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Home / IRDA Update 

Foriegn insurance brokers to be allowed 49% JVs stake

Mumbai: The Insurance Regulatory and Development Authority (IRDA)is planning to restrict foreign insurance brokers to a minority stake of up to 49 per cent in domestic joint ventures.

The regulatory body, which is expected to announce its draft guidelines for the insurance brokers next week, is likely to peg the capital requirement for a broking firm at Rs.25 lakh. The capital requirement may be higher, around Rs.50 lakh, for composite brokers who want to do business in all segments-life, non-life and reinsurance broking.

Though the Government has allowed only 26 per cent foreign participation in domestic insurance venture, the limit will be higher for insurance brokerages. Foreign brokers had strongly lobbied for being allowed a 100 percent stake or at least a majority stake, but this is unlikely to be accepted.

The IRDA apparently feels that giving foreign brokers a controlling interest in domestic joint ventures would stifle the growth of the domestic broking business. Currently, the law does not permit the operation of broking firms in the domestic insurance business, except for transacting reinsurance deals for local non-life companies.

The IRDA Act, however, provides for opening up broking services in both the life and non-life segments. Insurance industry sources feel that there is a massive potential for domestic broking business as this will be one way of improving linkages between the customer and the insurance company. It is anticipated that there will be a mad rush to undertake insurance broking, particularly in the life segment, where the annual premiums collected exceed Rs.22,000 crores.

The total non-life premium is pegged at around Rs.10,000 crores annually. The IRDA is expected to regulate the commissions by prescribing a maximum (perhaps around 15 per cent) limit for brokerage.

Big international insurance broking firms like Aeon, Willis, Vitasia, Jardine Insurance, and Chubb Reinsurance, among others are waiting in the wings to set up operations in the country.

The only prominent domestic brokerage firms (which are undertaking reinsurance deals only) are Bodas, Global Insurance, International Reinsurance and Insurance Company and Tower Reinsurance. They are likely to be joined by big corporate groups like Reliance, Essar, Tatas and Birlas, who run up huge annual insurance bills and may therefore float joint venture brokerages with international firms.

Apart from the fact that they can cut down their insurance costs by routing insurance deals through their own broking firms, they can additionally exploit their brand names to provide services to other companies. "This may be the new trend in the domestic insurance broking business" said a top IRDA official

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