Insurance Regulatory and Development Authority (IRDA), Chairman, T S Vijayan made a case for insurance agents’ remuneration to be protected. Speaking at a FICCI seminar in Mumbai, on Monday, Vijayan said that if the cap on agent’s commission is removed, as proposed by the Insurance Bill, then companies will be free to fix the commission. This means either commissions could rise or they could come down.
The Insurance Bill proposes to remove the cap on agents’ commission, which is currently fixed at 40 per cent of first year’s premium.
“We cannot fix the minimum wage. The freedom to fix the commission will be given to the company. There will be a cap on expenses, but not how much to give the agent and so on. We are going to free everything. If the company wants to give high commission, let them take shareholder’s money. Don’t touch policyholder’s money. This is dependent on how the Bill shapes up,” Vijayan said.
The Bill proposes a limit on the management expenses for insurance companies, which will take into account current premiums in new business, bonus loading, expenses and rate of interest. But the higher cost cannot be recovered from policyholders by way of higher premium. The higher commission must be paid from the shareholder’s accounts.
The Chairman also urged insurance companies to launch small ticket policies with smaller premium, in order to improve insurance penetration. While currently annual premium is in the range of Rs 5,000-10,000, there is need for policies with premium of Rs 2,000-3000.
“Just as Jan Dhan Yojana has become a campaign for everyone to have a bank account, a similar campaign is required for everyone to have insurance,” he said.
In order to simplify insurance buying, he also said that there is a need for a central registry for Know Your Customer norms, which insurance companies can tap into. This will ensure that if KYC is done once, then there is no need for doing again.
About the proposed hike in Foreign Direct Investment in insurance to 49 per cent, Vijayan said that it would help the industry, given the potential for growth. “About 2.5 crore Indians are becoming major every year. They are potential customers. Added to this, the number of new vehicles coming on the roads every year is also huge. So, the number of policies that will be sold is phenomenal,” he said.