Insurance agent
Also written Individual insurance agent · Life insurance agent · Tied agent
An individual appointed by an insurer to solicit or procure insurance business, including the continuance, renewal or revival of policies — and who represents the insurer, not the client.
In plain language
The word agent is doing precise legal work here, and candidates who read it loosely lose marks.
The workbook's definition comes from the IRDAI (Appointment of Insurance Agents) Regulations, 2016. An insurance agent means an individual appointed by an insurer for the purpose of soliciting or procuring insurance business, including business relating to the continuance, renewal or revival of policies.
Two things follow from that one sentence.
An agent is an individual. A company selling insurance is a corporate agent, not an insurance agent.
And an agent is appointed by the insurer. So the agent represents the insurance company. A broker represents the client. That is the single most examined distinction in the chapter.
The agent's pay tells the same story. An agent earns commission from the insurance company. A direct broker can charge the client a fee as well.
How it works
Where the agent sits among the intermediaries. Section 1.8.3 lists them, and Table 1.2 compares three of them directly.
| Parameter | Direct Insurance Broker | Insurance Agent | Corporate Agent |
|---|---|---|---|
| Who he represents | The client | The insurance company | The insurance company or companies |
| Can work with | Multiple insurance companies | More than one insurance company in each line of business — life, general and health — provided he dispassionately advises the policyholder on the products of all insurers he represents and on the product best suited to the prospect's specific needs | A composite corporate agent can work with a maximum of three life insurers, three general insurers and three health insurers |
| Can charge | A fee to the client and commission from the insurance company | Commission from the insurance company only | Commission from the insurance company or companies |
The multi-insurer route is the composite insurance agent. An individual appointed by two or more insurers, capped at one life insurer, one general insurer, one health insurer and one each of the mono-line insurers. A mono-line insurer is one carrying on a single specialised line, such as agriculture insurance or export credit guarantee business.
What an agent must now do before selling. Section 1.8.4 sets out the IRDAI suitability regime:
- Agents must sell policies based on product suitability parameters such as the client's risk appetite and financial goals, and must justify suitability before selling.
- An insurer cannot issue an investment cum insurance policy until the agent has ensured it is sold after a suitability analysis.
- Suitability is ascertained through questions on age, income, family status, life stage, financial and family goals, investment objectives and the insurance portfolio already held, and is determined on information collected at the time of sale.
- The client may bypass the suitability module, but only on written consent that they consciously chose to do so despite the agent's recommendation.
- On benefit illustration, agents and insurers may illustrate by taking 4% and 8% returns into account, must sign the illustration along with the policyholder, and must state clearly which benefits are guaranteed and which are not.
The workbook is blunt about how this worked in practice: suitability analysis was optional for a long time, and as a result most agents skip this section in the proposal form.
And where SEBI comes in. Section 1.8.5 records that the SEBI (Investment Advisers) Regulations exempt an IRDAI-registered insurance agent or broker who offers investment advice solely in insurance products. Advise on anything else and the IA Regulations apply, bringing risk profiling, suitability and fiduciary duty with them.
A worked example
Mr Joshi is an individual agent in Indore. He is appointed by one life insurer and wants to widen what he can offer.
| Position he proposes | Permitted? |
|---|---|
| One life insurer only | Yes — the ordinary insurance agent |
| One life insurer plus one health insurer | Yes, as a composite insurance agent |
| Two life insurers | No — a composite agent is capped at one life insurer |
| One life, one general, one health, plus one agriculture insurance mono-line insurer | Yes — one each of the mono-line insurers is a separate slot |
| Three life insurers, as a firm | Not as an agent at all — three life insurers is the composite corporate agent cap, and a corporate agent must be a corporate entity |
The suitability step, with figures. Mrs Kulkarni, 35, earning Rs 9,00,000 a year, asks him for an investment cum insurance plan with an annual premium of Rs 1,20,000 — about 13% of her income. His suitability analysis records her age, income, two dependent children, a Rs 22,00,000 home loan and an existing term cover of only Rs 15,00,000.
The analysis points the other way. Her income replacement need is unmet at Rs 15,00,000 of cover, and the insurer cannot issue the investment cum insurance policy until he has run the analysis. He recommends a larger term policy first.
