1. Agents of change: Perks up

Agents of change: Perks up

In a move to augment commissions paid to agents and intermediaries, Insurance Regulatory and Development Authority of India (Irdai) has come out with draft regulation which seeks to formalise the non-monetary incentives that insurers pay to distributors.

By: | Published: January 22, 2016 12:00 AM

In a move to augment commissions paid to agents and intermediaries, Insurance Regulatory and Development Authority of India (Irdai) has come out with draft regulation which seeks to formalise the non-monetary incentives that insurers pay to distributors. The new norms would link commissions based on the product type and also on the premium payment terms.

The draft allows for 50% of the first-year premium as commission in case of regular premium policy both participating and non-participating for premium payment terms of over 12 years. Subsequently, on renewal from second till the end of the policy, the agent will get 10% of the premium paid. For policies, in force with premium payment terms between 5 to 11 years, the first-year commission will be 40%of the premium and on every renewal it will be 10% of the renewal premium.

For policies other than pure risk, the commission to be paid to agents would be 30% of the first-year premium. From second to fifth year of renewal, the agent will get 7.5% of the renewal amount and 5% from sixth year to the end of the premium payment terms.

In case of single premium life policies, the maximum remuneration that can be paid to an agent will be 2% of the premium. In case of pure risk policies without return of premium, the commission proposed in the draft norms is 10%. In case of deferred annuity, the remuneration will be 2% and in case of one-year renewable group polices the commission will be 10% of the premium paid. The new commission structure will be applicable from April 1.

At present, commissions to agents are paid on the basis of premium payment terms. Insurance companies can pay commission of up to 40% of the premium paid in the first year only if the agent sells a policy with a premium payment term of over 12 years.

The commission comes down in case of lower premium payment term. The proposed norms in the exposure draft for which the regulator has invited comments till January 27, seeks to have uniformity on the segments of business vis-a-vis the expenses of management, commissions and manner of computation of solvency margin.

For retail health insurance policies offered by life insurers, an agent will get 10% of the premium in the first year and 10% for renewal premiums. For group policy, the commission will be 2% of the premium subject to a cap of R2 lakh per scheme per policy year. For government health insurance schemes, the commission will be 0.5% of the premium subject to a cap of R50,000 per scheme per policy year.

The exposure draft has also set the rates of remuneration for non-life products. In case of retail health insurance policies offered by general insurance companies, the commission will be 15% of the premium in the first year.

In case of government health insurance schemes, it will be 0.5% of the premium paid subject to a cap of R50,000 per scheme per policy year. For motor insurance, the payout will be 10% in the first and second year of registration of the vehicle and will be 15% from the third year onwards of the registration.

The policy seeks to utilise agents to increase insurance penetration and density in the country and bring cost efficiencies in conducting the business and simplification of the administration of insurance business. Insurers cannot pay any amount more than than the sum specified in the laws. Every insurer will have a policy for payment of commission to agents duly approved by the board of the company.

If the policy is procured directly by an insurer, no commission will be paid to the agent.

However, the regulator has opened a window for insurers to give a reward to their agents, which will be over and above the commission paid. It will be 20% of the first year commission in case of individual insurance agents and 40% of the first-year commission in case of insurance intermediaries like corporate agents, insurance brokers, web aggregators and insurance marketing firm.

Rewards will be an incentive to intermediaries towards benefits such as gratuity, term insurance cover, group life insurance cover, group personal accident cover, group health insurance cover, telephone charges, office allowances and sales and promotion gift items.

The draft norms have specified certain safeguards for individual insurance agents. An insurer cannot terminate or cancel the letter of appointment of an individual insurance agent on frivolous grounds and in an arbitrary manner. An insurer cannot transfer the policies procured by an individual agent as long as he is engaged by the insurer as their agent.

At the end of each financial year, all insurance companies will have to submit a return on payment of commission, remuneration and rewards paid to agents. Any breach of violation of the provisions of the Act will make the insurer liable to a penalty as per the law.

Draft norms

Irdai has come out with draft regulation which seeks to formalise the non-monetary incentives that
insurers pay to distributors.

The new norms would link commissions based on the product type and also on the premium payment terms.

The draft allows for 50% of the first-year premium as commission in case of regular premium policy both participating and non-participating for premium payment terms of over 12 years.

In case of single premium life policies, the maximum remuneration that can be paid to an agent will be 2% of the premium.

In case of pure risk policies without return of premium, the commission proposed in the draft norms is 10%.

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Tags: Irdai
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