BackDid you know: Who are insurance agents and brokers
Agents are not accountable to you, but the insurer who appointed the agent is and is also responsible for the agent
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One usually buys an insurance policy with the help of an agent or a broker, but did you know the difference between the two?
Insurance agent
This is a person who represents the interests of an insurer. Since an insurer can’t reach out to all customers individually, it hires agents to do this job. Agents are trained and licenced individuals, and as per the rules, can only represent one insurer from a sector. This means that an agent can sell policies of only one life, one non-life and one health insurance company.
A corporate agent is an entity, such as a bank, that represents an insurer, but instead of a tied model it has an open architecture.
Open architecture allows corporate agents to sell policies of multiple insurers. Corporate agents can sell policies of up to three insurers in the same line of business.
Insurance broker
A broker represents the interest of the customer. A broker can have multiple tie-ups with insurance companies but its mandate is to represent the customers. So, it has a fiduciary responsibility towards the customer.
Accountability
Agents are not accountable to you, but the insurer who appointed the agent is and is also responsible for the agent. The Insurance Amendment Act of 2015 says that insurers will be responsible for all the acts and omissions of their agents and that they shall be liable to a penalty of up to Rs1 crore for such acts and omissions of their agents. Corporate agents don’t come under this purview and are directly regulated by the Insurance Regulatory and Development Authority of India (Irdai).
The insurance broker on the other hand is directly accountable to you and you can take your broker to court or to Irdai .
Commissions
The commission structure is under review, but currently for life insurance, these are linked to the premium payment term.
In the case of agents, for regular premium plans, the first-year commission is capped at 35% if the insurer is at least 10 years old. Subsequently, the limit is 7.5% and 5% from the fourth year. For brokers, the first-year cap is 30% and 5%, subsequently.
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