Direct insurer discounts 'will end with tariffs'

Removal of insurance product tariffs will bring to halt 5 per cent direct discounts offered by insurers to corporate clients.

C S Rao, chairman of Insurance Regulatory and Development Authority (IRDA), said: "As long as the tariff prevails, the 5 per cent direct discount will continue."

Corporates have for over three decades enjoyed the discount when buying insurance cover directly from the insurance company.

With the introduction of intermediaries such as agents and brokers, there has been strong lobbying by the industry to remove the age-old practice started by the General Insurance Corporation of India back in 1972.

Rao, however, said that since corporates have built their own expertise in insurance and accordingly had been buying risk cover based on their own research, "in a tariff market, having built one's (corporate) own expertise, the 5 per cent discount helps meet the expenses incurred".

Intermediaries feel cheated as 40 to 50 per cent of the corporate insurance business dished out to brokers today carries no brokerage. Few corporate clients are willing to let go the 5 per cent discount on the premium charged.

"We are not saying the regulator should do away with the 5 per cent discount, but payment should also be paid to the broker," India Insure Risk Management Services managing director V Ramakrishna.

The Irda has ruled that an insurance company cannot pay the 5 per cent discount and pay brokerage for the same insurance business.

However, there are a number of new insurance companies, which have paid out brokerage and given a 5 per cent discount to the corporate client in order capture clients.

Considering that the maximum commission a broker can earn is 17.5 per cent, the insurance industry faced outgoes as high as 25 per cent.

The broking community continues to appeal to the Irda stating that Indian customers would be deprived of new and improved risk covers if broking services are not encouraged to thrive.

"The incidental additional cost to insurance companies "" in the form of broking commission "" in the short term would be offset through higher premium generation and the growth of the insurance industry as a whole in the long term," stated the broking association.