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India: Regulator proposes commission & reward structure for agents

Source: Asia Insurance Review | Feb 2016

The Insurance Regulatory and Development Authority of India (IRDAI) has issued a draft circular on commission payments to insurance agents and intermediaries. The draft also specifies rewards that can be paid to distributors.
   In life insurance, the draft distinguishes between pure risk products (term plans) and other policies that bundle investments and savings. For instance, for regular premium term plans with a premium payment term (PPT) of between five and 11 years, the first-year commission is capped at 40%. For other than pure-risk cover, the first-year commission for a policy with a PPT of 5-11 years is capped at 30%. 
   In comparison, current rules do not spell out the commission structure according to product type but according to PPT and the age of the insurer, reported Livemint. An insurer can give a commission up to a maximum of 40% in the first year only if the agent sells a policy with a PPT of 12 years or more. For insurers more than 10 years old, the first-year cap with the same PPT conditions is 35%. 
   In the new structure, which is scheduled to take effect from 1 April this year, the overall quantum of payment to distributors seems to have increased in terms of commissions and rewards.
IRDAI defines reward as an incentive paid to the distributor towards benefits such as gratuity, insurance cover, telephone charges, office allowance, sales and promotion gift items and other such overheads. 
   Such rewards to agents are capped at 20% of first-year commission and at 40% for intermediaries. The regulator has justified the higher reward for intermediaries saying they have higher establishment costs and compliance requirements. An intermediary can be a corporate agent, insurance broker, web aggregator, insurance marketing firm, or any other entity specified by IRDAI.
   In non-life insurance, the draft does not propose significant changes except in health insurance. Renewal commissions for one-year health policies have been indicated as zero.
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