In what seemed to be an extension of a regulatory turf war with stock market regulator Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA) today shot off a circular asking life insurers to disclose the commission paid to agents for unit-linked products (ULIPs).
The IRDA circular followed reports that emerged in the press those insurance agents are being paid unduly large commissions for selling Tulips.
"It has been decided to disclose the commission or brokerage payable to an agent or broker explicitly ... from enhanced transparency viewpoint," IRDA said in its circular. The information will bring about more transparency by providing prospective policyholders clear information about the amount that has been collected from them as brokerage or commission, the circular said.
The new rule will come into effect from 1 July.
The commission paid on ULIPs has actually been a long-standing grouse of the mutual fund industry. Mutual funds have been complaining that the hefty cut paid to agents as commission on ULIPs has led to agents pushing only unit-linked plans.
The insurance watchdog's decision also comes seven months after SEBI decided to ban entry load on mutual fund schemes, which includes commission that investors pay at the time of purchase. The ban on entry load virtually dried up the source of commission for mutual fund agents, thus forcing them to shift to selling other insurance products.
"It is essential that investors are fully aware of the key components of the product pricing, which includes mortality charges and the commission. We are maturing as an industry and IRDA's decision will further help establish insurance products as a viable long-term investment option," Metlife India Insurance company managing director Rajesh Relan said.