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Commission Disclosure Norms for Insurance Agents
In a circular to all life insurance companies, the Insurance Regulatory & Development Authority (IRDA) instructed all life insurers to disclose explicitly, in their Benefit Illustration document, the commissions they pay to their agents. This circular comes into effect from July 1, 2010.
The Benefit Illustration document shows the benefits due to a policyholder upon maturity of an insurance policy. A signed copy of the Benefit Illustration, along with the proposal form is mandatory for issuing a policy.
According to IRDA, this circular will enhance transparency by providing prospective policyholders with details of the exact amount of commission/brokerage paid by insurers to insurance agents. Interestingly IRDA's move comes nine months after SEBI banned entry loads on mutual funds from August 1, 2009. Moreover, the decision also comes less than six months after the Reserve Bank of India (RBI) asked banks to disclose the commission on policies sold by them.
We feel the circular is a "knock-on effect" of the tussle between capital market regulator SEBI and insurance regulator IRDA on the issue of regulating Unit Linked Insurance Plans (ULIPs). However we also feel that this move ensures transparency, thus making it pro-investor. A point to note is that, on the negative side this move may encourage many insurance agents to rebate commissions to their clients, which is an illegal practice.
The Irda had issued a circular on the “benefit illustration” on January 25, 2008. This circular made it mandatory for insurance companies to take the signature of the policyholder on the benefit illustration stating that he (the policyholder) has understood the policy, before taking the policy.
Even then, We know a lot of incidents where agents sign this benefit illustration document themselves, without going through the trouble of explaining the Ulip to the prospective policyholder. Or they just pass it off along with a slew of documents that the policyholder needs to sign at the time of taking the policy.
Another question here is, how many Agents actually understand ULIP themselves other than the fact that it gives a good commission.
And what about us? How many of us would actually understand how an Ulip works, even if the agent were to try to explain it to us.
We still believe that the real issue is not the commissions but a satisfactory customer experience |
