Insurance industry questions plan to phase out commissions

The committee,spearheaded by D Swarup,Pension Fund Regulatory and Development Authority chairman D Swarup,had yesterday released a draft consultation paper. The report tried to plug loopholes in various sectors of financial service.

It proposed the phased elimination of upfront commission paid to agents by April 2011,to curb mis-selling in case of financial products.

Industry body Life Insurance Council has also questioned the data used to make recommendations. “(The report ) has used fragmented and uncorrelated data. In the last four years,the industry has collected more than Rs 1,25,000 crore of first year business premium. The commission doled out by companies for this was in the range of 1.75 to 2 per cent — less than the entry load charged by mutual fund schemes then. The report has criticised the industry and made sweeping comments without substantiating it with credible data,” said secretary general S B Mathur.

Players have also questioned the success of the mutual fund and pension industry that does not charge any entry load.

“Mutual funds haven’t been able to penetrate much into the retail space. The insurance industry has invested a lot and ensured penetration in retail space. The industry is maturing and scaling down various anomalies,” said Mathur.

According to Life Insurance Council figures,the commission as a percentage of total premium has halved in the past eight years. From 12.07 per cent in 1999-2000,to 6.97 per cent in 2008-09.

“The report hasn’t taken into consideration all the aspects in case of insurance industry before making its recommendations. We need to give fair choice to customers to empower them. However,through these recommendations we are taking away that freedom. This will potentially kill the industry,” said Metlife Insurance chief executive officer Rajesh Relan.