KATHMANDU: The Insurance Regulatory and Development Authority of India (IRDAI) has published a draft proposal to cut the commission rate of agents and brokers to reduce the cost of distribution of insurance policies.
In particular, most of the LinkedIn profiles used by professionals to express analytical comments and opinions on topics related to their business have expressed their opposition to such a provision. They say that cutting broker commissions will only add to the workload on sales reps, and have suggested a reconsideration.
The regulator has proposed to impose limits on the commissions of agents and intermediaries and control distribution costs. Experts, agents and brokers in the Indian insurance sector have expressed serious concern over this decision. According to them, cutting the commission of agents could jeopardize the very infrastructure that provides direct access to insurance to remote and small towns.
According to Indian insurance experts, it is not just the sale of insurance in rural and small towns in India, it is the first means of financial literacy. Agents are the main means of submitting insurance to the customer, selecting the right insurance plan, and providing after-sales service. They are arguing that reducing the distribution commission does not reduce the actual cost of insurance access. Rather, it can reduce the incentives of agents and displace them from the profession, leading to a stagnant physical infrastructure and manpower expenditure of companies.
Agents are furious with the regulator’s proposal to bring down the new commission limit to 30 per cent on term insurance, 20 per cent on health insurance and zero on third-party motors. Agents argue that it is extremely difficult to meet an uninformed or unwilling customer and remind them of an insurance plan. If the commission is reduced, agents will stop reaching out to remote and small customers and focus only on large, affluent customers. This, they warn, will undermine the Indian government’s national goal of “insurance for all by 2047”.
Insurance brokers argue that not all intermediaries should be treated in the same basket. The main job of a broker is to represent the client’s interests and provide unbiased advice. A broker’s income is not only a net profit but also includes ongoing service expenses such as employee salaries, technology, branch operations, and claim payment support. With the exception, controlling the entire agent and broker system based on high commissions from a few institutional channels runs the risk of deteriorating the reach and quality of insurance.
Nepal’s insurance sector is no different from India. Although the Insurance Authority of Nepal has been emphasizing on insurance literacy, accessibility and digital technology in recent times, agents have been the main backbone in expanding the reach of insurance in Nepal.
In the remote and rural areas of Nepal, there is still very little awareness about insurance. Agents go door-to-door to explain the importance of insurance. Insurance agent leaders say that if the commission or incentive structure is cut too much, then Nepali agents may also be discouraged and have slow access to insurance. Complaints are still heard among customers regarding claim payment.
From the time of selling the insurance plan to settling the claim, the agent and the broker play a big role. Without the assurance of their income, quality service cannot be expected.
In Nepal too, there is a need for regulation to stop the tendency to sell insurance plans by giving false information and to make the distribution cost transparent. However, the policy brought to prevent the distortion of exceptions should not jeopardize the business existence of honest agents or brokers.
Insurance experts have suggested that the Nepal Insurance Authority and the stakeholders should not only look at reducing the cost of the company but also keep in mind the sustainability of the agents, access to the remote areas and the value of continuous service while formulating the policy.
