The Hindu Business Line : Restructure commission rates to banks, says IRDA

Mumbai, Dec 10 Commissions given to banks should be restructured to control the lapse of policies, said Mr K. Subrahmanyam, Executive Director, Insurance Regulatory and Development Authority.

Currently, the commission rate offered in the first year of the policy can go up to 40 per cent , followed by 7.5 per cent in the second and third year and 5 per cent in the fourth year. In the case of single premium products the commission is lower at 2.5 per cent in the first year.

Mr Subrahmanyam said the compensation structure should provide an incentive for banks and individual agents to make sure that a policy remains in force and does not lapse.

“The commission in the first year could be lowered. Instead there could perhaps be a higher commission in the last year of the policy, before it matures,” he told reporters at the sidelines of a “Bancassurance Conference”.

Link structure to lapses

“There is a need to link the compensation structure for banks with the lapse ratio. This ratio can range from 15 per cent to as much as 60 per cent after the first year of the policy,” he added.

The IRDA had set up a committee in September to look at distribution channels. The committee aims to look at the remuneration structure, functioning, cost effectiveness and weaknesses of distribution channels.

Mr Subrahmanyam said the committee was expected to submit its recommendations by the end of December or the beginning of January.