)
The final guidelines for the implementation of sub-broking, mooted by the Insurance Regulatory and Development Authority (Irda), were likely to be delayed, as various companies had raised objections to it, said a source privy to the development.
In insurance parlance, a sub-broker refers to a person who isn't a licensed broker, but acts on behalf of one. An Irda report had said a sub-broker would have to apply for a license through the main broker.
In February, Irda had brought out its final report on insurance sub-broking. The report was aimed at indicating the eligibility criteria and responsibilities for this group of insurance distributors. An Irda-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.
Industry officials said there were various challenges to implementing this concept. A senior official of an insurance broking firm said though customers from rural areas would gain, sub-brokers could find themselves in a conflict with the existing channels in those areas. “There would be regulatory and legal challenges to its implementation,” the official added.
A few insurance companies are apprehensive sub-broking would lead to attrition. The senior director at a state-owned insurance company said it was feared agents of that company could become sub-brokers. Since brokers would be responsible for the conduct of sub-brokers, they were concerned, the official said.
“Brokers are not serving in many parts of our country. Therefore, to spread the message of insurance, this committee feels the sub-broking model would enable brokers to spread to areas that haven’t been represented so far,” the Irda committee had said in its report. The committee had 11 members from Irda’s life and general insurance councils.
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.
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.
In its report, Irda had said the increase in broking penetration not only addressed customers’ interests, but also reduced costs for insurance companies, while developing insurance broking distribution.
