Chennai: Insurance Regulatory and Development Authority (IRDA) has constituted a three-member committee to examine in depth the remuneration structure of insurance intermediaries (agents and brokers). The committee will be chaired by A C Mukherjee, and K N Bhandari and G V Rao will be the members.
IRDA's decision to restore the facility of 5-per cent premium discount in lieu of agency/broker commission has upset the broking community.
On the other hand the authority's May notification scrapping the discount facility has affected the corporates and the four government-owned general insurers as it resulted in an increased premium outgo for the former and a higher cost of operations for the latter. The insurers had to pay a brokerage of 17.5 per cent on the premium procured through brokers.
The regulator received representations from different stakeholders (insurers, policyholders, field staff of insurers, chambers of commerce and members of parliament) against withdrawing the premium discount and also the payment of commission in respect to business generated from public sector undertakings (PSU).
What really impacted the public sector companies enjoying good credit ratings are the market place malpractices indulged by broking firms like rebating - inducements to corporate executives to buy insurance covers through them.
"We have to protect our bottomline," argues V Jagannathan, chairman and managing director, United India Insurance Company. Currently, the cost of procuring business is less than 5 per cent of the premium for the government companies.
According to IRDA, the Mukherjee Committee has to submit its recommendations by 31 October 2003 on the following issues:
- Whether the 5-per cent discount in lieu of agency commission and remuneration presently enjoyed by a certain segment of the policyholders should continue or discontinue or modify in any other form in the interest of the future growth of insurance market.
- Whether any special dispensation is required to be given for government, PSU and corporate clients.
- Whether there should be linkage of this discount / commission / remuneration with the paid-up capital concept of the insured.
- Whether the kind of commission / remuneration encourages rebate and its effects on business development and the procurement cost as compared to the services to be rendered by the intermediaries.
- Whether there should be a differential rate of commission / remuneration to agents and brokers in general and with special reference to health insurance, personal lines, social and rural sector insurance business.
Presently the individual agents get a commission that ranges between 5 and 15 per cent depending on the kind of business procured by him/her while the broking firms earn a flat rate of 17.5 per cent.
The Mukherjee Committee will also look into:
- The role of intermediaries in the current insurance market scenario and clarify their utility to the future growth of the insurance industry in spreading risk awareness and widening the customer base in respect of both tariff and non-tariff businesses.
- The justification for the commission / brokerage earned by them and the regulatory safeguards to be put in place to eliminate unhealthy market practices.
- The feasibility of referral fee/charges arrangements in the context of cooperatives, panchayats, banks, non-governmental organisations and other such marketing intermediaries while specifying their role and duties.
According to IRDA, the expert committee will also suggest legislative and regulatory changes that are required to be made.
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