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There is big news for the insurance intermediaries like agents and brokers. IRDAI has issued a draft guideline on payment of commission in which it has done away with the cap on payment of commission.
However, it has advised insurance companies to pay commission within the expense of management.
Subsequently, IRDAI has issued another draft guideline in which it has hiked expense of management for insurers.
In a way, if the proposal goes through, agents commission can go up substantially. In fact, in some instances, the first-year commission in term policies could go up to 100% of the total premium.
According to IRDAI’s proposals, insurers can charge up 100% of the annual premium in the first year on term policies with premium payment term of over 10 years. The expense on renewal premiums can go up to 25%.
For traditional policies like whole life, money back and endowment policies, insurers can charge expenses of up to 80% in first year and 17.5% during renewals.
For single premium policies and annuity products, life insurers can charge up to 5% of the total premium with additional expenses based on a few criteria like allowance for head office expenses and insurtech and insurance awareness.
Similarly, general insurers can charge up to 30% of the annual premium and standalone health insurers can charge up to 35% of the annual premium with additional expenses subject to fulfilment of certain conditions.
Further, IRDAI has proposed that insurers will have to follow a board approved commission structure. They will have to get approval from their board on commission structure of intermediaries within 45 days of each financial year.
Also, IRDAI clarified that it will discontinue payment of rewards post the implementation of these policies. It said, “Insurance Regulatory and Development Authority of India (Payment of commission or remuneration or reward to insurance agents and insurance intermediaries) Regulations, 2016 shall be repealed from the date these Regulations come into force.”
