Ins regulator to clamp down on over 15pc agent commissions
The insurance regulator has decided to clamp down on the practice of general insurance companies offering more than 15 percent in commissions to agents.
The Insurance Development and Regulatory Authority (IDRA) took the decision after a series of meetings with insurers and relevant association.
Yesterday the IDRA went as far as seeking help from the Bangladesh Bank and the finance ministry to cap the commission, which, according to the regulator, is distorting the market and pushing relatively compliant companies aside. BB Governor Fazle Kabir chaired the meeting at the central bank headquarters.
Some insurers are offering exorbitantly high commissions -- up to 60 percent of premiums -- to get business. When a good company does not want to pay the same amount, parties go to other insurers without considering the risks.
The insurance regulator had issued a notice in 2012 fixing the ceiling for agents’ commissions at 15 percent of premiums. The notice was to have come into effect from March 1, 2012. But nobody has followed the IDRA rules and if a good company tries to stick to the rules, they would lose business to other companies.
“It is urgent for all insurers to follow the rules. It will strengthen companies’ capacity to pay claims and boost reserves,” Manirul Islam, managing director of Pioneer Insurance, told The Daily Star yesterday.
Asked if Pioneer Insurance lost business to others, Islam said, “It does not matter; we will follow the IDRA’s decision.” “Commission is nothing but a bribe and it generates black money in the economy,” he said.
Insurance companies offer commissions to new customers as an incentive to lure them into an insurance scheme or make them purchase a policy. This commission is given to the clients in the name being provided to agents. It is also common for customers to bargain for a discount on the amount of premium they pay, which often becomes the deciding factor for purchasing a policy or product.
For example, if a policy’s premium is Tk 200,000, a 50 percent commission to clients would take the actual premium paid to Tk 100,000, though the figure will remain Tk 200,000 in paper.
Before the enactment of new laws in 2010, the insurance industry was run by a 1938 act, where there were no hard and fast rules about the commission.
And some vested insurers used to offer as high as 80 percent of premiums as commission. The IDRA will sit with different business bodies next week to seek their help for implementing the decision.
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