She still wants the original plan. He may proceed, but only on her written consent that she consciously chose to bypass the suitability module despite his recommendation.
The benefit illustration he must hand her shows the maturity value at 4% and at 8%, signed by both of them, with the guaranteed and non-guaranteed portions marked. At Rs 1,20,000 a year for 20 years the two assumed rates produce very different maturity figures, and showing only the 8% column is precisely what the signature requirement exists to stop.
Why NISM asks about it
Chapter 1 (Basics of Insurance), section 1.8.3(d), gives the definition; Table 1.2 sets the agent against the direct broker and the corporate agent; section 1.8.4 gives the IRDAI suitability and benefit illustration rules; section 1.8.5 gives the SEBI Investment Adviser exemption.
Expect a who-represents-whom question (the agent represents the insurer, the broker represents the client), a can-charge question (agent takes commission only, broker may also charge the client a fee), the 4% and 8% benefit illustration figures, and the SEBI exemption boundary — solely insurance products means exempt, anything more means the IA Regulations apply.
Common exam traps
- An agent represents the insurer; a broker represents the client. Everything else in Table 1.2 follows from this, and it is the most reliably examined line in the chapter.
- An insurance agent is an individual. A corporate entity selling insurance is a corporate agent, and a composite corporate agent may work with up to three insurers in each of life, general and health.
- One life, one general, one health, one each mono-line is the composite agent cap. Three, three and three is the composite corporate agent cap. Two caps, two kinds of intermediary.
- An agent may charge the client nothing. Only the direct broker can charge a client fee in addition to commission.
- Benefit illustrations use 4% and 8%. Not 6% and 10%, and not a single rate.
- The suitability module can be bypassed only on the policyholder's written consent. The workbook notes the analysis was optional for years and is still widely skipped, which is why the written consent requirement exists.
- An insurer cannot issue an investment cum insurance policy without the suitability analysis. The bar is on the insurer, not only on the agent.
- The SEBI exemption is narrow. It covers advice solely in insurance products. Add a mutual fund recommendation and the whole IA Regulations apply, including risk profiling and fiduciary duty.
Check yourself
1.Which statement correctly distinguishes a direct insurance broker from an insurance agent?
- a)The broker represents the insurance company while the agent represents the client
- b)The broker represents the client and may charge a fee to the client as well as earn commission from the insurer, while the agent represents the insurance company and earns commission from it
- c)Both represent the client but only the agent may charge a fee
- d)Neither may earn commission from the insurer
Show the answer
Answer: (b) The broker represents the client and may charge a fee to the client as well as earn commission from the insurer, while the agent represents the insurance company and earns commission from it
Table 1.2 gives the answer. The direct insurance broker represents THE CLIENT, can work with MULTIPLE insurance companies, and can charge FEES TO THE CLIENT AND get commission from the insurance company. The insurance agent represents THE INSURANCE COMPANY and gets COMMISSIONS from it. A corporate agent (composite) may work with a maximum of three life, three general and three health insurers.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- BancassuranceThe arrangement under which a bank acts as a corporate agent of an insurance company, selling its policies to the bank's own customers — capped at three insurers in each of life, general and health.
- Composite insurance agentAn individual appointed as an agent by two or more insurers, but capped at one life insurer, one general insurer, one health insurer, and one of each mono-line insurer.
- Corporate agentA corporate entity, often already in a related business like travel or car sales, that sells an insurer's policies to its own customers; a composite corporate agent can work with up to three insurers per line.
- Insurance web aggregatorAn insurance intermediary that maintains a website providing online price comparison and information on the products of different insurers, and other related matters.
- Level premiumA term insurance premium that stays the same every year for the whole of the policy term, as distinct from one that increases as the insured gets older.
- Unit Linked Insurance PlanA life insurance policy in which the premium, after the cost of risk cover and expenses, is invested in equity or debt funds chosen by the policyholder, so the maturity value is the fund value.
- Suitability analysis in insuranceThe IRDAI requirement that an agent establish and justify a policy fits the client before it is sold - no investment cum insurance policy may be issued until the analysis is done.