November 16, 2015
The Insurance Regulatory and Development Authority of India (IRDAI) is working on a commission structure, which would have maximum and minimum limits for agents. This means that insurers could soon have their own bands for commissions for their agents instead of a fixed percentage structure.
The new caps, if implemented, would mean that a customer might have to pay higher premiums so that higher commissions are paid to agents. This is because commissions are paid out of the policy premium given by a policyholder, reported Business Standard. Under guidelines for traditional products in force since 1 January 2014, commissions are linked to the tenure of a policy. The longer the duration, the higher is the commission. IRDAI has said that commission rates on policies with a longer tenure would be higher than those on short-term policies. For policies with tenures of at least 12 years, the commission would be 35% of the premium.
The Insurance Laws (Amendment) Ordinance passed last March has omitted Section 40A of the previous Insurance Act 1938, which pertained to commission to insurance agents. Under Section 40A of the earlier Act, no insurance agent would get a commission exceeding 7.5% of the first year’s premium, and 2% of each renewal premium payable on the policy, where the latter grants a deferred annuity in consideration or requires more than one premium payment.