Difference between a reinsurance and a direct insurance broker

DIFFERENCE BETWEEN A REINSURANCE AND A DIRECT INSURANCE BROKER By registrationwala 2.0 - December 22, 2021

Insurance Broker Licenses allow three types of insurance brokers to emerge: the direct insurance brokers, the reinsurance brokers, and the composite insurance brokers. Direct brokers are intermediaries between insurance companies and those who need insurance policies. On the other hand, a reinsurance broker intermediates between a reinsurance company and a reinsurance entity. This article is here to help you distinguish between these two insurance entities in India.

What is an Insurance Broker?

An Insurance broker is an insurance entity intermediating between two entities.

Depending upon the nature of those entities, there are three types of brokers; 1. Direct brokers that act as medians between the insurer and the insured 2. Reinsurance brokers that intermediate between a reinsurer and an insured 3. Composite brokers combine the aspects of Direct and reinsurance brokers Even though they need the same insurance broking license, these insurance brokers perform different tasks.

Thus, this article is going to distinguish between these two entities. After reading it, you can decide which type of insurance broker you want to become.

What is a Direct Insurance Broker?

A Direct Insurance Broker is the one that directly intervenes between an insurance company and an insurance customer. They act on behalf of insurance customers and provide them services such as: 1. Simplifying the terms of the insurance policies for the customer 2. Advising the customer about which insurance policy to purchase 3. Acting on behalf of insurance customers to negotiate the terms of insurance policies 4. Assisting during the time of claiming the insured amount 5. Helping the insurance customers pay their insurance premiums 6. Aiding the customers to establish their online insurance accounts The Insurance Regulatory Development of Authority of India has divided the Direct Insurance brokers into four types: 1. Life Insurance Brokers that deal with life insurance policies 2. Health insurance brokers that solicit in health insurance policies 3. General insurance brokers provide General insurance services, and 4. Composite insurance brokers whose services are an amalgam of life, General, and health insurance policies.

Direct insurance brokers are insured-centric service providers. Their clients are customers in need of insurance policies.

What is a Reinsurance Broker?

A Reinsurance broker is an insurance entity that intermediates between an insurance company and a reinsurance company. The services it provides are:

1. Advising the insurance companies about which reinsurance covers suit their requirements 2. Providing Risk management services to the insurer 3. Negotiating the reinsurance claims on behalf of the insurance companies 4. Conducting thorough market research and selecting the best reinsurance covers for their clients 5. Rendering PLA or Preliminary Loss Advise to their clients 6. Aiding the insurance companies in case of commutation of insurance contacts For a reinsurance broker, the insurance company is the client.

Based on the above functions, we can establish differences between the two variants of insurance brokers.

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Differences between a direct and a reinsurance broker Let us now dive into the factors that differentiate a direct insurance broker from a reinsurance broker:

Clients: 1. Direct Insurance Broker: An insurance customer is a client for a Direct Insurance Broker.

2. Reinsurance broker: An insurance company is the client of a Reinsurance broker.

Services: 1. Direct Insurance Broker: A direct insurance broker solicits insurance policies 2. Reinsurance Broker: Reinsurance brokers deal in reinsurance policies.

Other differentiating factors As per the regulations of IRDA about Insurance Broker License in India, the following are the financial differences between a direct and a reinsurance broker:

Paid Up capital Requirements 1. Direct Insurance Brokers: Companies providing direct insurance brokering services must meet the paid-up capital requirement of INR 75 Lakhs 2. Reinsurance Brokers: Business entities rendering reinsurance brokering services must meet the paid-up capital requirement of INR 4 Crores.

Networth Requirements 1. Direct Insurance Brokers: Entities with Direct insurance broker licenses must have a net worth of at least 50 lakh rupees.

2. Reinsurance Brokers: Companies that are reinsurance brokers must have a net worth equal to 50 percent of paid-up capital

Deposit Requirements Other than the standard Insurance broker license fees in India, applicants of the license must also submit a deposit that varies depending upon the type of insurance services they provide: 1. Direct Insurance Brokers: They have to deposit INR 10 lakhs.

2. Reinsurance Brokers: Entities that are reinsurance brokers must deposit 10% of their paid-up capital.

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Conclusion These are all the differences existing between a direct and a reinsurance broker. Call our experts if you wish to know more about these insurance entities. We will remove any doubts you might have about these insurance entities.