Insurance agents can soon expect a better incentive structure for selling policies. The Insurance Regulatory and Development Authority of India (Irdai) is working on a structure, which would have maximum and minimum caps for agent commissions. This means, insurers could have their own bands of commission for the agents within the cap and not follow a fixed percentage structure.
Under Section 40A of the Act, no insurance agent would get a commission exceeding seven-and-a-half per cent of the first year's premium, and two per cent of each renewal premium payable on the policy, where the latter grants a deferred annuity in consideration or more than one premium.
The new caps, if implemented, would mean that a customer would have to pay higher premiums so that higher commissions are paid to agents. This is because commissions are paid out of the policy premium given by a policyholder.
Under the traditional product guidelines in force since January 1, 2014, commissions are linked to the tenure of a policy. The higher the duration, the higher is the commission. Irdai has said commission rates for policies with longer tenure would be higher than those for short-term policies. For policies with tenures of at least 12 years, the commissions would be 35 per cent of the premium.