Proposal for sub-broking model in insurance shelved

Conflict with existing channels, lobby against model by some insurers seen as reasons behind the move

The proposal to have a sub-broking model in insurance has now been shelved as there was no consensus among insurers on how the model would operate. 

The Insurance Regulatory and Development Authority of India (IRDAI) had earlier proposed this intermediary channel to act along with regular brokers, but there was a strong lobby of some insurers which had opposed this.

Here, a sub-broker refers to a person who isn't a licensed broker, but acts on behalf of one. As per IRDAI norms, a sub-broker would have to apply for a license through the main broker.

"This proposal has been shelved since it was felt that this is not the appropriate time for this channel to come in," said an official involved in this matter.

Two years ago, the regulator had brought out a report on insurance sub-broking. The report was aimed at indicating the eligibility criteria and responsibilities for this group of insurance distributors. An IRDAI-appointed panel had favoured the appointment of sub-brokers to increase penetration in small towns and rural areas. To register as a sub-broker, a company and its limited liability partner should have paid-up capital of at least Rs 5 lakh, the report said.

Conflicts with existing channels were cited as one of the biggest reasons by insurers and brokers who had opposed this move. Industry officials said there were various challenges to implementing this concept. "Some areas already have business correspondents, common service centres working on insurance. This new channel would only create more confusion," said the head of distribution at a private general insurance company.

A few insurance companies have also been apprehensive that sub-broking would lead to attrition. Insurance brokers would be responsible for the conduct of sub-brokers. They were also not ready to take up this responsibility and liability.

The committee working on sub-broking had said that since brokers are not serving in many parts of our country, to spread the message of insurance, the sub-broking model would enable brokers to spread to areas that haven't been represented so far.

It was proposed the main broker would be responsible for sub-brokers and their sales. The committee had said sub-brokers could carry out business worth Rs 1 lakh a policy; if they accounted for premium of more than Rs 10 crore in two financial years, their status would be upgraded to that of a broker. It was also said sub-brokers could also sell 'combo products', as well as micro-insurance products.

The committee had recommended sub-brokers be allowed to sell all insurance products, except reinsurance. It had said the primary objective of this segment was to offer products from multiple insurance companies to consumers.