Initially, individual agents can sell insurance policies of two life insurers, two general insurers and two health insurers.
Insurance agents can now sell multiple insurance products of life, non-life and general insurance companies providing a wider choice to investors, states IRDAI guidelines on Insurance Marketing Firm (IMF).
To begin with, IRDAI has allowed distributors to sell insurance policies of two life, two general and two health insurance companies.
In addition, agents can also sell other financial products like mutual funds and pension products by floating an IMF, subject to respective regulatory approval.
Earlier, a committee headed by a former chairman of LIC, NM Govardhan had recommended IRDA to develop IMF in order to increase penetration of insurance in the country. In January, IRDA had set up a working group with five members, each from life and non-life insurance companies and IRDA member to explore the possibility of developing IMF. Later in April 2014, the regulator had come out with the draft regulation on IMF.
Structure: The structure of IMF involves principal officer who will be the executive head and responsible for regulatory compliance and administrative work, insurance sales person for solicitation of insurance policies and financial service executive for carrying out advisory and sales of other financial products like mutual funds and pension products of PFRDA.
IMF could be set up by an individual or joint venture. However, foreign partner can invest up to 49% under joint venture mode.
Net worth: IMF should maintain a net worth Rs.10 lakh for floating its distribution business. Initially, the license will be issued for three years which can be renewed 90 days prior to expiry.
Liability Insurance: IMF will be required to possess professional indemnity insurance cover of at least Rs.10 lakh.
Remuneration: Apart from commissions from sale of insurance policies, IMF can charge a fee for other expenses like expenses incurred on training, mentoring of sales persons and marketing activities. The regulator has clarified that the fee for carrying out these facilities should be based on mutual agreement between insurers and IMF. However, such payouts should not exceed 50% of first year commission and 10% of renewal commission. Cafemutual was the first to report that IMF may charge for expenses incurred on marketing and infrastructure. In addition, IMF can charge service charge from other financial institutions.
How IMF is different from insurance broking model which too has a multiple tie-up model: As of now, the insurance broking model allows multiple tie-ups with insurance companies. However, many brokers don’t prefer to sell life insurance to retail customers as it entails heavy marketing expenses. Instead, they focus on selling large ticket non-life products like group health insurance, motor insurance, liability insurance etc. to corporates. Also, both agency and broking regulation do not allow distribution channels to recover marketing expenses from insurers.
Can an insurance agent migrate to IMF to sell multiple policies: IRDA has clarified that insurance agents are not eligible to join IMF. However, if an individual agent surrenders his/her agency license and acquires IMF license by qualifying an exam, he/she can float an IMF.
Though the insurance regulator has put a limit on tie ups with insurers currently, IRDAI may increase such limits in future. This is a first step towards transitioning to an open architecture model. Distributor community will surely welcome this move.
Click here to go through the complete regulation.