5% direct discount till 06, Irda panel eases regime

The five per cent direct discount is expected to continue till April 1, 2006 as per the recommendations made by the three-member committee constituted by the insurance regulator.

It has further recommended that the eligibility limit for the discount should now be raised to a minimum paid-up capital of Rs 1 crore and above for corporate bodies, and be restricted solely for risk policies pertaining to fire and engineering.

It has been further recommended that public sector undertakings (PSUs) be allowed to take broker/agency advise and pay for the same.

This will widen the access of corporate client base (below paid up capital of Rs 1 crore) to agents and brokers, stated the panel.

The Rs 10 lakh paid up capital norm fixed earlier for qualifying for special discount is very low under the present economic trends, and hence recommendations to raise the limit.

Meanwhile, having raised the limit, the committee has also recommended that commission to agents be restricted to a maximum of 10 per cent for agents and 12.5 per cent for brokers in the case of corporates having a paid-up capital of less than Rs 1 crore in the case of tariff covers.

In the case of non-tariff covers, the commission limits have been suggested at 15 per cent and 17.5 per cent, respectively.

The committee has strongly recommended that the entire industry moves towards de-tariffing not later than April 1, 2006.

The committee stated the need for a road map to be drawn up with the IRDA, TAC and the general insurance council ensuring a smooth changeover to a non-tariff system.

However, the committee sees no justifiable reason in the interim period for the withdrawal of the five per cent direct discount.

The committee is chaired by former New India chairman A C Mukherjee along with two members "" K N Bhandari and G V Rao. Insurers are likely to be asked to publish quarterly results as opposed to the current practice of yearly fina

The panel stated that insurers have neither actively adopted nor taken any serious measures to reduce costs nor have they any strategies in place to do so that will result in lower premiums at least in the future.

"Insurers have combined ratios (claims plus expenses) in excess of 114 per cent on earned premiums for 2002-03 resulting in huge underwriting losses," it stated.