IRDAI has issued a circular in which it has eased the penalty norms against erring insurance brokers. The insurance regulator said that imposition of penal action is not the solution to ensure compliance; instead, a graded approach may work well.
In the circular, IRDAI has said, “Based on the experience gained over the last six years and given the fact that the new regulations have been notified, there is a need to revise the approach to be followed in case of non-compliance of Broker Regulations by the broking companies. The objectives behind the approach are two-fold namely - to encourage good behaviour and foster better compliance of the regulations by the insurance brokers and simplify the application of penalties in case of non-compliance/ violation of regulations.”
To start with, IRDAI will issue a warning to the erring broker on violating the distribution norms for the first time. Earlier, such brokers (first time violators) were not allowed to solicit new business for two months.
Similarly, on the second violation, the insurance regulator will stop the erring brokers from soliciting new business till the time of rectification. However, IRDAI has given a timeframe of four months to rectify such violations. Hitherto, brokers were not allowed to solicit new business for a period of four months.
On the third or final violation, IRDAI will continue to cancel the insurance broking license. However, such brokers can start a new business after six months of cancellation of license.
Meanwhile, IRDAI has clarified that it will straightaway cancel the broking license if the broker has committed serious violations. Also, if such a broker is found to financially benefit from these violations, it will be set off by imposing penal action, added the IRDAI.