Ban on commissions
Phasing out of all commissions payable to insurance agents by April 2011. Also, removal of loads for all financial products.
THE CHANGE
Phasing out of all commissions payable to insurance agents by April 2011. Also, removal of loads for all financial products.
THE INTENT
The objective is to ensure investor protection and eliminate product bias. This is because insurance agents tend to recommend only those policies that earn them high commissions, often indulging in mis-selling in order to push a product
THE IMPACT
The proposal, which has ruffled many feathers, is yet to be implemented. The Swarup panel had recommended a deadline of April 2011 for all insurance policies to become loadfree.
However, it seems the proposals may not see the light of the day soon. The suggestions were met by loud protests from the agent community and the insurance industry. Irda Chairman J. Hari Narayan famously declared that the panel's recommendations would "kill the insurance industry".
But D. Swarup, the man who dared to bell the cat, was unfazed by the criticism.
"We only get to hear about agents or insurance companies losing out. Why is everyone looking only at the business side of the equation? Is anyone talking about the consumer?" he asked during an interview with MONEY TODAY.
His argument was fairly straightforward. The terms of reference of the committee included investor protection and this was precisely what the panel had focused on.
"The recommendations aim to ensure that individuals pay a fee by choice, not force," said Swarup. However, there's need for a reality check. The removal of entry loads on mutual funds in August 2009 caused brokers to move away, resulting in thousands of small investors being denied the chance to invest and profit from the bouncing back of stocks.
Will the insurance sector see a repeat of this outcome if insurance policies are also made loadfree and agents are disinterested in selling them? Some insurance firms are making use of the online platform to sell their wares directly to the customer (see page 38). But the online distribution channel works only if the person buying the plan understands his needs and can take an informed decision.
Most people need help in picking a policy that suits their requirements. "If there is transparency in the product design and distribution, the balance of power shifts to the customer," says Neelesh Garg, director, retail, ICICI Lombard General Insurance.
Phasing out of all commissions payable to insurance agents by April 2011. Also, removal of loads for all financial products.
THE INTENT
The objective is to ensure investor protection and eliminate product bias. This is because insurance agents tend to recommend only those policies that earn them high commissions, often indulging in mis-selling in order to push a product
THE IMPACT
The proposal, which has ruffled many feathers, is yet to be implemented. The Swarup panel had recommended a deadline of April 2011 for all insurance policies to become loadfree.
However, it seems the proposals may not see the light of the day soon. The suggestions were met by loud protests from the agent community and the insurance industry. Irda Chairman J. Hari Narayan famously declared that the panel's recommendations would "kill the insurance industry".
Benefit illustration The commission payable to an agent will be declared in the benefit illustration to be provided to a prospective client. This will make the deal more transparent. |
"We only get to hear about agents or insurance companies losing out. Why is everyone looking only at the business side of the equation? Is anyone talking about the consumer?" he asked during an interview with MONEY TODAY.
His argument was fairly straightforward. The terms of reference of the committee included investor protection and this was precisely what the panel had focused on.
"The recommendations aim to ensure that individuals pay a fee by choice, not force," said Swarup. However, there's need for a reality check. The removal of entry loads on mutual funds in August 2009 caused brokers to move away, resulting in thousands of small investors being denied the chance to invest and profit from the bouncing back of stocks.
Will the insurance sector see a repeat of this outcome if insurance policies are also made loadfree and agents are disinterested in selling them? Some insurance firms are making use of the online platform to sell their wares directly to the customer (see page 38). But the online distribution channel works only if the person buying the plan understands his needs and can take an informed decision.
Most people need help in picking a policy that suits their requirements. "If there is transparency in the product design and distribution, the balance of power shifts to the customer," says Neelesh Garg, director, retail, ICICI Lombard General Insurance.
