Disclose commission on insurance policy document, regulator-appointed committee suggests

In an effort to increase transparency and reduce mis-selling of insurance policies, the insurance regulator (IRDAI) could consider making it mandatory for insurance companies to disclose the commission paid on a policy. Additionally, insurance aggregators and agents must disclose the commission received on individual insurance policy documents.

Interestingly, the move was not initiated by IRDAI but was proposed by two committees formed by the regulator. IRDAI has recently formed eight committees, including the Insurance penetration

and Distribution suggested making disclosure of commissions/rewards on individual policies mandatory.

The insurance regulator (IRDAI) is expected to take up the proposal at its board meeting scheduled for July 15.

People in the know told CNBC-TV18 that the committees believe the move will bring more transparency to potential policyholders, making it clear how much is paid in premium and how much commission.

The insurance regulator believes that many insurance companies pay higher commissions/rewards than the allowed commissions/rewards. Therefore, proper disclosures will address this concern and thereby keep the commission paid by insurance companies to online aggregators and agents under control and within the permitted limit.

According to industry feedback, general insurance companies are allowed to pay a 15% commission and an incentive/reward of up to 4% of the annual premium on health and automobile insurance policies.

On fire insurance policies, general insurance companies are allowed to pay a commission of 12% and an incentive/reward of up to 3%. For life insurance companies, the commission allowed is three times the term of the policy. For a 5 year life insurance policy the commission will be 15% (3 x 5 years), for a 7 year policy the commission will be 21% and for a 10 year policy the commission will be 30 %.

According to some sources, the proposal for strict disclosure of commissions/awards met with some resistance before it was even taken up by the IRDAI board.

Autonomous health insurance companies like Star Health Insurance as well as the Life Insurance Corporation of India (LIC) have already expressed their reservations about this decision. LIC has the largest agent network of 13 lakh agents involved in selling its policies.

(Edited by : Abhishek Jha)


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Justin D. O'Neill