The Hindu Business Line : Eligibility limit for special discount raised to Rs 15 cr — IRDA revises norms on broking commissions

The Insurance Regulatory and Development Authority (IRDA) has revised the norms for special discount in lieu of agency commission and remuneration to direct insurance brokers and insurance agents.

The new norms, which supercede the IRDA circular dated March 3 last year, will come into effect from April 1 this year. The earlier circular was valid for a period of one year from April 1 last year till March 31 this year.

In a circular to industry stakeholders, the IRDA Chairman, Mr C. S. Rao, said, "The Authority has reviewed the performance of the industry, particularly the development of the system of brokerage and the benefits to insuring public through increased market penetration. A number of representations received from different stakeholders from time to time on the same have also been examined."

The industry participants, especially those in the broking community, consider the latest circular a win-win situation for all the participants, (insurers, insurance brokers and the insured). "The decision of IRDA to increase the eligibility limit for obtaining a special discount of five per cent in lieu of agency commission and brokers' remuneration from Rs 3 crore paid-up capital to Rs 15 crore without any distinction between the private and public sectors would result in the emergence of mega-insurance broking firms to handle sum insured above Rs 1,500 crore," the representative of a broking firm told Business Line.

According to IRDA, the cover under the mega-risk policies and project insurance above a sum insured of Rs 1,500 crore will also be eligible for agency commission and brokers' remuneration irrespective of the capital structure. The insured will not be eligible for five per cent special discount from April 1 onwards.

In respect of Government departments, where the paid-up capital cannot be determined, the facility of five per cent special discount in lieu of agency commission or brokers' remuneration would continue, the IRDA circular said.

The insurance regulator has provided two options for companies, public or private, having a paid-up capital above Rs 15 crore, except mega-risk policies and project insurance of a sum insured above Rs 1,500 crore. They can either avail themselves of a five per cent special discount and place the tariff business of fire, petrochemicals, engineering, consequential loss, machinery loss of profit (MLOP) and industrial all risk (IAR) directly with an insurer. Or they can seek the services of an insurance broker or insurance agent, in which case they would not be eligible for availing themselves of the special discount, the IRDA Chairman said.

The regulator has clarified that the special discount in lieu of agency commission or brokers' remuneration would be restricted only to tariff business of fire, petrochemicals, IAR, CL (fire), engineering and MLOP for paid-up capital above Rs 15 crore.

The regulator has also clarified that for marine hull tariff business, the existing scale of remuneration would continue until further orders. The IRDA Chairman informed the industry participants that the regulator is currently examining the recommendations made by the Expert Committee on other matters and would take a final decision in a due course of time.

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