Insurers agree it will curb mis-selling but worried that small distributors may exit
IRDA has reduced the commissions on short-term policies. In the case of individual insurance policies, the maximum commission on a single premium policy stays at 2 percent of the premium. For regular premium policies, a policy with a premium paying term of five years will not pay more than 15 percent in the first year, 7.5 percent in the second and third year and 5 percent subsequently. The maximum commission is applicable on policy terms of 12 years and above.
According to senior officials from the industry, this move will help curb miss-selling. But a few feel that it will lead to exit of small distributors. Is the insurance industry headed the same way as mutual fund industry where the number of distributors has shrunk drastically over the last 3 years? Can the industry grow with the core distribution channel being unsatisfied with the income generated by selling insurance?
These are the two major questions on everyone’s mind in the insurance industry. “It has been a tough job to control the attrition rates in distributors. About six months back, we have been able to train distributors with new set of guidelines and now after the announcement of cap on commissions, distributors are reluctant to continue due to unsatisfactory income,” said a senior official from a top insurance company.
“It is a tough time for small distributors. Over 3 lakhs small distributors have already taken the exit route and more might follow due to change in commission structure. But the move will help to curb mis-selling to some extent,” said a CEO of a small insurance company.