IRDAI Chairman TS Vijayan has clarified that IRDAI is not planning to rationalize upfront commissions or the first year commission paid to agents. However, such commission payouts will be within the expense ratio. The insurance regulator will soon notify a circular on expense ratio, he added. He was speaking at the 17th annual CII Insurance Summit held in Mumbai.
The issue came to light following a few media reports which said that IRDAI wants to do away with upfront commission. Earlier, IRDAI had sought feedback from insurance companies through Life Insurance Council (LIC) and General Insurance Council (GIC) to rationalize commission structure of insurance agents. A senior official from IRDAI had earlier told Cafemutual that the insurance regulator has sought to limit the expenses incurred on agents in the form of junket, loyalty program etc. within the upfront commission.
Vijayan said that the discretion to pay first year commission has been left to insurance companies. That means, insurance companies can pay higher commission to insurance agents; however, it has to be paid from their own accounts and not from policyholder’s account.
Vijayan said, “A lot of people talk about cost effective distribution. I don’t understand what cost effective distribution is. These people are of the view that distribution decreases value of investments by taking away a small portion of premium. Distribution are not villains. The key problem is lack of awareness among investors. Distribution system adds value to the insurance industry. A person may buy a term policy directly but he cannot buy complex products like professional indemnity cover through a portal.”
Also, he urged insurance companies to launch simple products which are easy to understand.