In an effort to check discrepancies in the payment of rewards and incentives to insurance intermediaries like agents and brokers, IRDAI has asked insurance companies to set a well-defined process based on necessary justification and logic for payment of rewards to insurance agents and intermediaries.
The move has come after IRDAI found instances where insurance companies have paid rewards to their agents which are much more than the commission paid to them.
IRDAI allows life insurers to pay up to 20% of the first year commission as rewards to insurance intermediaries. Such incentives can go up to 30% of the first year commission for insurance agents in general insurance. However, intermediaries whose revenue is more than 50% from sources other than insurance intermediation, are not eligible to get such incentives. Simply put, most banks and large distributors do not receive rewards.
Currently, insurance companies reward insurance intermediaries such as individual agents, corporate agents, brokers, web aggregators and insurance marketing firms, with incentives. The rewards are paid in the form of benefits such as insurance cover, gratuity, office expenses, promotional gifts etc.
Here are the key changes to the regulations on payment of rewards to agents and other intermediaries:
- Insurance companies will have to set transparent criteria for payment of rewards along with the necessary justification and logic
- Insurance companies will have to stick to the limit set by the regulations
- Insurance companies will have to implement effective oversight of their reward policy
- Insurers will have to tell their intermediaries about the maximum rewards that they can pay during the year subject to fulfilment of stipulated criteria at the beginning of every financial year
- Insurance companies will have to intimate their agents if they make changes to their reward policies
