
A committee set up by IRDAI has recommended that a standard professional compensation scheme be adopted for insurance intermediaries. The Insurance Regulatory and Development Authority of India (IRDAI) allows them to take professional indemnity cover in order to protect insurance intermediaries with respect to claims made against them for errors and omissions. The IRDAI set up a standardization committee for specialist indemnity insurance policy-insurance intermediaries in May last year. Recommendations for the preparation of a standard professional compensation policy to address all the contingencies and circumstances (retroactive dates, allowance caps, excesses, etc.) referred to in the legislation that may be provided by all insurers have been sent to the Committee.
WHO IS AN INTERMEDIARY FOR INSURANCE?
In the insurance industry, an insurance broker or corporate agent/agent, site aggregator or insurance marketing agency, etc. are known as intermediaries. The intermediaries are autonomous, accredited companies representing insurance buyers. They have "customer service" to answer numerous buyer requests and work with insurance providers to receive the insurance policy demanded by the latter. Brokerage/commission from the insurer is received by the intermediaries. While serving as independent consultants, some of them even receive a consultancy fee from clients.
The existing regulations restrict the payout for web aggregators to Rs 25 lakh and Rs 100 crore, for insurance marketing firms to a minimum of Rs 10 lakh, for corporate agents to Rs 15 lakh and Rs 100 crore, and for insurance brokers to Rs 1 to Rs 100 crore.
WHY ARE INTERMEDIARIES ALLOWED BY STANDARD POLICY?
Since the intermediaries provide a professional service, the committee noted that they require an insurance policy to cover the financial damages their customers incur due to professional service lapses on their part. Currently, IRDAI regulations mandate the insurance intermediary to carry out a professional compensation policy for the length of the period of validity of the registration certificate issued by the regulator. The committee noticed, however, that the insurance coverage available to brokers varied from insurer to insurer. Private insurers were found to have "no desire for such policies to be issued."
For corporate brokers, online aggregators, and insurance marketing companies, there is still no standard product. The number of allegations against intermediaries seems to be increasing, according to the committee's report. The inadequacy of policy coverage and non-standardization of policy wording has contributed to the repudiation of many of the allegations.
NECESSARY MARKET COOPERATION AGREEMENT
The committee felt the need to have a partnership agreement with the sector. The committee indicated that, at present, insurers do not want to get into a situation where failure to cover a claim scenario reported in an intermediary's policy contributes to the intermediary's loss of business. This is particularly the case for large brokers, where there is a conflict-of-interest situation and any friction created between the insurer and the broker due to a claim scenario will cost the insurer on the business front," the committee said.
"This conflict of interest can be resolved through creating a market arrangement strategy.
For all intermediaries discussing the issue of the non-availability of skilled indemnity wording on the market, the committee has established a standard wording.
PI plans for top brokers are currently excluded by global reinsurance treaties. The Committee claimed that this problem can be addressed by having "optional reinsurance capacity for this coverage either by the Indian General Insurance Corporation or through discussions with other Indian Foreign Reinsurance Branches (FRBs), as they can create a global spread and have more experience in the management of these risks."
The committee said that it could be "mandatory for all intermediaries to publish records of such professional compensation-related issues that they may have faced from customers in the past 5 years to address the pricing problem." "In order to better assess this risk, a repository holding such data will be extremely valuable for insurance underwriters across insurers." The committee also proposed that if there is a continuous extension, the retroactive date should be from the date of premium payment. However, if an insurance split happens, the updated retroactive date will be from the start date of the insurance contract, from when the continuous renewal takes place. On or before 7 February 2021, IRDAI put the committee's report in the public domain for all stakeholders to provide their input.
WHAT IS BEING COVERED AND WHAT IS NOT BEING COVERED?
Professional compensation plans can include compensation for damages resulting from mistakes or omissions on the part of practitioners and professional organizations, including workers and directors, as per the committee report. Professional compensation insurance will cover a broad range of risks. Apart from professional negligence, it can also cover accidental violations of confidentiality, loss of confidentiality. However, professional indemnity covers do not provide protection for such circumstances, such as lawsuits arising from contractual responsibility, liabilities arising from terrorism, liabilities arising from criminal actions, etc.
Annual prices are the premium rates under this Agreement. At commencement, maximum premium under the policy shall be charged. Price in installments is not permissible to accept. The figure of business turnover/fees shall be correctly calculated and declared by the proposer at the beginning of the policy, as per the report of the committee, whenever necessary.