The Chennai-based Ashok Leyland Finance part of the Hinduja group has floated a 100 per cent owned insurance broking subsidiary.
Alfin Insurance Services Pvt Ltd, the insurance broking company with a capital of Rs 50 lakh (Rs 5 million), is expected to receive IRDA sanction to start operations by December.
S Nagarajan, managing director, Ashok Leyland Finance said, "We have applied for a license for Alfin Insurance Services to the IRDA and clearance from the regulator for the broking license is expected by December."
"In our first year we will offer our broking services to cover commercial vehicles of only Ashok Leyland. We will leverage the 600 branches of ALF to offer this service," Nagarajan said.
Nagarajan pointed out that the problem regarding the 5 per cent special discount given to companies that deal directly with insurance companies was under the scrutiny of the IRDA and was expected to be solved soon.
N Rangachary, former chairman, IRDA, to provide incentives to the fledging broking industry cancelled the five per cent special discount given to companies that directly approached the insurance companies for insurance cover.
If the companies approached a broking firm for insurance cover, broking firms will be able to advice the company on an appropriate insurance cover.
For this value added service the firm would be remunerated a 12.5 per cent commission by the insurance companies.
The public sector corporates made a representation to the Irda that by involving a broker the companies would pay an extra 7.5 per cent commission to the broker.
Now insurance companies can either pay a 5 per cent special discount to the corporates (clients) or pay a brokerage of 12.5 per cent to the broking firm but not both.
With C S Rao taking over the chairmanship of IRDA the earlier order of Rangachary has been kept under abeyance.
An expert committee has been formed to solve the problem of the 5 per cent special discount.
Unlike banks or NBFCs that sell only a single insurance company's product, broking firms have a gamut of insurance products from different insurance companies and can provide advice on the right choice of insurance policies to be taken by companies.
The required minimum capital for setting-up a broking company stipulated by IRDA is Rs 50 lakh (Rs 5 million).