Rattled by sweeping changes recommended by the Swarup committee on investor awareness and protection,insurance industry players today demanded that the commission-based model be allowed to co-exist with the fee-based model. It should be left for the customer to decide whether he wants a fee-based approach or is comfortable with the current commission-based approach, said industry players. Chaired by D Swarup,chairman of Pension Fund Regulatory and Development Authority (PFRDA),the draft consultation paper of the Committee on Investor Awareness and Protection had recommended a variety of changes to the current structure the most important being phasing out commissions. Insurance policies need to remove the bias towards selling the policy with the highest commission, said the consultation paper. According to the paper,upfront commissions embedded in the premium paid on the financial products should be reduced to no more than 15 per cent of the premium immediately from the current 16.25 per cent. It should then gradually be brought down to 7 per cent in 2010 and a zero-commission structure should be in place by April 2011. Industry estimates show that the recommendations will affect almost 30 lakh agents and 18.8 crore investors. The committee had conducted a seminar today to take into account the feedback of industry players before finalising its report and submitting it to the government. The committee has an open mind. It will deliberate on the suggestions made today and come to a view in due course, said Swarup. While the mutual fund industry has already done away with the load structure,it is the insurance industry that will be hit the hardest in case the committees recommendations are accepted. Agents,who get as much as 30 per cent commission for sale of insurance products,are virtually the lifelines of the industry and contribute almost 70 per cent of total business. The changes recommended will give a significant blow to the industry. The industry is deeply entrenched and therefore the transition will be hard. However,if these recommendations are accepted and implemented,it will do a lot of good to the financial sector space in the country, said Dhirendra Kumar,chief executive officer,Value Research. The committee was set up five months ago by the government on the recommendation of high Level Committee on Capital markets. It had members from RBI,IRDA,Sebi,ministry of finance and ministry of corporate affairs.
