​Insurance bill: IRDA is tightening its reins on insurance groups

The approval of a long-pending bill to raise the FDI slab in insurance sector comes as bliss for insurance agents. The bill passed yesterday in the Rajya Sabha is being seen as the Modi govt’s major economic reform. This ensures that Insurance Regulatory Development Authority (IRDA) will get more teeth once the insurance reforms begin to attract more foreign funds in the sector, reports The Economic Times.

Empowering the regulator to impose heavy penalty and set a ceiling on expense management, this bill aims at fixing remunerations for the insurance agents as well. Also, the Bill has discarded two Sections, that include 40 and 40 B, where limits can be prescribed by the IRDA.

In November last year, TS Vijayan, chairman of IRDA had advocated fixing a minimum wage of Rs 10,000 a month for the agents. Citing example that many countries pay 160% of the first year premium as commission to the agents, he had mentioned that the companies should be considerate while paying commissions.

The ET report informs that the commission on traditional insurance plans is capped at 40% of the first year's premium. However, commission on unit-linked insurance plans (Ulips) is capped since 2010, when the regulator had imposed a ceiling on the overall charges, including policy administration and premium allocation charges. As on March 31, 2013, there were 21.2 lakh agents, according to the latest data provided by the insurance regulator.

Amending Section 45, the bill states that the companies can no longer refuse to accept claims for any reason after three years of commencement of risk/date of reinstatement/date of issuance.


The bill adds that the regulator can penalise the companies for various violations. The ET news adds, for non-compliance, companies will have to shell out Rs 25 crore, up from Rs 5 lakh now. The penalty would be similar to violations of rural and social sector noncompliance. Agents or corporate agents mis-selling will have to cough up Rs 1 crore per case, up from Rs 1 lakh at present.

(Image: BCCL)