New norms can have some impact on sales of insurers as many of them were giving commissions as high as 35-40% for first year.
The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday released exposure draft on payment of commission or remuneration to insurance agents and intermediaries. These regulations will be effective from April 1, and the regulator will entertain comments on proposed regulations till January 27.
According to the insurance regulator, the underlying approach in framing the regulations is to have uniformity as regards the segments of business vis-à-vis expenses of management, commissions and manner of computation of solvency margin and commission and remuneration for insurance agents and insurance intermediary.
However, higher rewards for insurance intermediary vis-à-vis insurance agent as insurance intermediary have higher establishment costs and compliance requirements. Irdai said the parity in commission remuneration to health segment is being solicited under the life insurance category and the general standalone category.
After implementation of the proposed guidelines, every insurer shall have a board-approved policy for payment of commission or remuneration to insurance agents and insurance intermediary. Insurance regulator in the proposed guidelines said, “Reward based on an objective and transparent criteria to insurance agents or insurance intermediaries over and above the commission or remuneration being not more than 20% of first year commission or remuneration in case of individual insurance agents and 40% of first year commission or remuneration in case of insurance intermediaries.”
The proposed guidelines can have some impact on sales of insurance companies as many insurers were giving commissions as high as 35-40% for first year which came down down to 7.5% for second year and third year and 5% for subsequent years. “Overall, I think there should be sub-limits for both commissions and expenses and it should not be limited,” said Vignesh Shahane, CEO and whole time director at IDBI Federal Life Insurance.
Irdai has also put in safeguards for individual agents as no insurer will terminate, suspend or cancel the letter of appointment of an individual insurance agent on frivolous grounds and in an arbitrary manner. Termination and suspension can only be done in the manner laid down under the board-approved policy.
On applicability, it is stated that a) these regulations shall not be applicable to insurance products specified under Irdai’s Micro Insurance Regulations, 2015 and Insurance Services by Common Service Centre Regulations 2015.