The buyers in the insurance market are the general public, traders, exporters, importers, industrial and commercial organizations, clubs, associations, hospitals, schools, etc. The intermediaries are the agents, and now-a-days new channels include brokers, corporate agents and financial institutions like banks (Bancassurance), micro-finance institutions etc. All the intermediaries are to be duly licensed by the Insurance Regulatory and Development Authority (IRDA).
INSURANCE INTERMEDIARIES
Insurance companies sell their products mainly through the following:
i.Agents (who are the representatives of the Insurer)
ii. Independent Intermediaries (who are the representatives of the Buyer)
iii. Direct Sales including through ‘online’ and ‘Referrals’.
Agents In Insurance industry the term “Agent” is ordinarily applied to a person engaged by the insurer to procure new business. An Agent can work for one life insurer and/or one non-life insurer and in addition to this, to one ‘exclusive health insurer’.
Insurance agents are intermediaries whose activities include soliciting, procuring, and servicing the general insurance market. An agent must fulfill the statutory requirements of his competence prescribed by the regulator and for which he has to pass the stipulated examination to satisfy the regulator after undergoing specified number of hours of training at accredited institutions (online / off-line). Upon the successful completion of the examination, all the agents in the insurance business are given license granted as provided under Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000, as amended upto date. Application for the same are to be made in prescribed form. The contact of agency between the company and agent defines the authority and responsibility and sets forth the agreement of the parties with respect to commissions and other details of the relationship. Agency license can also be granted to cooperative societies, panchayats, corporate entities, and banks. Renewal of license should be done in time by paying the prescribed fees. However, no license can be granted, if the individual suffers from any of the following disqualification:
if the person is a minor.
if found to be of unsound mind by a competent court.
if found guilty of or connived at any fraud, dishonesty or misrepresentation against any insured or insurer.
The appointment of agents is governed by Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000. The IRDA has prescribed both qualifications and disqualification for a person to be given a licence under section 42 of the Insurance Act.
A person must
a) Be at least of 18 years of age.
b) Have passed at least 12th standard or equivalent examination appointed if he/she resides in a place having a population of five thousand or more as per the last census, or 10th standard otherwise.
c) Have undergone a training program of 50 hours in Life or General insurance business or any other pre-recruitment examination recognized by IRDA. (However there are reduction in the required hours based on insurance qualifications, etc. of the applicant for Agency.)
d) For a composite agency, a person should have completed 75 hours of training in Life and General insurance business spread over 6 to 8 weeks.
An agency licence is usually given for 3 years, which may be either renewed or cancelled later. But before renewal of the licence, it is a prerequisite that the agent should have undergone 25 hours of practical training in Life and General Insurance business or at least 50 hours practical training in subject for a composite agency renewal.
The agent is expected to procure a minimum premium amount depending upon the company rules and targets. The agent is paid commission as remuneration for discharge of all his functions, the commission rates are subject to the guide lines issued from time to time by the IRDA.
CORPORATE AGENTS
The IRDA has also allowed Corporate Agents to act as insurance intermediaries to sell insurance products. As per the Act, a Corporate Agent means any person specified in clause (k) of the Act, and licensed to act as such, while a Composite Corporate Agent means a Corporate Agent who holds a licence to act as an insurance agent for a life insurer and a general insurer.
QUALIFICATIONS
– The corporate agent should ensure that depending upon the nature of the entity, the Partnership Deed, Memorandum of Association or any other document evidencing the constitution of the entity shall contain as one of its main objects soliciting or procuring insurance business as a Corporate Agent.
– The corporate insurance executive shall possess the minimum qualification of a pass in 12th Standard or equivalent examination conducted by any recognised Board/Institution, where the applicant resides in a place with a population of five thousand or more as per the last census, and a pass in 10th Standard or equivalent examination from a recognised Board/Institution if the applicant resides in any other place.
– Should have completed from an approved institution, at least, fifty hours’ practical training which may be spread over one to two weeks, in either life or general insurance business, as the case may be. – Or shall have completed from an approved institution, at least, seventy five hours’ practical training both in life and general insurance business, where such an applicant is seeking licence for the first time to act as a composite corporate agent.
