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The word “insurance” has been thrown around a lot of late, especially since the world is battling the ongoing COVID-19 pandemic. Medical bills sky-rocketing to ridiculous amounts have only increased the general public’s awareness regarding the importance of insurance. Moreover, the insurance sector is growing in India at a steady pace, and the brokers are a dime a dozen. These brokers are most commonly referred to as insurance brokers. It is these insurance brokers that form the bridge connecting insurance companies and the general public.
More often than not, insurance agents and insurance brokers are wrongly assumed to be the same thing. However, there are a few lines of difference between the two.
An insurance broker is a professional who represents customers, ensuring they get the best insurance policy suited to their needs. An insurance agent, on the other hand, sells the products of the insurance company to customers in exchange for a commission.
However, it is to be noted that the insurance agent represents the insurance company. And since the agent represents the company, he/she has the right to complete insurance sales transactions. Insurance brokers do not have this right; instead, they will have to hand over the account to the insurance agent or to the company itself.
Direct brokers are licensed by the IRDAI (Insurance Regulatory and Development Authority of India) and familiarise themselves with the insurance business of the various clients so as to explain and arrange the same with an insurer. A direct broker provides advisory services with regard to the most appropriate policy and its related terms and conditions.
These brokers act according to the instructions provided by the clients. They are also required to keep themselves updated with detailed information regarding the insurance markets, maintain the insurance records, and assist in the negotiation of claims. The minimum capital requirement for registration is Rs. 75 lakhs and maintenance of a net worth of Rs. 50 lakh.
Reinsurance is insurance for insurance companies. A reinsurance broker arranges reinsurance contracts between direct insurers and reinsurers. Since he/she works on behalf of both parties, he is contractually obligated to both. These brokers also negotiate contracts in addition to finding the best-suited policies for each client that they represent. The minimum capital requirement for registration is Rs. 4 crore, and maintenance of a net worth of 50% of the minimum capital requirement.
Composite brokers are a combination of direct brokers and reinsurance brokers and therefore have a double role. The minimum capital requirement for composite brokers is at least Rs. 5 crore, along with maintenance of a net worth of 50 percent of the minimum capital requirement.
Application is to be made in Schedule I – Form B of the regulations along with the type of insurance broker business clearly specified. The documents to be submitted along with the application are mentioned in Schedule I – Form C of the regulations.
|Particulars||Application Fee||On grant of in-principal approval||For renewal |
(3 year validity)
|Direct Broker||Rs. 25,000||Rs. 50,000||Rs. 1,00,000|
|Reinsurance Broker||Rs. 50,000||Rs. 1,50,000||Rs. 3,00,000|
|Composite Broker||Rs. 75,000||Rs. 2,50,000||Rs. 5,00,000|
The grant of the in-principal approval is majorly dependent on whether the authorities find the information provided to be complete in all respects. The registration certificate will be issued only when certain additional compliances are met with. The registration certificate will be issued in Form J of Schedule I.
Where the applicant fails to comply with the necessary formalities, the application shall stand rejected. Moreover, it is the duty of the authority to communicate to the applicant the refusal of granting the application within 30 days of the aforementioned rejection.
Where an application stands rejected, the application may re-apply only after the expiry of one year since such rejection.
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