The Insurance sector in India has recently witnessed path-breaking reforms. Keeping the momentum intact and with the intent to innovate distribution models the Insurance Regulatory and Development Authority of India (the IRDA) has issued the IRDA (Registration of Insurance Marketing Firm) Regulations, 2015 (the IMF Regulations). The IMF Regulations provide a much needed transition for insurance distribution to a platform which can distribute multiple financial products, in addition to insurance products, through licensed/certified personnel.

This Ergo Newsflash sets out the key features of the IMF Regulations.

Key Changes

  1.  What is an ‘Insurance Marketing Firm’?

The IMF Regulations define an Insurance Marketing Firm (IMF) as an entity registered with the Authority to:

  • Solicit or procure insurance products;
  • Undertake insurance service activities; and
  • Distribute other financial products.

Further details relating to these activities have been discussed at paragraph 4 below.

A company incorporated in India, a registered limited liability partnership, registered co-operative societies and any other person as recognized by IRDA from time to time.

Foreign Direct Investment of up to 49% is permitted.

  1. How many insurance companies can an IMF engage with: IMFs are permitted to engage certified Insurance Sales Person for the purpose of soliciting and procuring insurance products of two life insurance companies, two general insurance companies and two health insurance companies at any point of time, under intimation to the IRDA.
  2. IMFs to engage certified/licensed individuals: IMFs can only solicit and procure insurance products through an Insurance Sales Person (ISP) who has to be certified by the IRDA after an examination process prescribed under the IMF Regulations. Further, any sale of financial products also has to be only through a Financial Services Executive (FSE) holding a valid license with the respective financial regulators, other than IRDA. IMFs also need to have a ‘Principal Officer’ who has to fit the eligibility criteria and take the prescribed training.
  3. What are the “Permitted Activities” for an IMF: The following are the permitted activities that IMFs may undertake:
    1. Insurance Companies: IMFs can solicit and procure insurance products (through an Insurance Sales Person) of only two life insurance companies, two general insurance companies and two health insurance companies at any point of time. In relation to general insurance, IMFs are only allowed to solicit or procure only retail lines of insurance products.
    2. Insurance Service Activities: IMFs can engage in insurance service activities only for such insurers with whom they are tied up at the relevant time. The permitted services an IMF can provide are (a) the back-office activities of insurers, subject to the outsourcing guidelines, (b) becoming approved persons of Insurance Repositories, (c) undertaking surveys and (d) conducting loss assessments by employing licensed surveyors.
    3. Marketing of other Financial Products: IMFs can engage a Financial Services Executive to market SEBI regulated mutual funds, PFRDA regulated pension products, banking and financial products of NBFCs, financial products distributed by SEBI licensed Investment Advisors and non-insurance products offered by Department of Posts, Government of India.
  4. Area/Jurisdiction Specific Registration: In the application for registration, the applicant has to identify the geographical area (i.e. district) for which it is requesting for a registration, which must be approved by the IRDA even though an IMF is free to solicit or procure insurance business from all over the country. The ISPs employed have to be domiciled in the approved area. At the initial grant of registration the IMF is permitted to set up offices only in one district of its choice. The IMF is also permitted to file for multiple areas while filing the application for renewal. This is a peculiar provision which makes the operations of an IMF area/jurisdiction specific and somewhat curtails the freedom to operate.
  5. Remuneration to IMFs: The insurer has to make all remuneration for soliciting and procuring insurance policies undertaken by an IMF, to the concerned IMF only, and not to any other person or entity. The remuneration payable has to be as per the regulations prescribed by IRDA under Sections 40(1) and 40(2) of the Insurance Act, 1938. There are specific provisions in the IMF Regulations regarding the remuneration to be paid to ISPs and FSEs.

Khaitan Comment

The existing IRDA-recognized models of distribution like corporate agents and individual insurance agents were specific to only one life insurance company, one general insurance company and one health insurance company, or else, the IRDA permitted multiple insurer tie-ups, like brokers. With IMFs having the ability to tie up with two insurers in each line of business, it is a refreshing reform. The IRDA licensed distribution models didn’t specifically permit the sale of other financial products which again is a welcome change. The limitations insofar as registration being limited to a specific area and ISPs to be domiciled in that approved area do restrict the freedom to operate to some extent. However, like all other IRDA distribution models even IMFs will evolve in the coming days and we will wait and watch for more clarity in terms of the area/jurisdiction specific provisions.