The Insurance Regulatory and Development Authority (Irda) has directed all domestic life insurance companies to tighten their “expense management in order to procure durable business and position themselves on a strong footing”. The directive also urged the insurers to submit details of expenses and the steps they have taken in this direction beginning the current financial year ending March 31.
The regulator’s move comes after reports surfaced that insurers are making “disproportionately” huge commission payments to their “intermediaries”, other than individual agents. This, in turn, affects the overall financial strength of the companies.
The insurers are believed to be paying “huge sums” as referral fees to intermediaries such as banks (who are bancassurance partners for insurance companies) and corporate agents. According to industry sources, the minimum amount paid to banks as referral fee is in the range of Rs 10-25 crore, excluding commission.
“This practice is killing the market,” says a senior representative from the industry. Because of this liability, the insurers are forced to set apart huge sums to save their partnership with the banks, he adds.
Irda wants the insurers to furnish detailed information about the payments made to intermediaries other than individual agents, which has to be sent along with the Appointed Actuaries Report to the regulator.
If there are any other party linked to the intermediary and if any amount is made to such parties, that fact should also be included, Irda states. The companies should also disclose the amount of business procured through these intermediaries during the year.
The definition of related parties to intermediaries should be conformity with the accounting standards of ICAI and Companies Act. The regulator has also stipulated that the information certificate given by the company to the regulator should have signatures of the insurer’s chief executive officer, the chief financial officer and the compliance officer.
Wherever necessary, Irda may also ask external auditors to certify the statements received from the company and its officers. The regulator views the referral fee paid to the banks as being on the higher side of the expenses of the life insurers.
