While capping foreign investment in insurance broking firms at 26 per cent, the Insurance Regulatory and Development Authority (IRDA) has prescribed a minimum capital requirement of Rs 50 lakh for direct brokers, only for life and non-life business, Rs 2 crore for reinsurance brokers, and Rs 2.5 crore for composite brokers, both direct and reinsurance business. The regulator has also issued the guidelines for corporate agents.
In the guidelines for insurance brokers, to be notified in the next few days, IRDA has also stipulated that a brokerage firm cannot receive more than 50 per cent of the premium in the first year of business from a single client. In the second year, business from one client is capped at 40 per cent of the premium and from the third year onwards the limit is 30 per cent.
The client, as defined by the insurance regulator, includes an associate or a subsidiary or a group concern under the same management.
IRDA has also decided against putting any restrictions on the remuneration paid to reinsurance brokers and has left it to the prevalent market practices.
It has, however, capped the remuneration in case of general insurance business at 10 per cent for tariff products that are compulsory under a law, like in case of motor insurance, and 12.5 per cent in case of other regulated business.
For non-tariff products, the remuneration has been capped at 17.5 per cent on direct business.
The regulator has also stipulated that every insurance broker, before the commencement of his business, deposit at least 20 per cent of the initial capital in fixed deposits with a scheduled commercial bank. In addition, IRDA can impose a separate limit of deposit, which cannot exceed Rs 1 crore. IRDA has also prescribed a code of conduct as in the case of agents.
While any company, bank, regional rural bank, co-operative society, panchayat or a local authority; non-governmental organisation or a micro-lending finance organisation, non-banking financial company (NBFC) can become corporate agents, in case of brokerage outfits, banks and NBFCs cannot float brokerage entities.
For corporate agents, IRDA has prescribed practical training requirements. The agents also need to clear the exam conducted by the Insurance Institute of India, Mumbai, or other examination bodies recognised by the insurance regulator.
