Insurance commissions set to be capped

There’s more bad news headed the life insurance agents’ way. Their commission earnings on sale of policies could shrink further if the insurance regulator has its way.

In a meeting with industry heads recently, the Insurance Regulatory and Development Authority (Irda) proposed a change in the commission structure on plans with limited payment term, said an industry official.

Limited premium payment term products, or short-term products, are those where the policyholder will have to pay premium for five, seven or 10 years and get a life cover.

The regulator has suggested that the premium amount should be linked and made proportional to the commission being paid on longer tenure policies.

For instance, a 10-year policy should be made the benchmark and the commission should be decided in decreasing order from a 10-year term.

In other words, if, for a policy premium term of 10 years, an agent earns a commission of 40%, then for a similar policy with a premium payment term of five years, the commission he can pocket will be only 20%, the regulator has said.

The change in commission structure could be applicable to endowment policies, term plans and single premium payment policy.

Currently, the commission structure is product-based and has no relation with the policy term.

The industry doesn’t seem to be perturbed by the proposal just yet.

“The insurance regulator has sought the views of life insurers and they are positive about the move as long as commissions on Ulips (unit-linked insurance plans) are not affected,” said an industry official.

For the record, following the stringent commission structure slapped in June 2010, the sale of Ulips, which are investment products with a dashof insurance, has been steadily declining.

The regulator had asked insurers to spread the commissions, which were as high as 40% in the first policy year, over the first five years for which the money is invested and locked in.

Also, the differential between actual yield and returns post-deduction of various charges needed to be capped at 4% from the fifth year of policy.

These directions had followed an earlier circular in which Irda asked insurance companies to declare the commission/ brokerage payable to an agent/ broker upfront at the time of selling a Ulip.