GOVERNMENT OF INDIA
Ministry of Finance
Department of Financial Services
UNSTARRED QUESTION NO: 481
TO BE ANSWERED ON 24.11.2009/ 3 Agrahayana 1931 (Saka)
Commission structure of insurance agents
481. Shri Rajeev Chandrasekhar:
Will the Minister of Finance be pleased to state:
(a) the details of the commission structure of intermediaries or commission agents handling insurance policies along with estimates of commissions paid to such agents for the last three years, year-wise by Life Insurance Corporation (LIC) and private companies separately;
(b) whether Government is considering scrapping agents commission in cases where insurance policies are directly purchased from companies, either online or by walking into an insurance company.
(c) if so, by when this provision is likely to come into effect; and
Minister of state in the Ministry of Finance
(SHRI NAMO NARAIN MEENA)
(a) The Insurance Regulatory and Development Authority (IRDA) has informed that the commission structure of intermediaries/insurance agents handling insurance policies is as follows:
Agents and Corporate Agents: Section 40A of the Insurance Act, 1938 prescribes the limitation of expenditure on commission applicable both to individual and corporate agents. For life policies, other than annuity policies, in general, the commission permissible is thirty five percent of the first year’s premium (an insurer, during the first ten years of his business, may pay forty percent), seven and a half percent of the second and third year’s renewal premium, and there after five percent of each renewal premium, payable of policy. For annuity policies where single premium is payable, two percent of that premium is payable towards commission. Incase of deferred annuity with more than one premium, seven and a half percent of the first year’s premium and two percent of each renewal premium is payable towards commission.
Cap on the Insurance Agency Commission: As per the Section 40 (2) of the Insurance Act, 1938, no insurance agent shall be paid or contract to be paid by way of commission or as remuneration in any form an amount exceeding in the case of life insurance business, forty percent of the first years premium is payable on any policy, or policies effected through him and five percent of a renewal premium, payable on such a policy, or, in the case of business of any other class, fifteen percent of the premium.
Brokers: The IRDA (Insurance Brokers) Regulations, 2002 specifies the conditions and code for the these intermediaries. As per these Regulations, no insurance broker shall be paid or contract to be paid by way of remuneration (including royalty or license fees or administration charges or such other compensation), an amount exceeding 30% of the first year’s premium and 5% of each renewal premium in respect of individual insurance and 2% of the premium in respect of annuity with single premium. For deferred annuity with more than one premium, 7.5 % of first year’s premium and 2% of each renewal premium is payable.
Commission paid by Life Insurance Corporation of India (LIC) and private insurance companies for the last three years is as follows:
(Rs. in crores)
(b) & (c): If a policy purchased through direct marketing or online, the question of payment of agency commission does not arise.
(d) IRDA has put in place specific regulations for the same under relevant intermediary regulations by way of code of conduct.