The insurance regulator has prescribed uniform commission structure for all life insurance intermediaries to create a level playing field.
IRDAI has a new year gift for insurance intermediaries. The insurance regulator has 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 order to promote pure risk insurance policies which are essential for people having dependent, IRDAI has issued a circular in which it has hiked the first year commission (upfront commission) in term insurance plans irrespective of term of the policy to 40% of annual premium.
Currently, the first year commission payouts under such policies ranges between of 20% and 35% of annual premium.
However, the regulator had proposed to hike the first year commission under such policies at 50% in the draft regulations.
Similarly, trail commission or commission on renewal of policies has been increased from 5% to 10% of annual premium under term insurance policies.
Under group term plans, insurers can pay up to 5% of annual premium not exceeding Rs. 10 lakh as upfront as well as trail commission.
Traditional plans
Commission payouts in policies other than pure risk (traditional policies) like whole life, endowment and money back remain unchanged. While the first year commission in traditional policies having over 12 years of premium payment term will continue to be 35% of annual premium, insurers can pay up to 15-33% of annual premium on policies having premium paying term of less than 12 years depending on the tenure. Higher the tenure, more would be the upfront commission.
So far, commission payouts under traditional policies were depended on age of the company - insurers who have completed 10 years of operations can pay first year commission of up to 35% while others can pay up to 40% of annual premium.
The insurance regulator has fixed the trail commission at 7.5% throughout the premium paying term. Earlier, the trail commission on such payouts was 7.5% from second to fifth year and 5% thereafter.
Under group savings variable policies, insurance companies can pay the first year commission and trail commission of 7.5% of annual premium on policies throughout the premium paying term.
Annuity
IRDAI has kept the first year commission under annuity plans or pension plans at 7.5% of annual premium and 2% of annual premium in the subsequent years.
Single premium policies
All single premium policy will continue to pay 2% of premium payment as commission. However, under single premium policies of term plans, insurers can pay up to 7.5% as commission.
Level playing field across all intermediary channels
Interestingly, IRDAI has streamlined the commission structure in order to bring parity among all types of intermediaries. The insurance regulator has prescribed uniform commission structure for agents, brokers, corporate agents, insurance marketing firms and web aggregators to create a level playing field.
So far, insurance agents were getting higher commissions and rewards as compared to brokers and other intermediaries. These intermediaries were getting 25% of annual premium as upfront commission.
Other key highlights of the circular
IRDAI said that insurance companies will have to take approval of the board before fixing commission structure of agents. However, IRDAI has clarified that insurers cannot pay less than the prescribed commission structure. This has come into effect immediately.
