The Insurance regulator under the proposed new rules has decided to reduce the commissions that take a big bite out of initial premiums, as much as 25-30% of the first payments on policies mostly without the customer’s knowledge. A decades-old practice of big commissions paid to distributors that have been weighing down returns for policyholders, these mostly go under the radar and are only discovered, for instance, at the time of early surrender of a policy, experts said.
The regulator has also proposed the scrapping of upfront commissions that some insurance companies pay to distributors such as banks, which could put a question mark on such tie-ups. A note by the regulator Irdai announcing the new rules are yet to be notified. The move by the regulator will help reduce mis-selling of policies. “This will bring in transparency and discourage force selling of insurance products”, said S. B. Mathur, former chairman of the state owned Life Insurance Corp. of India (LIC).
IRDAI has proposed a policy for the allocation of expenses for various segments. It said that, no insurer should spend more than an aggregate 10% of all first year premiums and 4% of all renewal premium on policies granting deferred annuities for more than one premium, 5% of premiums received during the year on single premium annuity products and 1/20th of 1% of the average of the total sums assured by policies excluding single premium policies.
The proposed rule changes may lead to some immediate pain, but will have a beneficial effect in the long term, said an executive.
