To Curb Misselling, IRDA may Ban Incentives to Bank Staff

The insurance Regulatory and Development Authority of India is cracking the whip on misselling of insurance by banks. It proposes to ban insurance companies from giving incentives and junkets to bank staff for selling insurance policies. The regulator will come out with a differential commission structure for agency and banks. This could shave off incentives for bankers selling insurance. "We're going to prescribe differential commission for agency and bancassurance," said Nilesh Sathe, member-life at Irda. "We are going to allow 35% commission and 7% incentives for agency . For banks, we would allow 35% commission but no incentives. The commission is spread over the term depending on the nature and tenor of products.

In the exposure draft, the regulator had suggested legalising overriding commission to be paid to individual agents. Insurance companies have been paying productivity-related bonus to performing individual and corporate agents. "We have to compensate agents for their efforts," said Sathe. "An agent approaches several people before he or she is able to sell a policy . In banks, efforts put in are far less. Total reward should not be more than 20% of 35%." There is, however, reduction in overall com mission. Insurance companies were paying commissions as high as 40% in the first year, 7.5% in second year and 5% in subsequent years. Normally, commission is three times the tenor of the policy till it reaches the limit of 35%.

Irda got the power to structure commission rates after the amendment to the Insurance Act. "Corporate agents incur organisational expenses that are additional to sourcing expenses incurred by individual agents," said RM Vishakha, MD, IndiaFirst Life Insurance."The suggestion of differential commission between corporate agents and individual agents is not comparable considering the unique challenges applicable to each channel. Payout should depend on a holistic approach."

The commission expenses ratio, which is commission expenses as a percentage of premiums, decreased marginally to 5.93% in 2014-15 from 6.63% in 2013-14. Overall, while the commission expenses increased in case of renewal premium, there's been a fall in commission paid to single premium and regular premium products.