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CS Professional · Banking and Insurance - Laws and Practice · Professional Opportunities

Anita Verma, a company secretary, advises a client to place a group health policy through an insurance broker. The broker quotes premium of Rs 12,00,000 and brokerage of 10% of premium. Anita insists the broker disclose the commission. What is the brokerage amount, and what is the principle behind her insistence?

Brokerage is 10% of Rs 12,00,000, which is Rs 1,20,000. Disclosure matters because a broker acts for the client, so openness about remuneration protects the client's interest and supports fair dealing.

  1. ARs 1,20,000; disclosure supports transparency and the client's interestCorrect
  2. BRs 12,000; disclosure is only needed to the insurer
  3. CRs 1,20,000; brokerage is payable by the client over and above premium
  4. DRs 10,00,000; commission is calculated on sum insured

Explanation

Brokerage = 10% x Rs 12,00,000 = Rs 1,20,000. The broker acts for the client, so transparency about remuneration protects the client. Options with Rs 12,000 use the wrong rate base, and one wrongly states that commission is on sum insured; here it is on premium.

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