Consequent upon promulgation of Insurance Laws (Amendment) Act, 2015, Sec 40 states that no person shall pay or contract to pay any remuneration or reward, whether by commission or other-wise for soliciting or procuring insurance business in India to any person except an insurance agent or an intermediary or insurance intermediary in such manner as may be specified by the regulations. Further no insurance agent or intermediary or insurance intermediary shall receive or contract to receive commission or remuneration in any form in respect of policies issued in India, by an insurer in any form in respect of policies issued in India, by an insurer except in accordance with the regulations specified in this regard.
In addition Section 31B states that no insurer shall in respect of insurance business transacted by him, shall pay to any person by way of remuneration, whether by way of commission or otherwise in excess of such sums as may be specified in the regulations.
As a result of the amendments in the Act the Authority has framed draft regulations pertaining to Payment of Commission or remuneration by whatever name called to insurance agents and insurance intermediaries.
The underlying approach in framing the regulations is as follows:
a) To have uniformity as regards the segments of business vis-à-vis the expenses of management, commissions and manner of computation of solvency margin.
b) Same commission and remuneration for insurance agent and insurance intermediary
c) However higher rewards for insurance intermediary vis-à-vis insurance agent as the insurance intermediary has higher establishment costs and compliance requirements.
d) Parity in commission remuneration to health segment being solicited under the life insurance category and general stand-alone category.
The salient features of the draft regulations are as under:
1) These regulations will be effective from 1st April, 2016.
2) Commission, Remuneration and reward defined under the regulations
3) Every insurer shall have a Board approved policy for payment of commission or remuneration to insurance agents and insurance intermediary.
4) The objectives of the Policy shall include the utilization of insurance agents and insurance intermediaries in the manner that:
a) increases insurance penetration and density in the country;
b) is in the interests of the policyholders;
c) is commensurate with the business strategy;
d) brings cost efficiencies in the conduct of business and simplification of the administration of insurance business;
e) gives an indication on the relative degree of importance placed on each of them.
5) The Board approved policy for payment of commission or remuneration or reward to insurance agents and insurance intermediaries shall include the following items at the minimum:
(a) Manner and conditions regarding payment of:
i) commission or remuneration to the insurance agents and insurance intermediaries.
ii) renewal commission (ERC status), if any, to insurance agents after termination of agency.
iii) hereditary commission to the heirs of an insurance agent in the event of the death of the insurance agent.
iv) reward based on an objective and transparent criteria to insurance agents or insurance intermediaries over and above the commission or remuneration being not more than
- 20% of first year commission or remuneration in case of individual insurance agents.
- 40% of first year commission or remuneration in case of insurance intermediaries.
(b) Manner and conditions regarding transfer of orphan policies
(c) Grounds and manner of termination, suspension and cancellation of appointment of insurance agents and insurance intermediaries.
(d) Any restrictions on the products to be sold by any of insurance agents and insurance intermediaries.
6) The company shall file the Board approved policy at the start of the financial year and thereafter shall review the policy every year, and file changes, if any, within 30 days of such changes.
7) Safeguards for an individual insurance agent – There are safeguards provided under the regulations to an individual agent as required under the Act and these include:
a) No insurer to terminate, suspend or cancel the letter of appointment of an individual insurance agent on frivolous grounds and in an arbitrary manner;
b) The insurer may terminate, suspend or cancel the letter of appointment of an individual insurance agent only in the manner as laid down under the Board approved policy;
c) No insurer shall transfer the policies solicited and procured by an individual insurance agent, so long he is engaged by the insurer as their insurance agent;
d) The operation of this sub-regulation shall be reviewed by the Audit Sub-Committee of the Board and its report submitted to the Board for their review.
8) On the applicability of these regulations it is stated that
a) these regulations shall not be applicable to insurance products specified under IRDAI’s (Micro Insurance) Regulations, 2015 and IRDAI’s (Insurance Services by Common Service Centre) Regulations 2015 and such other insurance products as may be specified by the Authority from time to time;
b) These Regulations supersede Regulation (9) of IRDA (Linked Life Insurance Products) Regulations, 2013 and Regulation (21) of IRDA (Non Linked Insurance Products) Regulations, 2013; c) Where policies are procured direct by an insurer no commission or remuneration shall be payable either to insurance agents or to the insurance intermediaries;
d) No Insurer shall pay both commission to an insurance agent and remuneration to an insurance intermediary on the same insurance policy;
e) Notwithstanding the commission and remuneration rates specified under these Regulations, no insurer shall pay any higher rates of commission or the remuneration over and above those rates approved under the IRDA (Linked Life Insurance Products) Regulations, 2013 or IRDA (Non Linked Insurance Products) Regulations, 2013 or the File & Use guidelines applicable to General Insurers.
9) Payment of Commission or remuneration or rewards to insurance agent or insurance intermediary:
a)The commission or remuneration or reward to be paid to an insurance agent or an insurance intermediary shall be decided by the insurer based on its Board approved policy;
b) The maximum commission or remuneration or reward that is allowed for life insurance products offered by life insurers, health insurance products and general insurance products are given in various schedules.
10) Return on payment of Commission, remuneration and reward by the insurer –
a) All insurers, at the expiration of each financial year, shall submit a return on payment of commission, remuneration and reward by the insurer in format given;
b) The return shall be signed by the Chief Executive Officer, the Chief Financial Officer and Chief Compliance Officer of the Company and certified by the statutory auditor of the Insurer;
c) The Return along with the statutory auditor’s certificate shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the Insurer.
11) Penalties – Any breach or violation of the provision of the Act or the Regulations shall make the insurer or an insurance agent or insurance intermediary liable to a penalty as per provisions of the Act.
12) Power of the Authority to issue clarifications etc: – In order to remove any difficulties in application or interpretation of any of the provisions of these Regulations, the Chairperson of the Authority may issue clarifications, directions and guidelines in the form of circulars.
All are requested to offer their comments/suggestions on the proposed regulations for consideration of the same by the department. The comments/suggestions should reach us by 27th January, 2016 in the format attached to the undersigned by e-mail at commission [at] irda [dot] gov [dot] in and randip [at] irda [dot] gov [dot] in
(Randip Singh Jagpal)
Sr. Joint Director
12.1.2016
Source IRDA, Date:13-01-2016