its Insurance Regulatory Development Authority Act, 1999, made it mandatory that brokers can operate if they have the Certificate of Registration.

It’s known as the Insurance Broker License.

What are the different categories of Insurance Broker licenses?

Based on the different types of insurance services that an intermediary provide, an insurance broker license is split into 3 major categories:

  1. Direct Broker
  2. Reinsurance Broker
  3. Composite Broker

A direct Broker is an insurance broker that acts as an intermediary between an insurance company and a customer. He leverages the knowledge he has of the insurance market to provide insurance consultations to the client. His list of functionalities entails:

  1. Familiarizing himself with the client’s business.
  2. Making the insurance company understand, through underwriting, about the client’s business.
  3. Consulting about terms and cover of the insurance policy
  4. Assisting the clients with paying an insurance premium
  5. Assisting in matters of claim negotiations
  6. Acting as per the client’s instructions
  7. Maintaining a precise record of the claims
  8. Aiding in the opening of e-insurance accounts

Related Service: ISNP Insurance

A reinsurance broker is an intermediary between an insurance company and a reinsurer. He leverages his knowledge of the reinsurance market to consult insurance companies in reinsurance matters. His list of functionalities entail:

  1. Familiarizing himself with the risk management philosophy of the client.
  2. Maintaining a clear record or records of the insurance business
  3. Leveraging the technical data available of the reinsurance market to advise insurance companies
  4. Providing risk management services to the client.
  5. Recommending reinsurers to the insurance companies
  6. Acting on behalf of the insurance company
  7. Acting as per the instruction of the insurance company.
  8. Providing PLA or Preliminary Loss Advise within rational time.

A composite broker, as the name suggests, is an amalgamation of insurance and reinsurance brokers. Holders of the insurance broker licenses of this category can act as intermediaries between insured, insurers and reinsurers.

What is the capital required to obtain the insurance broker license?

The applicant must adhere to the following capital requirements to be considered eligible to apply for the insurance broker license:

  1. The applicant must adhere to the minimum paid-up capital contribution requirement of the IRDA. These requirements are based on the category of an insurance broker and they are as follows:
    • Direct brokers should have the minimum capital contribution of INR 75 Lakh
    • Reinsurance brokers should have the minimum capital contribution of INR 4 Crore
    • Composite brokers should have the minimum capital contribution of INR 5 Crore
  2. For a company, the capital will be limited by shares and for a cooperative society, the capital will be in the form of equity shares.
  3. For LLPs, the contribution of partners should be in cash.
  4. The applicant must only carry out the business of the insurance broker as per the regulations
  5. Central government from time to time will prescribe the aggregate holdings of the equity shares of contribution by foreign investors, including the portfolio investors.
  6. The applicant must not use the shares of his insurance broker held as capital contribution in case of an LLP or equivalent to secure credit or any other facility.
  7. The promoters, shareholders, or partners must only use their own funds to invest in the applicant of the insurance broker license and not use funds from any other sources excluding loans and borrowings.

What is the procedure to obtain the license?

The application follows the steps below prescribed by the Insurance Regulatory Development Authority of India to obtain a certificate of registration:

  1. The applicant must train one of the company’s Key Management Personnel as a Principle Officer. The Principal Officer will be responsible for overseeing and conducting brokering activities.
  2. The applicant must file the prescribed application form Schedule I – Form B
  3. The applicant must put together the required documents as mentioned in Schedule 1- Form C. They are as follows:
    • Demand draft of the application fee as per the category of the insurance broker
    • A printed copy of the applicant’s Memorandum of Association
    • Compliance with the training requirements
    • Details related to the Principle Officer
    • Declaration by the Principle officer
    • Details of directors and partners
    • List of Broker Qualified persons
    • Details of Statutory Auditors
    • Details of IT infrastructure
    • Projection of Administrative Expenses
    • Organization chart showing the complete picture of applicant organizations’ functionalities.
    • List of experienced personnel from the Insurance Background
    • Information relevant to the nature of the services
  4. A duly filled application form and the above-mentioned documents will be submitted to the IRDA.
  5. The IRDA will assess the applicant’s application and the documents attached. If satisfied, it will issue a Certificate of Registration to the applicant.

If you want to know more about Insurance Broker License, contact Registrationwala

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