IRDAI has clarified that it is not planning to do away with upfront commissions.
IRDAI has sought feedback from insurance companies through Life Insurance Council (LIC) and General Insurance Council (GIC) to rationalize commission structure of insurance agents, said a senior official from IRDAI told Cafemutual on the condition of anonymity. “The proposal has been misunderstood by many people. It is in very initial stage. We have had initial discussion with insurers to rationalize the commission structure through both the insurance councils,” said the official.
The insurance regulator has sought to limit the expenses incurred on agents in the form of junket, loyalty program etc. within the upfront commission. “Expenses incurred on junket, loyalty program and training should be within the distributable commission. For instance, if upfront commission is 20% of premium, insurers can split such payouts like 15% as upfront commission and rest on junket. The insurance regulator will not allow insurers to charge policyholders for expenses incurred on intermediaries. Insurers can spend on such activities from their shareholders account.” said the official. Currently, insurance companies spend on such activities from their premium amount.
According to a senior official at a private life insurance company, the insurance regulator wants to reduce the first year commission and defer some part of such payouts in the subsequent years to ensure policies are renewed.
Another senior official from a private life insurance company is of the view that upfront commission cannot be scrapped. “Agents have to invest time and money to acquire a new client. Hence, they need to be adequately compensated. However, such commission payouts should be reduced to a meaningful level and deferred to subsequent years. Currently, an average commission payout in a 15 year policy is around 6% per annum.”
These proposals are in the initial stage and nothing is crystallized yet, clarified IRDAI official.