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Wednesday, Mar 27, 2002

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Money & Banking - Life Insurance

Insurers team up to fight 'rebate' menace

M. Ramesh

CHENNAI, March 26

ALL these years, the life insurance agent regularly did something that was patently illegal - in order to get business, he waived a part of the first year's premium to the customer, by paying the `rebate' out of his own commission.

The practice went on, for there was only one life insurance company and most of the agents were part-timers, who had regular employment elsewhere, to whom a little income from selling insurance was gratifying enough.

But with the face of the industry looking so different now, this rebating is fast receding into the dumps.

Rebating the premium is considered bad for a number of reasons. First of all, it devalues the profession of the agent and puts it into a risk of turning unviable.

Second, today insurance products are sold by many other channels too, such as banks, corporate agents and (soon) brokers.

If individual insurance agents give unauthorised discounts, it could put the other channels of distribution at a competitive disadvantage.

"I can sympathise with the embarrassment of the bankers," says Mr G.K. Raman, Chairman, Royal Sundaram Alliance, referring to the difficulty in selling insurance products across bank counters, if individual agents persisted with giving discounts out of their pockets.

The first step to curb this practice has come from the industry.

"Very soon," according to Mr Deepak Satwalekar, CEO of HDFC Standard Life Insurance Company, "an ad would be released in the papers, informing the public that it is illegal for insurance agents to `rebate' the premium, by parting with their own commission."

At a seminar here recently, Mr Satwalekar said that a group of life insurance companies had approved the ad, which would be released shortly. He also said that there had been a few instances of rebating in his own company, and the management summarily sacked the agents responsible for it.

However, unless all the insurance companies join hands to take a firm step to curb rebating, distortions in the market will continue.

The IRDA Chairman, Mr N. Rangachary, expresses confidence that rebating will go, with the professionalisation of the agents.

Unlike earlier, today's agent is a trained, full-timer who realises that the commission is the money due to him for his efforts.

The IRDA has asked the new association of insurance companies, Indian Insurance Alliance, to devise a system of compensation that is different from the existing one. The Alliance's President, Mr Venkatesh Mysore, in an e-mail to Business Line, said: " I have been given the task of pro

posing a compensation system for agents that would help professionalise the insurance industry and provide better customer service. That is not necessarily through equated commissions. I am still working on it by drawing benchmarks from other markets and hope to have more details in a week or so."

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