The insurance regulator and the pension regulator are at loggerheads on the issue of investor awareness.
The Insurance Regulatory & Development Authority (IRDA) has highlighted three key concerns to the Finance Ministry, saying financial inclusion will take a hit if insurance agents are paid a fixed fee as recommended by a committee on investor awareness chaired by D.Swarup, chairman of the Pension Fund Regulatory and Development Authority (PFRDA).
IRDA says that millions of rural agents who rely on commissions from small-sized insurance policies stand to lose earnings – and thus employment prospects – if there is a switch to a fee-based regime.
There are 30 lakh insurance agents, who earn a portion of the business they bring to the company as commissions which range as high as 40 per cent in the first year of the policy.
The Swarup Committee has recommended that the commissions should not be embedded in the premium and instead the agent should be paid a fixed fee. “It is suggested that immediately the upfront commissions embedded in the premium paid be cut to no more than 15 per cent of the premium. This should fall to 7 per cent in 2010 and become nil by April 2011,” said the Committee’s Report. Narayan told Hindustan Times that Swarup’s panel also wanted that the distributor should be a “highly trained person.”
“Where will you get such a trained person for selling all products? Will such a professional be willing to sell small ticket policies in rural areas? If they do not reach rural areas, financial inclusion will be defeated,” said Narayan.
“The fee based model will kill the industry as it would lead to losses for insurers and agents thereby leading to consolidation among distributors. Distributors will control the industry like in the United States which will not be in the interest of customers,” said Narayan.
Swarup said,“We have not received any feedback from IRDA. A final meeting of Committee will be held on 5th November where the comments and feedback received on the Report will be considered and the recommendations will be finalised.”