The trend is unmistakable. Either do it yourself or learn to pay for financial advice
The proposal assumes importance since insurers are paying a wide range of commission to companies for ‘referral activities’, which increases the premium paid by customers
The insurance regulator, Insurance Regulatory and Development Authority (IRDA) on Tuesday proposed that an insurance company need not pay more than 25% of the total commission to the non-banking company whose database it wants to acquire to sell products, reports PTI.
The prescription assumes importance since insurers are paying a wide range of commission to companies for "referral activities," which increases the premium paid by customers.
"An insurance company shall pay remuneration to the referral company for acquiring its database...and in no case shall exceed 25% of the commission," IRDA said in a draft regulation.
The draft is floated for insurers that use non-banking companies for their database to sell their products. It further said no fee or remuneration by any name is payable for the database of the same prospect more than once.
"No fee or remuneration by any name is payable on any type of renewal or sale of new policy to the existing customer of the insurer," IRDA said, adding no payment should be made by any insurer in advance to any organisation or person for any type of referral arrangement or database.
The insurance watchdog also said referrals are seen to increase the already spiralling costs of insurers. "Therefore, in the interest of preventing further cost escalation it is important to streamline the fee structures allowable to these entities," it added.
These proposals are part of the recent IRDA initiatives to make functioning of ULIPs more transparent
In a bid to further streamline the system governing Unit Linked Insurance Plans (ULIPs), the Insurance Regulatory and Development Authority (IRDA) on Tuesday proposed to do away with wide variance in charges imposed by insurers for surrendering these securities-linked products, reports PTI.
In the draft guidelines, the regulator suggested the surrender charge during the first year of the policy be fixed at 12.5 per cent of the premium paid in case the policy term is less than 10 years. For longer duration policies, surrender charges are proposed to be capped at 15 per cent. At present, insurers levy up to 60 per cent surrender charge in the first year, which drops to 30 per cent in the second year.
Most insurers, however, are following best global practices in ULIPs, said IRDA, which is currently in a tussle with market regulator Securities and Exchange Board of India (SEBI) over their regulation.
Analysts said the statement sharpens IRDA’s stand that not much is wrong with ULIPs, as is made out in certain quarters. The insurance regulator has issued a draft paper, suggesting uniform surrender charges for ULIPs.
The regulator also proposed various uniform norms that should be adopted by insurers for closing the policies or reviving them. As per the draft, there would be no charges for surrendering a policy with a maturity of under 10 years, if the policyholder surrenders his/her policy after six years.
For a policy with a maturity of over 10 years, there would be no charges if the surrendered from the seventh year.
The insurance regulator also imposed maximum limits that insurers could charge from policyholders, if they surrender their policies before the sixth year, in case the policy has under 10 years of maturity. If the surrender is before the seventh year of a policy with over 10 years maturity, there are ceilings prescribed on the charges as well, IRDA said.
Similarly, the grace period for payment of the premium will be 15 days if the premium payment mode selected is monthly. In other cases, it is fixed at 30 days.
The watchdog further said a policyholder must be given an option within a period of five years of the beginning of a policy to revive or reinstate the policy. However, the insurer will have the right to decline revival of the policy based on the grounds of moral hazard or medical conditions.
In case a policy lapses, a notice should be issued to the policyholder asking him/her to take a decision whether to continue with the policy or not within 30 days of receipt of such notice.
These proposals are part of the recent IRDA initiatives to make functioning of ULIPs more transparent. Recently, it asked life insurers to disclose the commission paid to agents for ULIPs, amid a debate over huge payouts given to them vis-à-vis mutual funds.
At a time when a turf war is on between the two regulators over ULIPs, the insurance regulator said the share of these policies has increased from 50.95% to 54.80% of life insurance business in 2009-10.