Insurers have opposed the recommendations of the Bose committee, which has proposed several changes to the current structure of incentives offered to insurance distributors and the product structure of insurance plans.

Some of the recommendations made by the committee include no upfront commission for the investment part of unit-linked insurance products, aligning commissions and capping investment costs in line with other financial products, and removal of lapsation profits accruing to insurance companies.

The high-powered Sumit Bose committee was set up by the Finance Ministry last year to recommend measures to curb mis-selling and rationalise distribution incentives of financial products

V Manickam, Secretary-General of Life Insurance Council, said that recommendations of the committee are not practical. He said the panel has not taken into account the legwork agents put in to to sell insurance products.

Collating views

The Life Council is currently in the process of collating views from insurers and sending these to the ministry.

The CEO of a leading life insurance company, who did not wish to be named, said: “Commissions should reflect the effort required and the stage of the product lifecycle. Compared to other financial products, insurance is long term in nature and difficult to sell and, hence, requires the current compensation structure.”

He also said that if surrender charges are removed, then life insurance contracts, which are long term in nature, may get converted into short-term contracts as policyholders will tend to surrender the policies, defeating the purpose of long-term life insurance coverage.

Incidentally, the insurance regulator in 2009 had opposed the recommendations of the Swarup committee, which too sought to moderate agency commissions.

Published on October 19, 2015