Insurance Agents and Insurance Intermediaries Remuneration Guidelines by IRDAI

Insurance Agents and Insurance Intermediaries
Sherin Jose
| Updated: Nov 30, 2022 | Category: IRDA Advisory, Other Services

The regulation of commission or remuneration or rewards payable to insurance agents and insurance intermediaries had been relegated to the Insurance Regulatory and Development Authority of India (IRDAI) after the Insurance Laws Amendment Act, 2015. Pursuant to which, the Insurance Regulatory and Development Authority of India notified the exposure draft called the Insurance Regulatory &  Development Authority of India (Payment of Commission/Remuneration/Reward to Insurance Agents & Insurance Intermediaries) Regulations, 2022 [Draft Regulations, 2022]on 23 August 2022, to provide more autonomy to insurance companies in regulating and providing commissions or remunerations to its insurance agents and intermediaries on the basis of a board policy which has been approved by the Board of Directors (BoDs) of the insurance company. These regulations aim to remove the strict restrictions imposed on such commissions or restrictions which are payable to insurance agents and insurance intermediaries under the Insurance Regulatory & Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016.

The objective of the Insurance Regulatory & Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Intermediaries) Regulations, 2022 is “to enhance responsiveness to market innovation, to facilitate the insurers in the development of new business models, products or items, strategies & internal processes & enable in easy compliance with the regulations while fulfilling the regulatory objectives; to provide the insurers the flexibility to manage their expenses based on their growth aspirations & the ever-changing insurance needs with an objective to improve insurance penetration”.

The insurance intermediaries shall include corporate agents, web aggregators, insurance marketing firms, insurance brokers, common public service centers and other entities as may be specified by the IRDAI.

The Draft Regulations 2022 have merged the definitions of Commission and Remuneration into one to include “compensation paid by an insurer & received by an insurance agent/an insurance intermediary for securing and procuring an insurance policy”.

The Draft Regulations, 2022 clearly state that the Insurance Regulatory and Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 shall stand repealed from the date on which the Draft Regulations, 2022 come into force.

Applicability of the Insurance Regulatory & Development Authority of India (Payment of Commission/Remuneration/Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2022

The Draft Regulations mention it would be applicable to insurance products except the ones mentioned under the Insurance Regulatory and Development Authority of India (Micro Insurance) Regulations, 2015 and other insurance products as similarly specified by IRDAI. Moreover, where the insurer procures the policy directly, the insurance agents or insurance intermediaries shall not be paid any commission or remuneration. The insurers are to provide the necessary discounts in the premium to such policyholders as maybe be provided in the board policy.

Board Approved Policy for Payment of Commission/Remuneration/Reward to Insurance Agents and Insurance Intermediaries

  • The insurer is mandated to have an “explicitly written policy” for payment of commission or remuneration, or rewards to its insurance agents and insurance intermediaries and the same must be approved by the Board of Directors of the company. This policy must be renewed annually.
  • The policy for Payment of Commission/Remuneration/Reward to Insurance Agents and Intermediaries shall be drafted in a manner to improve the performance of such agents and intermediaries. The policy should be such that it is in tune with the business strategy of the company and with the interests of the policyholders, brings cost efficiency to the administration and conduct of the insurance business and should increase insurance density and penetration in the country.
  • The draft Regulations also mandate that the policy should clearly mention:
  • The conditions and manner of commission or remuneration or reward payable to the insurance agents and intermediaries.
  • The manner and conditions of payment of renewal commissions to insurance agents after agency termination and in the event of the death of an insurance agent, a hereditary commission to the heirs of the deceased insurance agent.
  • A schedule mentioning the maximum commission or remuneration or reward payable to the insurance agents and intermediaries as a percentage of premium under each business line.
  • Conditions and manners of transfer of orphan policies.
  • Manner and grounds of suspension, termination of insurance agents and insurance intermediaries and cancellation of appointments thereof.
  • Restrictions, if any, on the products sold by the insurance agents and insurance intermediaries.

Commissions or Remuneration or Reward to Individual Insurance Agents and Insurance Intermediaries by Insurers

The Insurance Regulatory and Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2022 have laid down certain parameters for the insurers while paying commission or remuneration or rewards to insurance agents and intermediaries. Insurers must follow the below-laid parameters while paying their agents:

  • The Board policy shall be the basis of commission or remuneration, or reward payable by the insurer to the insurance agents and intermediaries.
  • In cases of Life Insurance, including health insurance, offered by the insurer, the maximum commission or remuneration, or reward payable shall be as follows:
    • Where the Expenses of Management do not exceed 70 % of the Expenses of Management limits allowable in the previous fiscal year, the insurer must follow the limits mentioned under Schedule-1 of the Draft Regulations, 2022 while deciding the maximum or following the policy approved by the Board.
    • Where the Expenses of Management exceed 70 % of the Expenses of Management limits allowable in the previous fiscal year, then the insurer must follow the limits mentioned under Schedule-1 of the Draft Regulations, 2022 while deciding the maximum.
  • In cases of General insurance, including health insurance which might be offered by such general insurers, the maximum commission or remuneration or reward payable must not exceed 20 % of the gross premium of the fiscal year, written in India.
  • For health insurance which might be offered by such individual insurers, the maximum commission or remuneration, or reward payable must not exceed 20 % of the gross premium of the fiscal year, written in India.

Obligation on Insurers to Prepare Returns on Payment of Commission or Remuneration or Reward to the Insurance Agents and Insurance Intermediaries

The Insurance Regulatory and Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2022 put an obligation on the insurers to prepare and maintain returns on payment of commission or remuneration/reward to insurance agents and intermediaries within 45 days from the expiry of the fiscal year and report the same to IRDAI[1]. The returns must be reviewed by an Audit Committee before presenting the same before the Board of Directors of the insurer for approval.

Conclusion

The Insurance Regulatory & Development Authority of India brought about the Insurance Regulatory & Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2022, with a view to providing more regulating power and flexibility as to expenses to the insurance companies with respect to the commission or remuneration or rewards payable to its agents and intermediaries. Although the actual impact of the Draft Regulations 2022 is yet to be clearly understood, many experts say that having connected the Expenses of Management with commissions, the efficiencies of agents and intermediaries were likely to increase. It has also been opined that these regulations might benefit and motivate insurance agents and other intermediaries of big insurance companies with good hold over their Expenses of Management, but smaller agents might not be motivated to sell insurance.

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Sherin Jose

Sherin has degrees in Law and English Literature from the University of Delhi. She is adept at legal research and writing and enjoys discussing and analysing important legal developments. Her primary interests lie in Corporate, FinTech and IPR Law and she is always on the lookout for exploring new developments in the area. She is an avid reader who loves classics and contemporary fiction. She likes to travel, bake and obsess over cat videos in her free time.

 

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