Insurance Broker License – An Overview

An insurance broker license is the official approval given by regulatory authorities to individuals or businesses to act as a liaison between insurance providers and customers. An insurance broker earns a commission from insurance companies for providing different types of insurance to customers.

Anyone who wants to become an insurance broker must apply for an Insurance Broker license from the Insurance Regulatory and Development Authority of India (IRDAI). According to the Insurance Regulatory and Development Authority of India (Insurance Brokers) Regulations, 2018, this license is issued.

This license helps all insurance brokers comply with the established regulations and professional standards. It also ensures that brokers guide customers, helping them buy insurance policies suited to their needs.

Why is Insurance Broker License Needed?

An insurance broker license is essential to function legally as an intermediary between insurers and clients. This license ensures brokers’ compliance with regulatory standards, safeguarding clients’ interests while maintaining market integrity. It requires the fulfilment of Insurance Regulatory and Development Authority of India (IRDAI) guidelines to ensure that brokers are competent, economically sound, and responsible. It helps develop trust, enabling brokers to offer impartial advice, access different insurers, and provide customized insurance solutions to benefit the clients and the industry.

Benefits of an Insurance Broker License

Benefits of an Insurance Broker License The Insurance Broker License offers various benefits to insurance brokers. It provides a competitive edge, ensures regulatory compliance, promotes trust with clients, boosts credibility & opens opportunities. Some key benefits are: below:

• Market Access - A licensed insurance broker can access various insurance products from different insurers. It enables them to provide customized and need-specific insurance solutions to their customers.
  
  
• Credibility & Trust - A valid insurance broker license helps the broker build customer credibility. Customers prefer to deal with brokers with a legitimate license, which develops trust between the brokers and their customers
  
  
• Regulatory Compliance - Licensed insurance brokers comply with all the regulations and standards to operate within the legal framework. Working in legal bounds helps them avoid penalties arising out of non-compliance and violations of rules.
  
  
• Customers Advisory - Insurance brokers are experts in their field and are updated about the latest policies, rules, and regulations. Therefore, they are in a position to offer suggestions to their customers, which in turn helps them make informed decisions about choosing the best insurance policies.
  
  
• Revenue Opportunities - Licensing opens up diverse revenue streams wherein an insurance broker can earn through commissions from various insurers, helping them increase their potential earnings.
  
  
• Professional Growth - Insurance brokers work hard to build professional relationships with their customers, boosting their reputation and helping them expand their professional network within the insurance industry.
  
  
  
  

Eligibility Criteria for Insurance Broker License in India

The Insurance Regulatory and Development Authority of India (IRDAI) issues insurance broker license in India.

Checklist for Insurance Broker License in India:

• Training and certification by IRDAI are mandatory.
• A bachelor’s degree in finance, business, or insurance is required.
• At least two years of relevant experience in insurance or finance experience.
• Minimum capital requirement per license category must be fulfilled.
• Applicant should have a clean record and have no violent history.
• Fulfilling infrastructure requirements like office space, equipment, staff & IT.

Funding Requirements:

• Direct Broker – INR 75 Lakhs
• Re-Insurance Broker – INR 4 Crore
• Composite Broker – INR  5 Crore

Equity Requirements:

• Direct Broker – Minimum INR 50 Lakh
• Re-insurance Broker - 50% of the minimum capital contribution
• Composite Broker - 50% of the minimum capital contribution

Security Requirements:

• Direct Broker – INR 10 Lakh
• Re-Insurance Broker - 10% of the minimum capital or contribution
• Composite Broker- 10% of the minimum capital or contribution

Documents Needed for Insurance Broker License Registration

An insurance broker must submit various documents to the authorities to obtain a valid insurance broker license. These documents include:

• Form-B of Schedule I of the regulations
  
  
• Copy of Memorandum of Association (MoA) & Articles of Association (AoA)
  
  
• Fees – Based on broker category
  
  
• Declaration as per Form G of Schedule I
  
  
• Details of Directors, Partners, Promoters & Key Management People
  
  
• Declaration by key management people regarding no disqualification from the principal officer, director of the company
  
  
• Schedule I - Form F – Details of qualified people to manage the business
  
  
• Statutory auditors & principal banker details, along with the applicant's bank account number
  
  
• Infrastructure details, balance sheet, board resolution copy, shareholders list
  
  
• Certificate of Incorporation – Depending on company type
  
  
  

Step-by-Step Insurance Broker License Process

The insurance broker license process involves various steps. Every step ensures that compliance and regulatory requirements are met. Let us explore the details of the procedure below:

1. Eligibility Check & Documentation - Applicants must check their eligibility to apply for the insurance broker license. They must provide all necessary documents in Schedule I—Form C of the IRDAI (Insurance Brokers) Regulations.

2. Application Form & Fee - Applicants must fill out the form specified in Schedule I, Form B of the IRDAI (Insurance Brokers) Regulations. They must ensure the form is complete & submitted along with the required documents and the prescribed fee.

3. Verification & Processing - Once the application is submitted, it undergoes intense scrutiny as part of the verification process. The regulatory Authority validates all the submitted documents and conducts background checks mandated in this step.

4. Approval or Rejection - Once the verification and assessment processes are successfully concluded, the regulatory Authority issues the license to the insurance broker. If any inconsistencies are found, the Authority may reject the application and the reasons for the rejection.

