Insurance brokers have been regulated for over 16 years in India, with the regulations governing insurance brokers being introduced in 2002 by the Insurance Regulatory and Development Authority of India. The IRDA (Insurance Brokers) Regulations 2002 (2002 Regulations) primarily stipulated the norms for solicitation and procurement of insurance, physically, by the employees of the insurance broker. As at the time that the 2002 Regulations were introduced there was very limited solicitation and procurement of insurance business online or through other means of distance marketing, the 2002 Regulations did not address these forms of marketing.
With the advent of new technology and increase in the popularity of e-commerce, it became imperative for the regulatory framework to be updated to allow for the sale and servicing of insurance online by insurance intermediaries. The first step was the introduction of the IRDAI's Guidelines on Distance Marketing of Insurance Products of 5th April 2011. Subsequently, the IRDAI introduced a new channel, ie, a web aggregator, as a specific channel for the solicitation of insurance products online. The IRDAI notified the "Guidelines on Web Aggregators" of 21st November 2011 (2011 Guidelines) to regulate the setting up and operation of insurance web aggregators. A web aggregator registered under the 2011 Guidelines was permitted to display product comparisons on its website and transmit leads to Insurers as well as insurance brokers, with which it had an agreement, for a fixed fee, as set out under the 2011 Guidelines.
In 2013, however, a need was felt to establish web aggregators as an independent channel of insurance intermediation. The IRDAI therefore, released the IRDA (Web Aggregator) Regulations 2013 (2013 WA Regulations) to replace the 2011 Guidelines, and recognise insurance web aggregators as an independent insurance intermediation channel that would solicit and procure insurance online on behalf of Insurers. At around the same time, the IRDAI replaced the 2002 Regulations for insurance brokers with the IRDA (Insurance Brokers) Regulations 2013 (2013 Brokers Regulations). The 2013 Brokers Regulations now allowed insurance brokers to themselves solicit and procure insurance online and in this regard, specified the norms that would have to be followed by an insurance broker for the same.
There remained, however, clear distinctions in the scope of activities that could be undertaken by an insurance broker and a web aggregator and both the channels had a distinct set of activities and, therefore, revenue sources. For example, an insurance broker was permitted to undertake solicitation through online and offline mode, ie, both electronic and physical solicitation of insurance. On the other hand, while an insurance web aggregator was permitted to undertake only online or other distance marketing forms of solicitation, it was also allowed to perform certain activities for Insurers, on an outsourced basis that an insurance broker was not permitted to undertake. The activities included:
- Premium collection, including printing and dispatch of premium reminders/ other reminders;
- Policy services, such receiving requests in physical/electronic/telephonic forms from clients and transmitting to the Insurer without accessing the original database of the Insurers.
Further, an insurance web aggregator was allowed to charge a fee for display of a product online, which an insurance broker was expressly prohibited from charging.
With e-commerce gaining popularity and increase in the security threats in relation to online transactions, there was an increased need for a uniform framework to be put in place to govern the online solicitation and servicing of insurance by the market participants. The IRDAI, therefore, issued the "Guidelines on insurance e-commerce" of 9th March 2017 (e-commerce Guidelines) to regulate the setting up and operation of an ISNP set up by the market participants (including both insurance brokers and web aggregators).
Soon after, the IRDAI also released the IRDAI (Insurance Web Aggregator) Regulations 2017 (WA Regulations) to replace the 2013 WA Regulations. While the WA Regulations continued to allow an insurance web aggregator to undertake outsourcing activities for an Insurer, the erstwhile list of outsourcing activities as set out under the 2013 WA Regulations did not find place under the WA Regulations, and the new regulations provided that web aggregators shall be permitted to undertake outsourcing activities only through tele-marketing and distance marketing modes. It is relevant to note that the WA Regulations continue to remain silent on physical solicitation of insurance by web aggregators.
At the beginning of this year, IRDAI released the IRDAI (Insurance Brokers) Regulations 2018 (Brokers Regulations) to revise the norms governing the setting up and operations of an insurance broker in India. The Brokers Regulations have introduced a myriad of changes which, to a great extent, appear to bring parity between the norms applicable to insurance brokers and web aggregators, particularly with respect to solicitation over online and telemarketing/distance marketing modes. The Brokers Regulations now specifically allow insurance brokers to perform outsourcing activities for Insurers for solicitation of insurance through telemarketing and/or distance marketing mode. Further the Brokers Regulations also now expressly permit an insurance broker to perform risk management and claims consultancy functions, for a fee, subject to certain conditions specified under the Brokers Regulations.
Therefore, post introduction of the new regulations, the Brokers Regulations, permit insurance brokers to solicit and procure insurance business through the online and off-line modes, provide certain outsourced services to Insurers and also perform risk management and claims consultancy functions. This, in our view, provides a distinct competitive edge to insurance brokers vis-à-vis web aggregators who are permitted to solicit and procure insurance business only through the online mode and distance marketing/telemarketing mode and to provide certain outsourced services to Insurers.
As the regulatory framework and restrictions applicable to web aggregators broadly do not appear to be less stringent than those applicable to insurance brokers, in our view, one fundamental issue to be considered by web aggregators is whether they wish to continue with this form of insurance intermediation or whether they should consider converting into insurance brokers.
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