IRDAI has issued a circular in which it has clarified that IMFs, an open architecture model in insurance distribution space, will be remunerated like insurance brokers.
Typically, the commission structure of brokers is slightly less than that of agents. Currently, the first year commission of insurance brokers ranges between 25 and 30% depending on the tenure of policies and insurance companies. The trail commission is 7.5% from second year and 5% in the subsequent years.
Recently, in a draft circular, IRDAI has proposed to hike broker’s first year commission to 40% of premium. Also, IRDAI has proposed that insurance intermediaries like brokers and corporate agents (banks) would be rewarded higher than agents as they have higher establishment and compliance costs. The rewards would be paid in the form of benefits such as insurance cover, gratuity, office expenses, promotional gifts etc. Such incentives would be up to 20% of the first year commission for insurance brokers.
In the circular, the regulator has said, “The remuneration payable to IMF by the insurer for solicitation of policies by the ISPs shall be specified by the regulator, from time to time. It is hereby clarified that the remuneration payable to the IMF by the insurer for solicitation of policies by the ISPs shall be treated as per the same terms of remuneration applicable to the brokers for the existing products.”
IMF has received a tepid response from insurance intermediaries. So far, IRDAI has granted IMF license to just four players – Teamhealth, Six Sigma Financial Solutions, BellWether and Futuristice Life.
In January, IRDAI Chairman T.S. Vijayan, in a public forum, said that open architecture model in insurance distribution may take time to pick up. He had said, “Due to lack of awareness about insurance marketing firm among distributors, it has not picked up well. We are working on this to remove the bottlenecks. In fact, we have started organizing awareness campaigns on IMF for distributors.”
IRDAI has introduced the IMF structure through which insurance distributors are allowed to tie up with multiple insurers to offer a wider choice to investors.
Earlier, such distributors were allowed to sell insurance policies of two each of life, general and standalone health insurers. However, tying up with second life, non-life and health insurance companies will be voluntary. In addition, agents can sell other financial products like mutual funds and pension products, subject to respective regulatory approval.
To get IMF license, existing insurance agents will have to surrender their agency license and pass an IMF examination. Also, the applicant should have a net worth Rs.10 lakh for floating a distribution business. Initially, the license is issued for three years which can be renewed 90 days prior to expiry.
IMF will be required to possess a professional indemnity insurance cover of at least Rs.10 lakh. Distributors have to cough up a non-refundable fee of Rs.5,000 along with the application form.
Distributors can submit their IMF applications online on imf.irda.gov.in.