IRDAI has constituted a working committee headed by SP Chakraborty, GM, Actuarial, IRDA, to review the recommendations of the IRDAI committee that reviewed product regulations in life insurance and recommendations of Sumit Bose committee.
Earlier, the IRDAI committee has recommended that the industry can improve persistency ratio by levelling commission structure of distributors throughout the policy tenure. Simply put, the committee has recommended that instead of paying higher upfront payouts in the first year commissions, the industry should spread it over the years to ensure better renewal. This practice is already prevalent in non-life insurance and health insurance industry.
In 2017, IRDAI hiked the upfront commission and trail commission in selected segments and made the commission structure uniform across all intermediaries such as agents, brokers, corporate agents, insurance marketing firms and web aggregators. In fact, it has hiked the first year commission (upfront commission) in term insurance plans irrespective of term of the policy to 40% of annual premium. So far, the first year commission payouts under such policies have ranged between 20% and 35% of annual premium.
Among other key recommendations of IRDAI committee are rationalising high surrender value in traditional policies and disclosing performance of policies against benchmarks.
Other key areas which the committee is expected to review are:
- Changes in needs and expectations of customers
- Flexibility and innovations in product design
- Probability of mis-selling and protection of policyholders
- Suggesting innovative way to distribute insurance products
- Reviewing the recommendations of the Sumit Bose committee report
Earlier in 2015, Sumit Bose had recommended continuation of upfront commission in traditional policies and ULIPs. However, such commissions were to be paid on mortality charges or the part of premium paid towards availing life cover. The committee had recommended that insurance companies should pay a fixed percentage of premium till the tenure of non-participating policies as renewal commission or trail commission. Participating policies, which distribute realized gains among policyholders, should pay trail commission based on assets under management.
Among other key recommendations of this committee are putting an end to the practice of paying advance commissions to distributors, passing back of commission to policyholders and using riskometer to depict risk level in ULIPs.
The nine-member IRDAI working committee is expected to submit its report by August 17, 2018, said IRDAI.