15th Sep `06.
CEOs of All Insurance Companies &
The Principal Officers of All Broking Companies
GUIDELINES ON INSURANCE AND
REINSURANCE OF GENERAL INSURANCE RISKS
With the abolition of tariffs in the near future, competition will extend not only to
service matters but also to pricing of products. In order to ensure that the business is
transacted along proper lines, it is important to set out the rules of conduct that should be
followed by both insurers and brokers in the matter of insurance and reinsurance of
general insurance risks, especially those with high sums insured.
Insurers are advised to ensure that the procedures as set out in these guidelines
note are followed in their competition for business.
Attention of all licensed brokers is invited to the Code of Conduct specified in
Schedule III of the IRDA (Insurance Brokers) Regulations 2002 and in particular, para 1
of the Code of Conduct. All brokers are hereby required to ensure strict adherence to the
practice stated in this guidelines note and in the Code of Conduct. Prior approval of
IRDA should be obtained by application supported by valid reasons for any variations
from the practice stated here.
1. Where a client invites more than one broker to submit terms for its insurance
A broker shall not block capacity with one or more insurers in
anticipation of being invited to quote terms for insurance requirements
of a client, where the client has not yet decided as to which brokers
should be invited to quote terms.
Once the client has selected the brokers who should be invited to quote
terms, all other brokers should withdraw from the market. They should
also immediately advise any insurers with whom they have been in
touch to propose terms, about their not being invited to quote terms.
Brokers who are invited to quote terms should obtain a written
appointment letter to develop terms. Where the client has given oral
instructions to quote, the broker should record the fact of its being
invited to quote terms, in a letter to the client. (Refer paras 2(f) and 2(h)
of Code of Conduct).
Every broker invited to quote terms should fully comply with para 4 of
the Code of Conduct. The broker should clearly distinguish between
information provided by the client and information provided by the
broker based on its own study of the risk.
Where the client has specified the terms of the insurance cover required
by it, the broker shall develop terms on the basis specified by the client
and not any other basis (which may be patched up without the
knowledge of the client) to provide the required cover. However, it is
open to the broker to discuss with the client and agree with the client to
develop terms on any other basis.
It is open to the broker to ask more than one insurer to quote terms. The
broker shall furnish full information on a common basis to all the
insurers. This does not prevent the broker from providing
supplementary information to an insurer in response to questions raised
by that insurer.
Where an insurer is asked to quote terms by more than one broker in
respect of the same risk, the insurer shall quote the same terms to all the
brokers. However, if a broker seeks quotes from the insurer on a
different basis, the insurer shall be free to quote terms on the basis
requested by that broker without having to advise those terms to all the
Where an insurer is approached by a broker to quote terms for a
particular account, the insurer should not approach the client directly to
quote terms and eliminate the broker.
Where a client has also asked an insurer to quote terms directly to it, the
insurer may quote terms directly to the client and if any broker
approaches it for terms, the insurer should inform the broker that it is
quoting directly to the client.
Where terms are developed on a “net rate” basis, the broker shall advise
the client the full facts, namely, the net rate and the addition made for
Where the insurer needs to develop terms from the reinsurance markets
before quoting its terms to the client, the insurer shall be free to use the
services of any reinsurance broker of its choice.
A composite broker shall not go to the reinsurance markets to develop
terms in respect of cases referred to in (k) above, without the written
prior authorization of the insurer invited to quote terms for the
insurance. Paras 2(i) and 2(j) of the Code of Conduct are relevant in this
connection. It is important to emphasise that placement of reinsurance is
entirely within the purview of the insurer and neither the direct broker
nor the client can direct the insurer where to place reinsurance and how
much to reinsure. This does not prevent the client or the broker from
enquiring about the insurer’s own retention on the risk and the
reinsurances that it will place and the security rating of reinsurers to be
used, as a part of its examination whether to accept the insurer for its
Where reinsurance terms are developed as part of the process of quoting
terms for direct insurance, the broker who is instructed to develop terms
shall truthfully communicate to the insurer on whose behalf the
reinsurance terms are developed, the basis of the quotation, the rates and
terms and the list of reinsurers with written lines and the extent of likely
support at those terms.
