Mumbai, April 5: The Insurance Regulatory and Development Authority (IRDA)is planning to restrict foreign insurance brokers to a minority stake ofupto 49 per cent in domestic joint ventures. The regulatory body, which isexpected to announce its draft guidelines for the insurance brokers nextweek, is likely to peg the capital requirement for a broking firm at Rs 25lakh. The capital requirement may be higher, around Rs 50 lakh, forcomposite brokers who want to do business in all segments-life, non-life andreinsurance broking.Though the Government has allowed only 26 per cent foreign participation indomestic insurance venture, the limit will be higher for insurancebrokerages. Foreign brokers had strongly lobbied for being allowed a 100 percent stake or at least a majority stake, but this is unlikely to beaccepted. The IRDA apparently feels that giving foreign brokers acontrolling interest in domestic joint ventures would stifle the growth ofthe domestic broking business.
Currently, the law does not permit the operation of broking firms in thedomestic insurance business, except for transacting reinsurance deals forlocal non-life companies.The IRDA Act, however, provides for opening upbroking services in both the life and non-life segments.
Insurance industry sources feel that there is a massive potential fordomestic broking business as this will be one way of improving linkagesbetween the customer and the insurance company. It is anticipated that therewill be a mad rush to undertake insurance broking, particularly in the lifesegment, where the annual premiums collected exceed Rs 22,000 crore.
The total non-life premium is pegged at around Rs 10,000 crore annually. TheIRDA 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 thewings to set up operations in the country.
The only prominent domestic brokerage firms (which are undertakingreinsurance deals only) are Bodas, Global Insurance, InternationalReinsurance and Insurance company, and Tower Reinsurance. They are likely tobe joined by big corporate groups like Reliance, Essar, Tatas and Birlas,who run up huge annual insurance bills and may therefore float joint venturebrokerages with international firms. Apart from the fact that they can cutdown their insurance costs by routing insurance deals through their ownbroking firms, they can additionally exploit their brandnames to provideservices to other companies.
``This may be the new trend in the domestic insurance broking business ,''said a top IRDA official.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.