Sanjana Singh, a mother of a newly born, wanted to buy an insurance policy for her kid. She tried searching on the Web, but with so many players in the market, her search turned out to be more agonising than educative.
Her friends and relatives could not help her zero in on any policy either, as every person had a different story to tell. Sounds familiar? Well, it is.
Almost every other person trying to buy an insurance policy would relate to Sanjana. So, what's the simplest option in this case? Contact an insurance broker. Such a broker can be of three types -- direct, reinsurance and composite.
A direct insurance broker can, in turn, be for life insurance, or general, or both. The job profile of a direct insurance broker involves getting detailed information on the client's needs so that he can explain the same properly to the insurance company.
He has to keep track of the insurance markets so that he may be able to give the client proper advice regarding the insurance cover, pricing terms etc.
The broker also has provide the client with services such as insurance consultancy, negotiation for claims, keeping proper records of claims and risk management.
A reinsurance broker, on the other hand, renders advice on the reinsurance covers available in the international insurance and reinsurance markets.
A broker can also function as a composite broker, that is he is both a direct and a reinsurance broker. But, are insurance brokers qualified to give such advice? Yes, registered insurance brokers are.
The Insurance Regulatory and Development Authority has stipulated certain conditions in this regard.
Now, how much does a customer require to pay for the services of an insurance broker? Nothing. The broker gets paid by the insurance company from which the client takes the policy.
According to the Irda, for a general insurance broker this can go up to 12.5 per cent of the final premium for tariff business based on the paid-up capital of the client. For motor and other statutory insurance like public liability insurance, the compensation is limited to 10 per cent.
On non-tariff products, the broker can get a compensation of up to 17.5 per cent.
So, for instance, a broker, who gets an annual premium of Rs 1,00,000 from a client for a motor insurance policy, can get a compensation of Rs 8,750 (10 per cent of the final premium, i.e. Rs 1,00,000 - service tax of Rs 12,500) from the insurance company.
In the case of life insurance, the percentages differ based on whether it is individual, group or annuity scheme. For instance, in individual life insurance business, the compensation is 30 per cent of the first year's premium and 5 per cent of each renewal premium. For reinsurance business, the rates differ as per the market trends.
A broker licence lasts for three years; he has to undergo another 25 hours of training for renewing his licence. It won't be out of place to note that the Irda on October 19, 2005 issued 312 insurance broker licences in the country.