Click to play videoNew Delhi: Ever wondered why your insurance agent is pretty much untraceable after the first year of your policy? Well, that's because of the subsequent drop in his commission to 7.5 per cent in the second year, compared to 30 per cent that he pockets in the first year.
But this may set to change for industry regulator IRDA now plans to even out payment of commissions over a longer time frame.
It also intends to remove the yearly cap set up under the Insurance Act 1938 and keep the structure flexible based on the service provided by the agent.
Insurance industry growth rate is riding high on the sale of unit linked insurance products, which attracts as much as 30 per cent commission in the first year itself.
Most often, this product, rather than being sold as an insurance policy is shown as an investment tool and compared to mutual funds, resulting in its mis-selling. And that is the biggest concern of the insurance regulator.
At present, there is a 60 per cent lapse in the first year of a policy compared to 15 per cent average over the entire life of a policy.
These numbers prompted a 10-member committee set up by IRDA in September this year to study commission structures. The report is expected to be submitted on December 31.
If the proposals come into effect, you can be sure of those yearly premium reminders from your insurance agent.
(With inputs from Karan Patheja in New Delhi)
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