April 2015
Draft IRDAI (Registration of Corporate Agents)
Regulations, 2015 issued
Draft IRDAI (Registration of Corporate Agents) Regulations, 2015
issued
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Introduction
Contents
The Insurance Regulatory and Development Authority of India (“IRDAI”)
has issued the draft IRDAI (Registration of Corporate Agents)
Regulations, 2015 (“Draft Regulations”). The Draft Regulations reflect
a significant change in the structure of the corporate agency model and
suggest a move to an “open architecture” model from the current,
“exclusive” and ‘tied agency’ model. If implemented, this will have a
significant impact on existing corporate agency arrangements in India,
and bancassurance arrangements in particular, whose commercial
terms reflected the ‘exclusive’ model.
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Introduction ................ 1
2
The Draft Regulations 1
3
Implications ............... 3
The Draft Regulations have been issued pursuant to the Insurance
Laws (Amendment) Act, 2015 pursuant to which corporate agents have
been brought within the ambit of ‘insurance intermediaries’ under the
Insurance Act, 1938, thereby making them subject to more direct
regulation and control by the IRDAI.
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The Draft Regulations
Some of the key changes introduced in the Draft Regulations are set
out below
(a)
Categories
Corporate agents will be granted registration under four
categories – life, general, health and composite. A corporate
agent who procures a composite license can solicit and service
insurance business for life insurers, general insurers and health
insurers, or a combination of any two categories of insurers,
subject to a maximum of three insurers in each category.
(b)
Cap on business
Limitations have been placed on the amount of insurance a
corporate agent can place with a single insurer. This limit will
apply on a reducing basis with 90% permitted in the first year,
75% in the second year, 60% in the third year and 50% from
the fourth year onwards. A corporate agent will have to thus tie
Draft IRDAI (Registration of Corporate Agents) Regulations, 2015 issued
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up with at least two insurers in the first year itself. Exclusive
agency relationships will therefore not be possible.
(c)
Professional indemnity insurance
A corporate agent has to procure professional indemnity
insurance for an amount which is the greater of 15 lakhs or two
times the annual remuneration the corporate agent derives
from its insurance business. This obligation is similar to that
imposed on insurance brokers.
(d)
Upfront Fees
The Draft Regulations reiterate that an agent can only be paid
the permitted fees in accordance with the regulations and
cannot be paid any other amounts or charges including as
“signing fees”. The express prohibition on payment of ‘signing
fees’, introduced in the Draft Regulations, appears to be a
response to the prevailing market practice on structuring fee
arrangements.
(e)
Corporate agency agreements
The Draft Regulations prescribe that no insurer can compel,
and no corporate agent can promise, an insurer to distribute the
products of that insurer alone. Since exclusive distribution is the
premise on which existing corporate agency agreements have
been entered into, most corporate agency agreements included
such an express obligation on the corporate agent to promote
and exclusively distribute the products of that insurer. These
agreements will all therefore have to be amended to comply
with the requirements in the new regulations.
(f)
Registration
The Draft Regulations require a corporate agent to directly
approach the IRDAI to procure a corporate agency license (this
is currently done through the insurer) and corporate agents
will also be required to comply with additional disclosure and
record keeping obligations – for example maintaining details of
customer complaints and redressing them, keeping records of
customer KYC etc.
(g)
Telemarketers
Additional conditions have been prescribed in relation to
engaging telemarketers. Significantly, a telemarketer engaged
by a corporate agent cannot be engaged with any other insurer
or insurance related entity. A telemarketer can make outbound
calls only if a person has shown interest in buying an insurance
policy by making enquiries. The Draft Regulations have also
prescribed the matters that must be addressed in the
agreement between a telemarketer and a corporate agent, and
Draft IRDAI (Registration of Corporate Agents) Regulations, 2015 issued
specifies that details relating to the source of database of a
telemarketer must also be included in the agreement with the
corporate agent.
(h)
Effect on existing agency licenses
Corporate agents granted licenses under the extant IRDAI
(Licensing of Corporate Agents) Regulations, 2002 have the
option to either continue with their existing license until its
expiry or for a period of six months from the date of notification
of the regulations, whichever is earlier, or surrender their
license immediately upon the regulations becoming effective
and register themselves under the new regulations.
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Implications
If implemented in this form, these Draft Regulations will have different
implications for different players in the insurance market.
(a)
Customers
The immediate beneficiaries of these new regulations would be
customers, who will have more options in the insurance
products offered to them by their corporate agent, usually their
bank.
(b)
Insurers
Non bank promoted insurers, and insurers who haven’t yet
entered into bancassurance relationships will also benefit since
they will once again have access to the bancassurance
distribution channel (considered to be one of the most effective
distribution channels) which was saturated with most banks
having entered into exclusive, and often long term corporate
agency agreements, with insurance companies. The
requirement to tie up with at least 2 insurers, in the first year
itself, will result in banks looking to partner with insurers.
(c)
Bank promoted insurers
The new regulations will however have a detrimental impact on
those
bancassurance
relationships
where
significant
investments were made to enter into those exclusive
relationships. These investments could have been in the form
of equity granted to banks in the insurance company at a
discounted cost or through other arrangements. Banks with
equity investments in insurers will also have to consider conflict
issues as they start selling insurance products of other insurers.
Draft IRDAI (Registration of Corporate Agents) Regulations, 2015 issued
Contacts
(d)
Corporate Agents
For further information please contact:
The Draft Regulations will impose additional obligations on
corporate agents with respect to customers and policyholders
and increase the disclosures required to be made by
corporate agents. Corporate agents are also required to
procure professional indemnity insurance. Given that most
corporate agents undertake insurance distribution as an
ancillary business, this imposes additional cost and
regulatory burden on them which may make corporate
agency as a business less attractive.
Linklaters
Savi Hebbur
Partner, London
(+44) 207 456 3388
[email protected]
Sushil Jacob
Managing Associate, London
(+44) 207 456 2031
[email protected]
Please click here for a copy of the Draft Regulations.
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TT&A
Kunal Thakore
Partner, Mumbai
(+91) 22 6613 6961
[email protected]
Deepa Christopher
Managing Associate, Mumbai
(+91) 22 6613 6943
[email protected]
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Draft IRDAI (Registration of Corporate Agents) Regulations, 2015 issued
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