If you buy a Unit Linked Insurance Plan (Ulip) after December 31, chances are that your agent would not pass back a portion of his commission to you — a practice referred to as rebating in insurance parlance.
Agents use rebating to grab new clients, even though the Insurance Regulatory and Development Authority (IRDA) has declared the practise illegal.
IRDA had in August introduced a cap on the amount that an insurance company can deduct as charges (excluding mortality charges): 3 per cent of the total returns earned by the policyholder for insurance contracts up to 10 years, and 2.25 per cent for those above 10 years.
On January 1, life insurance companies are set to cut the commissions paid to agents. Once this is done, distributors would not be left with any margin to rebate, they feel.
Sanket Kawatkar, head (life insurance consulting), Watson Wyatt Worldwide said, “An agent spends a high amount on travel and other expenses. If commissions are cut, his ability to share his compensation with the customer will get affected.”
Rajan Dhawan, chief general manager of Punjab National Bank, was hopeful that “public sector banks who were losing customers to NBFCs will get back these customers.”
Kamesh Goyal, country manager Allianz & CEO of Bajaj Allianz Life Insurance said, “The challenge for insurers will be to reduce their charges/expenses to support low-premium policies.”
Batting for the agent, Goyal felt that rebating should be legalised. “If an insurance agent is happy to share his commission with the customer and work on low commissions, why should it be prevented?”