The applicant seeking the Corporate Agency from the authority or any other corporate insurance executive of the applicant should be a professional as mentioned below:
(a) an Associate/Fellow of the Insurance Institute of India, Mumbai;
(b) an Associate/Fellow of the Institute of Chartered Accountants of India, New Delhi;
(c) an Associate/Fellow of the Institute of Costs and Works Accountants of India, Calcutta;
(d) an Associate/Fellow of the Institute of Company Secretaries of India, New Delhi;
(e) an Associate/Fellow of the Actuarial Society of India, Mumbai;
(f) a Master of Business Administration of any Institution/ University recognised by any State Government or the Central Government; or
(g) possessing Certified Associateship of Indian Institute of Bankers (CAIIB); or
(h) possessing any professional qualification in marketing from any Institution/ University recognised by any State Government or the Central Government;
(i) (from 1.4.2009, it is compulsory that a Broker should have the Designated Person with qualification of AIII / FIII).
Besides individuals, some of the companies are making use of banks, building societies and others as agents to increase the new business volumes. Further, tied agency has also become a popular channel of distribution where in the tied agents are representatives of the company drawing commissions as remuneration. Banks, under the contract of “bancasurrance” which is the strategic alliance between an insurance company and the bank, where in the banks use their resources and client base to augment sales of insurance policies. This arrangement provides mutual benefit to the bank as well as the insurance company and more importantly value addition to the customer, who can derive insurance services also from his bank counter.
INDEPENDENT INTERMEDIARIES (Brokers)
Brokerage has also become a very popular distribution channel for marketing Life and General insurance business. Also known as Independent financial advisors (IFAs), these advisors have become the popular source of procurement of business in the advanced markets. Brokers canvas the business and place the same with insurers either on standard or negotiated terms. They are also authorized to negotiate with insurers for tailor-made policies to cater to the customer’s specific needs. A broker usually does business with more than one company and in return gets commission. However, he does not charge anything from the client. He is bound by the IRDA Regulations to give best advice to his client and acts on behalf of the advice seekers. Basically, a Broker is the representative of the insurance buyer.
A broker is a through professional who is registered and licensed to offer his professional advice to the clients. IRDA has prescribed guidelines for Brokerage registrations under INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (INSURANCE BROKERS) REGULATIONS, 2002. An insurance broker is an individual / firm / Company / Co-op. Society who advises policyholders on insurance matters and places business with the insurers. A high standard of professional skill and conduct is expected of a broker. Moreover, if he fails to maintain the required standard he may be liable for damages to his principal.
Although brokers are agents of the proposer, they are usually paid by the insurers with whom they place business. In India, there are many licensed brokers who are engaged in procuring business in the domestic markets and also in international exchange of reinsurance business.
Besides, these brokers also provide risk management consultancy services. Agency and brokerage systems are most common and contribute maximum share of insurance business in the developing and developed countries.
IRDA Regulations limits on payments of commissions or brokerage on general insurance business
The IRDA under Section 14 of the Insurance Regulatory and Development Authority Act, 1999 and in terms of the provisions of Sections 40(1), 40A(3) and Section 42E of the Insurance Act, 1938, has laid down the percentage of premium that can be paid by way of commission or brokerage on a general insurance policy not exceeding the percentages of premiums set out below. The IRDA also specifies that no brokerage can be paid in respect of an insurance where agency commission is payable and likewise, no agency commission can be paid in respect of an insurance where brokerage is payable. The following are the current rates of commission as recommended by IRDA:
AGENCY COMMISSION STRUCTER
PLEASE NOTE:-
No commission shall be paid on motor third party insurance.
Evidence of paid up capital can be taken from the latest Balance Sheet which is in public domain as per the requirements of the Companies Act, 1956. In case of a balance sheet which is 2 years prior to the relevant year of placing insurance, an auditor’s certificate must be produced.
In case of sole proprietorship and partnership firms a certificate from a Chartered Accountant to the client should be acceptable.
In respect of branches in India of a foreign company reference should be made to the paid up capital of the company in the country in which it is incorporated converting it into Indian Rupees at the current exchange rate on the date of insurance.
No payment of any kind, including “administration or servicing charges” is permitted to be made to the agent or the broker in respect of the business in respect of which he is paid agency commission or brokerage.
These rates supersede all existing directions on the subject and shall take effect in respect of insurances or renewals commencing on or after 1st January, 2007.
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