D-2/IRDA/3/2002

TO

All General Insurers

Re: Direction of the Authority under section 34(1) of the Insurance Act, 1938

With reference to our circular No. D-1/IRDA/3/2002 dated 7th March, 2002 regarding the above and subsequent representation received from insurers and agents' association, the matter has been re-looked and following clarifications may please be noted :

1. The commission structure indicated in the said circular having linkage with paid capital of the insured remains unaltered. The insureds having paid capital would be corporates, cooperatives or firms in the private sector or public sector. Business emanating from individual loans taken from hire purchase companies or banks for purchasing housing property and/or vehicles are outside the purview of this commission structure. If the insured is a company/firm/co-operative society and any asset owned by them for which insurance cover is taken then the commission structure indicated in the said circular shall be applicable.

2. In all cases where agency commission is not paid i.e the paid up capital of the insureds is more than Rs.25 crores, a discount of 5% of the premium can be allowed and indicated as such in the policy documents. However if an insured in the categories referred to in the Direction, prefers to deal directly with an insurer, he should convey the same in writing, prior to taking an insurance cover. In that event insurer whilst granting cover can show 5% or 2.5% as the case may be as special discount and indicate on the policy document.

3. In all cases where insurers as individuals are insuring their assets whether under hire purchase finance or otherwise and/or lives against personal accident and sickness and other personal lines of insurance, insurers can decide the level of the commission payable upto a maximum of 15%.

With the opening up of the sector, it is expected that the personal insurances need to grow at a faster rate and there is tremendous scope in increasing volumes in retail business. The commission levels are upto 15% for tariff and non-tariff products for personal lines business and hence there exists vast potential for the agency force to grow and build steady income. It all depends upon the market thrust and the strategies by the concerned insurers. At the same time there is a felt need to control outgoes on commission payments on large accounts. It is unfortunate that the Authority has been receiving complaints of mal- practices in the procurement of business and commission outgoes against one head or the other. The Authority would like to caution that there exists a system of "on site inspection" by the Authority, of insurers, and insurers found wanting in the implementation of guidelines and allowing unhealthy practices to creep in, will be dealt with as per the provisions of the Act. Let the market conduct be above board, just and fair and in conformity with the regulations notified by the Authority.

(N. Rangachary)
Chairman