Standard professional indemnity policy for insurance intermediaries soon; IRDAI committee recommends details

By: |
Updated: January 20, 2021 11:25 AM

An insurance broker or corporate agent/agent, web aggregator or insurance marketing firm etc. are recognised as intermediaries in the insurance industry.

standard insurance productInsurance. Representational image.

A committee set up by IRDAI has recommended the introduction of a standard professional indemnity policy for insurance intermediaries. To protect insurance intermediaries in respect of claims made against them for errors and omissions, the Insurance Regulatory and Development Authority of India (IRDAI) requires them to take professional indemnity cover.

In May last year, the IRDAI had set up a committee for standardization of professional indemnity insurance policy – insurance intermediaries. The committee has submitted its report with recommendations for the preparation of standard professional indemnity policy to cover all the contingencies and conditions (retroactive date, indemnity limits, excess, etc) mentioned in the regulations which can be issued by all insurers.

Who is an insurance intermediary?

An insurance broker or corporate agent/agent, web aggregator or insurance marketing firm etc. are recognised as intermediaries in the insurance industry.

The intermediaries are licensed independent entities representing buyers for insurance. They provide “customer service” to solve various queries of buyers and deal with insurance companies for obtaining the insurance coverage sought by the latter.

The intermediaries receive brokerage/commission from the insurer. Some of them also receive a consulting fee from customers while acting as independent advisors.

The current regulations limit the indemnity between Rs 25 lakh and Rs 100 crore for web aggregators, up to minimum Rs 10 lakh for insurance marketing firms, between Rs 15 lakh and Rs 100 crore for the corporate agent and between Rs 1 to Rs 100 crore for insurance brokers.

ALSO READ | Cashless health insurance claim settlement for Covid-19 treatment: IRDAI issues new instructions

Why is standard policy required for intermediaries?

The committee noted that since the intermediaries are providing a professional service, they require an insurance policy to cover for the financial losses that their clients may suffer because of professional service lapses on their part.

Currently, the IRDAI regulations require insurance intermediary to take professional indemnity policy throughout the validity of the period of the Certificate of Registration issued to them by the regulator. However, the committee observed that the coverage available for brokers varied from insurer to insurer. Private insurers were found having “no appetite for issuing such policies”. Also, there is no standard product for corporate agents, web aggregators and insurance marketing firms.

According to the report of the committee, the “number of claims against the intermediaries seems to be rising. The inadequacy in the policy coverage and non – standardisation of the policy wording has led to many of claims being repudiated.”

Market co-operation agreement required

The committee felt the need to have a market co-operation agreement.

The committee noted that currently, the insurers do not want to get in a situation where non-coverage of a claim scenario notified in the policy of an intermediary leads to loss of business from that intermediary. “This is especially the case for the large brokers, where a conflict of interest situation exists and any friction created between the insurer and the broker due to a claim scenario can cost the insurer on the business front,” This conflict of interest can be addressed by devising a market agreement plan, the committee said.

The committee has devised a standard wording for all intermediaries addressing the issue of non-availability of profession indemnity wordings in the market.

ALSO READ | Term Plan: 10-year delay in buying costs a 35-year-old 70% more, says India’s first insurance price index

Currently, major reinsurance treaties exclude PI policies for top brokers. The committee said that this challenge can be resolved by providing “facultative reinsurance capacity for this coverage either by General Insurance Corporation of India or with discussion with other Foreign Reinsurance Branches (FRB) operating in India, since they can create a spread on a global level and have more experience in underwriting these risks.”

To address the pricing problem, the committee said it may be made “mandatory for all intermediaries to publish records of such professional indemnity related issues which they may have faced from customers in the past 5 years. A repository holding such data will be extremely valuable for underwriters across insurers to assess this risk better.”

The committee also recommended that the retroactive date should be from the date of payment of premium if there is a continuous renewal. However, if there is a break in insurance, the revised retroactive date will be from the policy start date from which there is a continuous renewal.

IRDAI has put the report of the committee in the public domain for all stakeholders to give their feedback on or before 7th February 2021.

Do you know What is ? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Life Insurance: Data analytics for customised solutions
2Planning to buy Ola electric scooter? Know what insurance policy you should buy for all-round protection
3ICICI Lombard, Dr Reddy’s wellness arm tie up for cashless outpatient services to policyholders