In a bid to streamline the domestic insurance broking industry, the insurance regulator IRDAI has proposed a host of stringent measures, including doubling the capital requirements for the segment. After almost 13 years since broking was allowed in the insurance industry, the regulator has taken initiatives to regulate the segment more closely. Currently, there are over 500 brokers channelising over Rs 25,000 crore of business, or 20 to 25 per cent, of the total premium in the non-life sector. The IRDAI has proposed raising the capital requirement of insurance brokers to Rs 1 crore, Rs 4 crore and Rs 5 crore for direct, reinsurance and composite brokers, respectively. The existing capital requirement is Rs 50 lakh, Rs 2 crore and Rs 2.5 crore for direct, reinsurance and composite brokers, respectively. A composite broker can do both direct insurance and reinsurance business.
The draft norms have suggested there should be cooling off period of two years in case foreign investor exits an Indian insurance broking venture and wants to reinvest in another insurance broking company.
In another measure the insurance regulator has said a person can be a promoter only in one insurance broking company.
Analysts have pointed out such a requirement needs to be extended to the insurance companies. Recently, IRDAI has allowed Prem Watsa’s Fairfax to reduce its stake in ICICI Lombard General insurance to around 10 per cent and float another general insurance venture with 49 per cent stake in the country.
KK Srinvasan, former member, IRDAI, has said the proposed broking regulation that a promoter can float only one broking venture should be applied to other insurance companies also.
The regulator has proposed no payment of annual fees but instead recommended upfront 3 years fees for administrative convenience. Some of the other significant proposals of IRDAI are: Allowing risk management services to brokers, introduction of board-approved policy for comparison and distribution of insurance products, allowing co-broking based on written consent of client and on the basis of agreement (no co-broking for retail clients), CEO & CFO of insurers and CEO and CFO of insurance broker to submit an annual certificate in case they pay remuneration and other payments in excess of stipulated limits.
Consequent upon promulgation of Insurance Laws (Amendment) Act, 2015, the existing Insurance Broker Regulations would undergo a change. In addition, in the wake of the developments in the market and the experience of the last three years, there is a need to update the Broker Regulations, said the exposure draft signed by Randip Singh Jagpal, chief general manager, IRDAI.
The regulator also has restricted the professional Indemnity Policy for a broker to Rs 50 crore, Rs 75 crore and Rs 100 crore for direct, reinsurance and composite brokers, respectively.
Srinivasan said there should be some simplified corporate governance regulations for brokers and more financial transparency. “They should be required to publish their financials on their website. In fact given the limited procurement role they play, there is no need for 49 per cent FDI for brokers… 26 per cent will do. They make huge profits and will drain huge away profits abroad,” he said.