Introduction

The 2017-2018 financial year has been eventful for the Indian insurance sector, with several landmark changes being introduced into the insurance regulatory framework. Among others, the Insurance Regulatory and Development Authority of India (IRDAI) issued the IRDAI (Insurance Web Aggregators) Regulations 2017, the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations 2017, the IRDAI (Appointed Actuary) Regulations 2017 and the IRDAI (Protection of Policyholders' Interests) Regulations 2017, to update the existing regulatory framework. The IRDAI also issued the Guidelines on Insurance E-commerce of March 9 2017 and the Guidelines on Information and Cybersecurity for Insurers of April 7 2017, to take into account changes in modes of sales and servicing and address data security threats, respectively.

In the midst of these landmark changes, the IRDAI released an exposure draft for revising the IRDAI (Insurance Brokers) Regulations 2013 for comments from stakeholders. Following various representations made by insurance brokers and other stakeholders, the IRDAI issued the IRDAI (Insurance Brokers) Regulations 2018 to repeal the erstwhile 2013 regulations, bringing changes to the earlier provisions and adding to the existing compliance requirements for insurance brokers.

The key changes introduced by the 2018 regulations are as follows.

Norms for risk management services

The 2018 regulations prescribe the conditions in accordance with which an insurance broker may perform risk management services for commercial risks for a fee. The term 'risk management services' is defined to mean the provision of services such as risk assessment, risk advisory, risk mitigation or risk minimisation for the benefit of a client.

Revised norms for claims consultancy services

Under the 2013 regulations, an insurance broker was permitted to undertake claims consultancy for claims up to Rs10 million. Pursuant to the 2018 regulations, this limit has been increased to Rs100 million. However, insurance brokers are permitted to undertake such claims consultancy with regard to commercial lines of general insurance business. The insurance broker may undertake claims consultancy for a claim exceeding the prescribed limit, with the prior approval of the IRDAI.

Limitations on outsourcing

The new regulations set out express norms with respect to the outsourcing of activities by insurance brokers in India. Insurance brokers are now expressly prohibited from outsourcing their functions listed in the 2018 regulations to third-party service providers. In addition, insurance brokers are prohibited from outsourcing risk management and claims consultancy services, unless the insurance broker does not undertake this activity at all. Every insurance broker must put in place a board-approved outsourcing policy. All outsourcing arrangements where annual payment per outsourcing service provider is Rs1 million or more must be reviewed by the board of directors.

Solicitation of insurance

Every insurance broker must now have a board-approved policy on soliciting insurance policies. The board-approved policy must include, among other things, the approach to be followed by the insurance broker regarding multiple tie ups, types of product sold, modes of solicitation, grievance redressal mechanisms, reporting requirements and any other item with regard to different business segments. This policy must be reviewed every three years.

The 2013 regulations stipulated the norms that an insurance broker must follow to undertake online sale of insurance business. In March 2017 the IRDAI released the E-commerce Guidelines to prescribe the norms for the solicitation and servicing of insurance through an insurance self-network platform (ISNP) of an insurer or insurance intermediary. Further, the IRDAI released the Web Aggregators Regulations, which prescribed additional norms applicable to insurance web aggregators for the sale and servicing of insurance products on the designated website of the insurance web aggregator. Perhaps in order to ensure uniformity, the 2018 regulations stipulate that an insurance broker must comply with the E-commerce Guidelines and the Web Aggregators Regulations, to the extent applicable, with respect to the sale of insurance online by the insurance broker. However, it is still unclear to what extent the Web Aggregators Regulations apply to insurance brokers with regard to the online sale of insurance.

Further, insurance brokers must now comply with the Web Aggregator Regulations with respect to solicitation and procurement of insurance using telemarketing and distance marketing modes. Insurance brokers are permitted to undertake outsourcing activities in the form of telemarketing and distance marketing for insurers.

Remuneration and fees

The 2018 regulations now expressly clarify that an insurance broker is permitted to receive fees for undertaking any of the services provided to the client, as permitted, including claims consultancy, risk management services or other similar services which are not a percentage of premium or claim amounts. These fees are distinct from remuneration that may be earned by the insurance broker for solicitation and procurement of insurance business.

Reinsurance placements

In relation to placement of reinsurance business, the 2018 regulations stipulate that composite and reinsurance brokers must enter into a terms of business agreement with the (re)insurer, setting out the minimum terms as prescribed under the regulations.

Norms for amalgamation and transfer of business

The 2018 regulations set out the procedure for obtaining IRDAI approval for any scheme of amalgamation, merger, acquisition or transfer of business of an insurance broker registered with the IRDAI.

Revised capital and deposit requirements

The 2018 regulations also stipulate the manner for calculating equity capital held by foreign investors and set out the revised minimum capital, net worth and deposit requirements that must be met by a registered insurance broker.

Investments

Despite the various press reports released in 2017 suggesting that foreign direct investment in insurance broking entities will be increased to 100%, per the 2018 regulations, insurance brokers must continue to comply with Indian-owned and controlled guidelines which stipulate that foreign direct investment in, among other things, an insurance broking entity cannot exceed 49%.

In addition, the 2018 regulations now stipulate an additional consideration when an insurance broker applies for a certificate of registration, pursuant to which the IRDAI will take into account whether a foreign investor or Indian promoter of the venture has exited (for any reason and at any time) during the preceding two financial years from the date of application.

The new regulations continue to state that a corporate group will ordinarily be issued only one certificate of registration for insurance intermediation.

Comment

It appears that the new 2018 regulations, while increasing the compliance requirements, have also attempted to some extent to create a level playing field between insurance brokers and insurance web aggregators. Further, by way of the new norms, there is a distinct focus on building better controls and corporate governance.

For further information on this topic please contact Celia Jenkins or Priya Misra at Tuli & Co by telephone (+91 11 4593 4000) or email (celia.jenkins@tuli.co.in or priya.misra@tuli.co.in). The Tuli & Co website can be accessed at www.tuli.co.in.

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