A composite broker or reinsurance broker shall not put conditions of
minimum percentage of reinsurance placement as part of the quotation
or allow such terms to be put in by the client or foreign co-broker or
reinsurers. This does not prevent a lead reinsurer quoting terms subject
to his being offered a minimum stated line on the risk. It shall be open
to the insurer to instruct the broker not to offer the risk to a particular
reinsurer or to specified reinsurersor specified markets .
A broker shall not put up terms developed within its own office (desk
quotes) but not received from an insurer, as insurance premium terms. If
a broker is responding to an enquiry about the likely insurance cost, it
should make it clear when indicating the premium cost that it is not a
quotation but only a non-binding indication of the likely cost.
2. Where a client retains one broker to develop terms from several insurers:
The broker shall select the insurers to be invited to quote terms, entirely
from the point of view of the client and in the best interests of the client.
The broker shall provide information on a common basis to all insurers
invited to quote. However, it may provide further clarifications or
additional information in response to queries of an insurer that is invited
The broker shall not first develop terms from foreign markets and then
go round locating insurers willing to front the business at those terms.
The broker shall not go round looking for insurers to be invited to quote
terms, on the basis of a minimum reinsurance order as a condition of
giving an opportunity to the insurer to write a share of the risk.
The terms put up to the client by the broker should include the original
letters of quotation from the insurers and the recommendation of the
broker should be properly documented with reasons in support of the
3. Documentation and post-insurance servicing of the direct insurance client:
Once the direct insurance client gives orders to bind the cover, the
broker should obtain a letter of cover or cover note or insurance policy
from the insurer or insurers concerned and submit them to the client
before commencement of risk.
The broker should ensure payment of premium in a timely manner in
compliance with Sec 64VB of the Insurance Act. The broker should
explain to the client, the importance of compliance with policy
conditions and warranties by the client during the policy period. Where
the insurer issues only a cover note or letter of cover, the broker should
follow up for issue of the formal policy document without delay. The
broker should scrutinize all these documents to ensure that they are in
conformity with the terms and conditions quoted and accepted by the
client. Likewise, the broker should ensure timely payment of
reinsurance premium on any reinsurance placed through it and follow
up for the formal reinsurance document in a timely manner.
4. Placement of facultative reinsurance:
A composite insurance broker or reinsurance broker shall not enter the
reinsurance markets either to develop terms for reinsurance cover or to
place reinsurance on any risk without the specific written authorization
of the insurer insuring the risk or insurer who has been asked to quote
terms for the risk.
A reinsurance broker or a composite broker shall not block reinsurance
capacity in anticipation of securing an order to place reinsurance.
The broker shall provide to the insurer, a true and complete copy of the
reinsurance placement slip to be used, before entering the market. The
broker shall incorporate any modifications or corrections proposed by
the insurer in the placement slip.
The broker shall put up to the insurer, all the terms (including the
reinsurance commission and brokerage allowed) obtained by it from
various reinsurers and indicate the share the lead reinsurer is willing to
write at those terms and the expectation of the broker about placement
of the required reinsurance at the terms quoted, with acceptable
The broker shall furnish to the insurer, a true copy of the placement slip
signed by the lead reinsurer quoting terms, indicating thereon, the
signed line of the reinsurer.
Where reinsurance on a risk is proposed to be placed with different
reinsurers at different terms, the fact that terms for all reinsurers are not
uniform, shall be disclosed to reinsurers suitably.
Once the insurer has accepted the reinsurance terms quoted, the broker
shall place the required reinsurance cover and shall keep the insurer
informed about the progress of placement from time to time. In
selecting the reinsurers to whom the risk is offered, the broker shall be
mindful of the need to use only such reinsurers who are rated BBB or
higher by a recognized credit rating agency, as required by Regulation
3(7) of IRDA (General insurance – reinsurance) Regulations 2000.
Where the reinsurance is over-placed, the signing down shall be done in
consultation with the insurer in a manner consistent with good market
practice. The ceding insurer shall have the right to tell the broker not to
use a specific market or reinsurer or reinsurers.
Immediately after completion of placement of reinsurance, the broker
shall issue a broker’s cover note giving the terms of cover and the
names of reinsurers and the shares placed with each of them. The cover
note shall contain a listing of all important clauses and conditions
applicable to the reinsurance and where the wordings of clauses are not
market standard, the wordings to be used in the reinsurance contract
shall be attached to the broker’s cover note.
The broker shall follow up the cover note by a formal signed
reinsurance policy document or other acceptable evidence of the
reinsurance contract signed by the reinsurers concerned, within one
month of receipt of reinsurance premium.