5. License, Compliance & Renewal - Once approved, the insurance broker license is issued to the applicant, making them eligible to operate legally. They must meet all compliance requirements and renew their licenses as per their validity timelines.

Conditions for Granting Insurance Broker License

Before granting the insurance broker license, IRDAI sets the following conditions:

• Insurance brokers in India must operate within the IRDAI regulations.
• Authorities must be informed if brokers provide inaccurate or misleading information.
• Brokers must resolve customer grievances within 14 days and maintain records.
• Insurance brokers must avoid aggressive solicitation or multi-level marketing.
• The insurance broker is required to maintain books of accounts.

Types of Insurance Brokers in India

Insurance brokers in India are categorized into five main types - Direct Broker for Life, Direct Broker for General, Direct Broker for Life & General, Reinsurance Broker, and Composite Broker. However, all five are clubbed to form three main categories mentioned below:

• Direct Brokers - Direct brokers specialize in life or general insurance, collect customer details and provide customized insurance advice. They stay updated on market trends to guide clients on various policy options to meet compliance and regulations.
• Reinsurance Brokers - The work of a reinsurance broker is similar to that of a direct broker. Their main job is to handle the reinsurance business, such as international insurance. They also offer market insights for reinsurance products.
  
  
• Composite Brokers - A composite broker is an institution that performs the roles of both direct and reinsurance brokers. Composite brokers offer various insurance services across multiple categories in their combined role.
  
  
  
  

Features of Insurance Broker License

An insurance broker license ensures compliance, protects investors, upholds ethics, builds trust, prevents fraud, and fosters accountability. Its features include:

• Enabling brokers to sell insurance products for insurance companies.
• Ensuring brokers adhere to all regulatory and legal compliances.
• Representing their customers when negotiating insurance deals.
• Tracking insurance-related activities & conducting market research effectively.
• Enabling a nodal authority to regulate the insurance business.
• Ensuring customers of broker’s genuineness and validating their identity.
• Ensuring brokers fully understand policies to provide accurate customer advice.
• Developing the skills and abilities of brokers in dealing with customers.
• Maintaining market integrity and stability through qualified, reliable brokers.
• Keeping brokers informed on market trends through education programmes.

Post-Registration Compliance for Insurance Broker License

Post-registration compliance for an insurance broker license includes adherence to regulatory compliance, maintaining records and ensuring legal operations, among others:

• Annual Compliance Report - Insurance brokers must submit an annual compliance report to the IRDAI detailing their operational practices, compliance with regulatory standards, and financial status.
  
  
• Financial Audit - Insurance brokers are required to conduct an annual statutory financial audit and submit the audited financial statements to the IRDAI to ensure transparency and meet insurance broker license requirements.
  
  
• Renewal of License - Insurance brokers in India must ensure the timely renewal of their licenses by submitting the required documents and paying the renewal fees before the expiry date.
  
  
• Record Maintenance - Insurance brokers must maintain accurate records of all business transactions to ensure transparency, meet regulatory compliance and manage operations.
  
  
• Compliance with the Code of Conduct - Brokers must strictly adhere to the IRDAI-prescribed code of conduct, ensuring ethical practices, client protection, and integrity.
  
  
• Anti-Money Laundering (AML) Measures - Brokers must implement and maintain AML policies and procedures, ensuring compliance by monitoring transactions and reporting suspicious activities to the Financial Intelligence Unit (FIU-IND).
  
  
• Submission of Quarterly Returns - Brokers are mandated to file quarterly returns with the IRDAI to provide detailed reports on their financial activities, compliance status and operational performance.
  
  
• Internal Audit - Conducting regular internal audits helps ensure robust internal controls, reduce risks, and boost operational efficiency by identifying and addressing potential weaknesses and inefficiencies within the organization.
  
  
• Client Grievance Redressal - Insurance brokers must establish a robust grievance redressal mechanism to address client complaints and submit detailed reports on these processes to the IRDAI.
  
  
  
  

Renewal of Insurance Broker License in India

To renew the insurance broker license validity in India, applicants must submit a renewal application to the IRDAI before the current license expires. To maintain validity, applicants must ensure compliance with regulatory requirements, update required documents, and pay renewal fees.

Renewal Process

• Submission of renewal application in Form K from Schedule –I of the regulations.
• Application must be submitted at least 30 days before the expiry of the license.
• Applications submitted after expiry but before 60 days, fee includes INR 100.
• A renewal application submitted 60 days after the expiry, the fee to be paid is INR 750.
• Applications submitted after 60 days are considered for renewal after one year.

Other Significant Steps

• Brokers cannot conduct business during the period when the license is suspended.
• Brokers cannot submit renewal applications 90 days after the expiry of the validity.
• Brokers with expired licenses can’t serve new clients but can continue with existing ones.
• The process to submit a renewal application is the same as that for new applications.
• Applicants must be notified if their applications are rejected.
  
  

Can an Insurance Broker License be Rejected?

If the applicant for an insurance broker license fails to meet the eligibility criteria mandated by regulatory authorities, his application can be rejected. However, in such a case, the Authority must inform the applicant about the rejection within 30 days of the rejection. In this case, the applicant must wait one year to become eligible for submitting a new application.