Insurance Intermediaries and Distribution Channels
The exam tests who may sell and service insurance, whom each intermediary legally represents, and which conduct is prohibited.
The channels
- Individual agent: licensed by IRDAI, acts for the insurer, sells and services policies; must disclose the insurer's name and the commission, and cannot bind the insurer to a risk.
- Corporate agent: a company, firm or bank partnership licensed to solicit business for insurers, subject to IRDAI caps on the number of insurer tie-ups (three life, three general and three health).
- Insurance broker: licensed under the IRDAI (Insurance Brokers) Regulations, 2018; acts for the client, advises across insurers and owes the client a duty of care.
- Bancassurance: selling through a bank or NBFC network - the largest third-party channel in India.
- Insurance Marketing Firm (IMF), web aggregators and online direct sales complete the retail channels.
- Service intermediaries: TPAs process health claims and cashless authorisations; surveyors and loss assessors investigate and assess general insurance claims; actuaries certify products and solvency.
Regulation and conduct
Commission and remuneration are governed by IRDAI regulations; remuneration must be disclosed and must not induce mis-selling. IRDAI's code of conduct requires suitability of the product to the customer's needs, accurate disclosure, confidentiality, prompt service and fair treatment. Knowledge of KYC/AML obligations is expected of every distributor.
Worked example
A customer wants a policy covering a diabetic parent. A tied agent can offer only her own insurer's products and must say so. A broker can compare several insurers' underwriting terms and recommend the one that covers the condition, because the broker acts for the customer. Neither may rebate part of the commission to win the sale.
Traps
Thinking a broker is the insurer's agent (he is the client's); believing an agent can promise acceptance of a risk or backdate cover; forgetting that rebating is prohibited under Section 41 of the Insurance Act, 1938 and is a serious misconduct; confusing a surveyor (loss assessment) with an underwriter (risk selection).