At a time when reducing costs and giving the Indian investor a fair deal is at the centre stage of policy and regulation, the insurance regulator, in a move that is stunning on many counts, has proposed to hike commissions and payouts to sellers of insurance, legitimise illegal payments and bring back hereditary commissions. In the draft rules (read here: http://bit.ly/1RlmiJ9) on commissions released last week, the Insurance Regulatory and Development Authority of India (Irdai) has raised total sales-linked compensation across the board.
Here’s the draft in short: Irdai classifies two categories of sellers of insurance products—agents are individuals and intermediaries can be corporate agents like banks, insurance brokers, web aggregators, insurance marketing firms and anybody else that the regulator may recognise. The draft defines three categories of payments to agents and intermediaries. Agents get paid a ‘commission’. Intermediaries get a ‘remuneration’. And, here is the stun factor, there is a third category introduced by Irdai that formalises what have been illegal payments paid by insurance companies to large agents, banks and brokers, called ‘rewards’. A ‘reward’ is a direct or indirect incentive payment to an agent or an intermediary and includes gratuity, term insurance cover, group life insurance cover, group personal accident cover, group health insurance cover, telephone charges, office allowances, sales and promotion gift items and so on. These heads have been used by the industry to hide commissions and one has to only look at strictures passed by Irdai in the past to see how pervasive these illegal payments have been. India now has a regulator that is making illegal payments legal. Way to go!
