Insurers told to inform clients; rule comes into force on June 15
In a significant development towards curtailing the practice of rebates being offered by the general insurance brokers, the Insurance Regulatory and Development Authority (Irda) has disallowed the existing practice of issuing five per cent discount in commission/ brokerage on the face of the insurance policy available in the case of all classes of business to non-public sector entities with effect from June 15, 2003.
The authority has asked all general insurers to initiate steps to inform their clients accordingly.
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The authority has issued new brokerage guidelines only on March 22 this year and the fresh guidelines negate those earlier guidelines.
According to the new guidelines, in case of business generated from public sector undertakings (defined as government companies under Companies Act, 1956), no brokerage or commission will be paid.
The insurance companies can, if they so choose, grant a five per cent discount on the face value of the policy.
In respect of businesses emanating from all other companies, organizations, individuals and authorities, the insurance companies will be guided by the provisions of the regulation (19) of the brokers regulations, which have laid down individual limits on payment of brokerage on general insurance business (on tariff as well as non-tariff) and also life insurance, annuity, group insurance, pension schemes etc.
The limits mentioned under regulation 19 would be the maximum brokerage that would be payable by an insurer, N Rangachary, chairman of Irda, told the insurers.
The Authority is carrying out a campaign for quite some time drawing the attention of the insurers and insuring public to the unethical nature of the rebating terming it as immoral and unethical practice which is likely to be penalized under the provisions of the Insurance Act.
The representatives of the Insurance Brokers Association of India have met the members of the authority recently on the issue and promised to conform to the various provisions of the Insurance Act, 1938.
The association has also accepted the suggestion of the authority to include one of the members of the authority as a member of its disciplinary committee.
IRDA has also today announced the appointment of P A Balasubramanian, a member of the authority as a member of the disciplinary committee appointed by the association. Prabodh Chander, executive director of the authority will be the alternate to P.A. Balasubramanian.
Now that the brokers association has conformed to the requirement of the authority and has taken steps to control and discipline its members, the authority hereby makes changes to the guidelines issued on March 22, 2003, N Rangachary, chairman of Irda said in the communication.