A matter of policy

Life just got a wee bit easier for brokers of general insurance. Last fortnight, the Insurance Regulatory & Development Authority (IRDA) decided to delink the general insurance commission structure from the paidup capital of the company taking the cover. The removal of this restriction could augur well for insurance broking companies as they can now go after higher brokerage rates in the case of certain general insurance policies.

The IRDA has removed slabs of paid-up capital for all kinds of fire, all industrial risk and related policy covers. Till now agents could get a commission of 10 per cent and insurance brokers of 12.5 per cent if the paid-up capital of the company seeking the cover was Rs 15 crore.

A leg-up for brokers Commissions have been de-linked from paid-up capital. Slabs of paid-up capital have been removed for fire, industrial risk and related policy covers Insurance brokers can now earn a standard brokerage fee of 12.50 per cent Agents can earn a standard commission of 10 per cent

These rates were much lower, at 5 per cent and 6.25 per cent, if it was a large corporate client, typically having a paid-up capital of Rs 25 crore or more. With these slabs gone, insurance broking firms can earn a standard brokerage fee of 12.50 per cent and agents can earn a commission of 10 per cent, irrespective of the size of the insured company.

“Large corporate clients will be affected but only when the market stabilises in terms of premium rates,” says Jagdish Bhat, Principal Officer, Ambit Insurance Broking & Advisory Pvt Ltd. It is, however, unlikely that commissions will go up in a major way, as competition has already beaten them down to low levels.

The circular also clarifies that there should not be any payment towards “administrative or service charges” to the agent or the broker. The regulator hopes to end a practice of insurers allying with banks that are not registered as insurance agents to get prospective clients for a referral fee.

—Rachna Monga