IRDAI’s draft on commission, remuneration and reward will make individual agents frown and all other intermediaries cheer. Reward based on an objective can be 20% of first year commission for individual agents while other intermediaries can earn up to 40%!
The Insurance Regulatory and Development Authority of India (IRDAI) has ushered a new year with bad news for individual agents. The IRDAI draft titled “Payment of commission or remuneration or reward to insurance agents and insurance intermediaries, regulations, 2016” caps the reward based on an objective and transparent criteria to individual insurance agents over and above the commission or remuneration being not more than 20% of first year commission or remuneration and 40% of first year commission or remuneration in case of insurance intermediaries. It means corporate agents; brokers and other insurance intermediary will end up getting much higher rewards than individual agents get. The reference is for the rewards, which are over and above the commissions!
IRDAI has tried to justify the huge difference stating “However higher rewards for insurance intermediary vis-à-vis insurance agent as the insurance intermediary has higher establishment costs and compliance requirements.” But, isn’t individual agent also insurance intermediary as per IRDAI intermediary handbook? It specifies, “An Insurance Intermediary means individual agents, corporate agents including banks and brokers –they intermediate between the customer and the insurance company.” Read
But, IRDAI’s draft differentiates between insurance agent and insurance intermediary. “Insurance Intermediary” is as defined in Section 2(f) of the IRDA Act, 1999 and includes Corporate Agents, Insurance Brokers, Web Aggregators, Insurance Marketing Firm and Any other entity as may be recognized by the Authority.
The draft specifies the safeguards for an individual insurance agent. There are safeguards provided under the regulations to an individual agent as required under the Act. These include:
a) No insurer to terminate, suspend or cancel the letter of appointment of an individual insurance agent on frivolous grounds and in an arbitrary manner;
b) The insurer may terminate, suspend or cancel the letter of appointment of an individual insurance agent only in the manner as laid down under the Board approved policy;
c) No insurer shall transfer the policies solicited and procured by an individual insurance agent, so long he is engaged by the insurer as their insurance agent; and
d) The operation of this sub-regulation shall be reviewed by the Audit Sub-Committee of the Board and its report submitted to the Board for their review.
The underlying approach in framing the regulations is as follows:
a) To have uniformity as regards the segments of business vis-à-vis the expenses of management, commissions and manner of computation of solvency margin.
b) Same commission and remuneration for insurance agent and insurance intermediary
c) However higher rewards for insurance intermediary vis-à-vis insurance agent as the insurance intermediary has higher establishment costs and compliance requirements.
d) Parity in commission remuneration to health segment being solicited under the life insurance category and general stand-alone category.
The objectives of the Policy shall include the utilization of insurance agents and insurance intermediaries in the manner that: a) increases insurance penetration and density in the country; b) is in the interests of the policyholders; c) is commensurate with the business strategy; d) brings cost efficiencies in the conduct of business and simplification of the administration of insurance business; e) gives an indication on the relative degree of importance placed on each of them.
These regulations will be effective from 1 April 2016. IRDAI is seeking comments or suggestions on the proposed regulations for consideration. The comments or suggestions should reach them by 27 January 2016 in the specific format by e-mail tocommission@irda.gov.in and randip@irda.gov.in.
vinay mohanty
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