Limits on remuneration/rewards to intermediaries has been an
area which is highly controversial and keenly debated, following
the changes introduced by the Insurance Laws (Amendment) Act, 2015.
The statutory caps on remuneration as contained in Sections 40 and
40A of the Insurance Act, 1938 ("Act") were deleted and
simultaneously, amendments were introduced in Sections 31B and 40
to provide that no insurer shall pay any amounts (including
rewards) to insurance agents and insurance intermediaries for
solicitation of business other than as specified in regulations
notified by the IRDAI. Section 114A(2)(ic) and 114A(2)(jd) of the
Act empowers the IRDAI to specify the limits on remuneration
(whether payable by way of commission or otherwise) and the manner
and amount of remuneration and rewards payable to insurance agents
and intermediaries by way of regulations.
From the new changes introduced in the Act, it can be perceived
that there is a notable shift in the statutory framework towards
recognition of the importance of incentivising insurance agents and
insurance intermediaries over and above commission on particular
business generated by payment of rewards.
The common market practice of incentivising agents and other
distribution channels had, hitherto, lead to frequent controversy
and was a common subject of penalty orders issued by the IRDAI
against insurers, corporate agents and intermediaries alike. Basis
the statutory mandate, the IRDAI on January 13, 2016, released an
exposure draft on payments of remuneration to insurance agents and
intermediaries ("Exposure Draft") which notably
recognized payment of rewards over and above standard F&U
limits and proposed to regulate the same.
However, on March 15th, 2016, the IRDAI notified a circular
("Circular") clarifying that the existing framework on
remuneration to insurance agents and insurance intermediaries was
to be adhered to till the time the Exposure Draft was finalized and
brought into effect. The Circular excludes the Guidelines on
Appointment of Insurance Agents, 2015 of March 17, 2015, which
requires insurers to provide their approach on "payment of
incentive (bonus) commission" over and above the F&U
limits and the "schedule of payments of commission and various
other benefits to the agents" in the board approved policy on
"agency matters" to be filed with the IRDAI.
As several insurers have already complied with the said
guidelines for individual agents, there remains some ambiguity on
the approach that they need to take towards commission/ reward
payments to insurance agents as well as intermediaries going
forward. As it stands now, nothing seems to have changed, despite
the Insurance Laws (Amendment) Act 2015 having completed one
anniversary of being in force.
From a conceptual perspective, the Exposure Draft does seeks to
bring about much needed clarity on the subject by clearly
recognising the two fold approach of benefits that may come to
intermediaries, i.e., (a) standard remuneration on particular
business procured; and (b) rewards that insurers may offer to
incentivize good performance of intermediaries.
The Indian insurance sector is keenly awaiting the final
regulations in this regard and a clarification on the approach to
be adopted till the time the final regulations governing the
subject matter is issued by the IRDAI.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The insurance statutory and regulatory framework has,
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procurement of insurance business.
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