The broker shall have a security screening procedure in-house or follow
credit ratings given by recognized credit rating agencies and answer
without any delay, any questions raised by the insurer about the credit
rating of one or more reinsurers. Where the insurer declines to accept a
particular reinsurer for whatever reason and asks the broker to replace
the security before commencement of risk, the broker shall do so
promptly and advise the insurer of the new reinsurer brought on the
5. Placement of Treaty or Excess of Loss Reinsurance:
A composite insurance broker or reinsurance broker invited to place a
proportional treaty shall prepare the treaty offer slip and supporting
information with the cooperation of the insurer and secure the insurer’s
concurrence to the slip and information before entering the market.
Where a reinsurance treaty is placed at different terms with different
reinsurers, the fact that such is the practice shall be made known to all
the reinsurers suitably.
Where a reinsurer accepts a share in a treaty subject to any condition,
the conditions shall be made known to the ceding insurer and its
agreement obtained before binding the placement.
The broker shall advise the progress of placement of the treaty from
time to time. Immediately after completion of placement, the broker
shall issue a cover note setting out the treaty terms and conditions and
list of reinsurers with their shares. Where a treaty is over-placed, the
broker shall sign down the shares in consultation with the insurer in a
manner consistent with good market practice.
The broker shall secure signature of formal treaty wordings or other
formal reinsurance contract documentation within three months of
completion of placement.
The broker shall have a security screening procedure in-house or follow
credit ratings given by recognized credit rating agencies and answer
without any delay, any questions raised by the ceding insurer about the
credit rating of one or more reinsurers. Where the insurer declines to
accept a particular reinsurer for whatever reason and asks the broker to
replace the security before commencement of the reinsurance period,
the broker shall do so promptly and advise the insurer of the new
reinsurer brought on the cover.
6. Handling of reinsurance monies:
Every broker shall abide by the provisions of Regulation 23 of the IRDA
(Insurance Brokers) Regulations 2002.
It is open to a client to appoint more than one broker to jointly handle
the broking of its insurance requirements depending on the skills that
the brokers may bring to the activity and to decide the manner in which
the brokerage payable on the business may be shared among them.
However, it is not permitted for one broker to appoint another broker to
handle the broking of an account that has been given to that broker to
handle by the client.
Each of the direct insurance co-brokers shall be brokers who are
licensed to broke the class of business concerned and each co-broker
shall be responsible to ensure that these guidelines are complied with.
The manner in which the brokerage is shared among the co-brokers
shall be disclosed to the insurer on request. The insurer will be guided
by the instructions of the client with regard to payment of brokerage to
each co-broker for his share or to the lead co-broker who will then be
responsible to pay the other co-brokers.
Each of the co-brokers on a reinsurance placement shall also be
responsible to ensure that these guidelines are complied with by
themselves and any foreign brokers used by them.
Where a reinsurance placement is co-broked with a foreign reinsurance
broker, the licensed broker in India shall only use reinsurance co-
brokers who agree to comply with the requirements of these guidelines
and shall be responsible to secure compliance with these guidelines to
the extent applicable, by the foreign reinsurance co-broker. The name
and other particulars of the foreign reinsurance co-broker shall be
disclosed to the insurer.
8. Reinsurance brokerage:
Where the brokerage charged for a particular case exceeds the normal
level of brokerage for such transaction, the fact should be disclosed to
the insurer before binding cover. For this purpose, the normal level of
brokerage shall be taken to be 2.5% on reciprocal proportional treaties,
5% on non-reciprocal proportional treaties, 10% on excess of loss
covers and 5% on facultative placements.
For the purpose of sub-para (a) above, payments of all nature in respect
of the particular account, such as risk inspection fees or risk
management fees or administration charges, etc., shall be aggregated.
9. Insurer’s right to develop business directly:
Nothing contained in these guidelines shall be interpreted as prohibiting an insurer
from approaching a client directly to service its insurance requirements. However,
an insurer shall not go to a client who has already decided to use a broker for its
insurance placement and has appointed a broker and such broker has approached
the insurer for terms.
10. Effective date
These guidelines shall come into effect from 01st October 2006 and shall apply to
any insurances where the process of placing insurance or negotiating terms of
insurance is initiated after that date, including renewals in respect of insurances
expiring after that date.