A Complete Guide on the Compliance of Insurance Broker under IRDAI

In the present situation that we are living in, coverage of the information to the authorities is a vital role of any organization or institution. In the insurance business world, the requirement for compliance of insurance broker with the regulations is essential due to the risks involved with it. So, to make sure the better responsibility and transparency in the business of insurance, the compliance of insurance broker is essential. In this blog, we are going to discuss in detail about the compliance of insurance broker.

Who is the Insurance Broker?

An insurance broker is an individual or a person who sell their insurance items or products of various insurance companies to clients. They help the clients in finding the perfect insurance policy as per their requirements and earn a commission based on the number of insurance products sold. Unlike insurance agents, brokers have a massive volume of business as they deal with the insurance products of different insurance companies and not a specific insurance company.

Compliance of Insurance Broker for allowance of Insurance Broker Registration

For the registration of an Insurance Broker License:

1. An insurance broker is required to perform exclusively as authorized in the regulations for carrying on their business;
2. The broker is needed to comply with the IRDA provisions and any other guidelines issued by the authority;
3. The broker should address the complaint of their client within fourteen days of receipt of such complaint and must also notify the authorities about it;
4. An insurance broker is not permitted to commence multi-level marketing for supplication and acquiring insurance products;
5. The broker should obey the code of conduct and is required to maintain books of accounts;
6. It is the duty of an insurance broker to notify the authority in case of any alteration in the information submitted or if any information submitted is deceptive or false;

What are the Capital Requirements for the Insurance Broker License? – Compliance of Insurance Broker

An applicant proposes to become an insurance broker is required to have a minimum paid-up capital:

1. In case of Direct Broker: Rs. 75 lakhs;
2. In case of Reinsurance Broker: Rs. 4 crores;
3. In case of Composite Broker: Rs. 5 crores.

In the case of an entity limited by shares and cooperative society, the capital will be in the form of equity shares. In the case of LLP or Limited Liability Partnership, the contribution from partners would be in cash only, and shares of an insurance broker held as contribution or capital shall not be guaranteed in any way in the case of Limited Liability Partnership or equivalent.

Risk Management Services

1. Insurance brokers can charge customer fees in lieu of their service to the customers for the risk management service or other similar services in accordance with the regulations, and the insurance broker may consider the activity for commercial risks only upon written confirmation from the customer;
2. In the case of shortage of resources and skills from an insurance broker for risk management services, then it may involve external consultants for the same;
3.  Brokers are not allowed to receive compensation and reward under IRDAI Regulation^[1], 2016 and fees for similar risk management services;
4. The broker would be liable for all acts on the area of external experts;
5. The broker must keep all the details regarding the risk management services provided.

Compliance of Insurance Broker regarding the Maintenance of Account Books, Records

The broker is required to maintain the following for each FY or Financial Year:

• P&L Account or Profit and Loss Account;
• Any extra statement on the broking business as per the requirement of the authority;
• Statement of affairs or a balance sheet at the conclusion of each accounting period;
• A statement on fund flow or cash flow direct method.

As per the regulations, the accounts might be maintained on the basis of the financial period, and the accumulation shall be for twelve months.

The insurance broker needs to submit a copy of the audited financial statement with the auditor’s report to the authority. The time for such submission shall be within thirty days after holding a yearly meeting or by 30^th September of every year. If there is any shortage in the auditor’s report, then the broker may, within ninety days from the auditor’s report date, correct such shortages.

The statements, books or accounts, and documents shall be maintained at the head office of the insurance broker or other branch offices. Such documents are available on all working days to the officers of the authority for examination. Such documents will be retained for the time of seven years; however, in case wherein claims are reported and where the court’s decision is pending, such documents should be maintained till the conclusion of cases.

The brokers shall deliver their financial statements concerning the transactions made to it or by it. The auditor is needed to provide a certificate confirming compliance regulations in the format provided in Schedule II-Form UA. The brokers are required to submit the legislative auditor’s details and the audited accounts in accordance with Schedule II-Form V. The broker’s legal auditors will be appointed for a constant period of a maximum of five years.

In the case of remuneration and any other modes of payments to the insurance broker go far the arranged limit, then the insurer can file a certificate as provided in Schedule II-Form W with authority. The insurer’s CEO and CFO should sign it. Another equivalent certificate from the broker’s CFGO and officer should file certifying it in the same form as provided above.

Conclusion for the Compliance of Insurance Broker

Such regulations under the IRDAI (Insurance Regulatory and Development Authority) set the plan for the compliance of insurance broker that should be complied with strictly by the insurance brokers, and non-compliance with it may attract penalties.

Read our article:What are the Benefits of an Insurance Broker License? – An Overview