Distribution of insurance is handled in several ways. The most common is through the use of insurance intermediaries. Insurance intermediaries serve as the critical link between insurance companies seeking to place insurance policies and consumers seeking to procure insurance coverage.
The IRDAI has issued various specific regulations to govern individuals and entities that can represent insurance and reinsurance companies and are permitted to offer and distribute insurance products on their behalf.
Broadly, Insurance intermediaries can be classified as individual agents, corporate agents including banks and brokers, web aggregators, and insurance marketing firms (IMFs); who intermediate between the customer and the insurance company. Insurance Intermediaries also include Surveyors/loss assessors and Third Party Administrators but these intermediaries are not involved in the procurement of business.
In 2019, the Insurance Amendment Rules were notified, which effectively increased the permissible limit of foreign direct investment in insurance intermediaries to 100 per cent. However, such an entity whose primary business is outside the insurance sector is only allowed by the IRDAI to function as an insurance intermediary. The foreign equity investment caps applicable in that sector (if any) shall continue to apply to such intermediary, subject to the condition that the revenues of such entities from the primary (non-insurance related) business remain above 50 per cent of their total revenues in any financial year.
Insurance intermediaries need to obtain registration from the IRDAI under the provisions of the specific regulations that apply to them given the nature of the business proposed to be undertaken by them, which include details of eligibility criteria, capital, and net worth requirements, qualification requirements for the principal officer and directors or partners of the concerned entity. Registration is typically granted for three years and may be renewed thereafter.
Independent insurance agents:
An insurance agent is a representative of an insurance company who serves as a bridge between consumers and insurance companies. The agent helps consumers to select the right insurance based on their needs and negotiates different insurance policies. An insurance agent is required to have passed the relevant examination and is also required to possess the requisite knowledge for soliciting insurance business and providing necessary services to policyholders. An insurance agent is permitted to solicit only insurance business. Independent agents may represent many insurance firms and receive commissions for their services accordingly. On the other hand, some captive agents are exclusively employed by a particular insurance firm and sell policies of the same. Their services can be rewarded in the form of salary or commission.
Corporate agent:
A corporate agent is an intermediary other than an individual, which may be the firms; banks; non-banking financial companies; cooperative societies; non-governmental organisations; and companies representing an insurance company. An entity registered as a corporate agent may either exclusively carry out the business of insurance distribution or engage in any business other than insurance distribution as its main business. Where a corporate agent has a main business other than insurance distribution, that agent is not permitted to make the sale of its products contingent on the sale of an insurance product, or vice versa. The IRDAI has also notified the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2022 (Intermediaries Amendment Regulations), which amended the maximum number of arrangements that a corporate agent is permitted to enter into with life, general, and health insurance companies. In case an applicant wishes to work in more than one line or all three lines of business, they may apply for Composite CoR. In such cases, the application should mention whether it is for Life / General / Health or Composite. However, the new notification from the Insurance Regulatory and Development Authority of India (IRDAI), has removed the limitations by allowing corporate agents to get associated with 9 companies each in the life, health, and general insurance categories. Therefore, a Corporate Agent registered as a Corporate Agent (Life) may have to tie up with three life insurers. On the same lines, a Corporate Agent (General) and a Corporate Agent (Health) may have arrangements with a maximum of three insurers in their respective lines of business. That is, a Corporate Agent (Composite) may have a tie-up with three insurers in each of Life, General, and Health. In addition, they can represent the two specialised insurance companies, Export Credit Guarantee Corporation and Agriculture Insurance Corporation of India.
Insurance brokers
Any company, limited liability partnership, or cooperative society may apply to the IRDAI for the grant of an insurance broker certificate of registration. Insurance brokers are required to exclusively carry out the distribution of insurance products. Applicants may register as a direct broker (life, general, or life and general), a reinsurance broker, or a composite broker (involved in both direct and reinsurance broking). The biggest difference between an Insurance Broker and an Insurance Agent is the people/organization they represent respectively. An insurance broker represents you as the client whereas an Insurance Agent represents the company they are employed by as their client, and you become the customer. Insurance Agents have a limited number of policies or products to offer whereas Insurance Brokers, on the other hand, are responsible for providing you with information on various suitable options as per your needs. It is in their interest to provide you with the most suitable product as per your requirements as their income depends on the compensation they earn after each deal made. The minimum capital for a direct broker is 7.5 million rupees; a reinsurance broker, 40 million rupees; and a composite broker, 50 million rupees. All insurance brokers are required to be members of the Insurance Brokers Association of India.
Web aggregators;
Insurance Web Aggregator is an insurance intermediary that maintains a website to provide an interface to the insurance prospects for price comparison and information on products of different insurers and other related matters. However, Insurance web aggregators cannot undertake direct marketing. There is no limit on the number of insurers, but an insurer desirous of obtaining leads from the Insurance Web Aggregator shall agree with the insurance Web Aggregator approved by the IRDAI.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a purchase.
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