The IRDAI says that it has observed that the reward policy for agents and intermediaries approved by the boards of directors of insurance companies lacks objectivity and transparency in many insurers.
In a circular to all life, general and health insurers, the IRDAI draws attention to a regulation (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries Regulations 2016), which states that the reward shall be paid based on objective and transparent criteria approved by the board.
The circular said, “In certain instances, the policy allowed delegation of powers to the CEO or other authorised person to decide on the rewards to be given to insurance agents and insurance intermediaries. Further, there appears [to be] minimal oversight by the board to determine the efficacy of such a policy. In many instances, the quantum of reward paid to insurance agents and intermediaries exceeds the commission and remuneration paid to them,” the IRDAI said.
In view of the above, the Authority is of the opinion that there is need to clarify the regulatory provision for its meaningful and effective compliance uniformly by all insurers.
Therefore, the IRDAI issues the following clarifications:
1. Board-approved policies shall spell out the objective and transparent criteria including the parameters on which the rewards are calculated along with the necessary justification and logic.
2. The board approved policy shall stipulate the specific proportion of rewards to commission / remuneration which shall be reasonable and justifiable, to the individual insurance agent/insurance intermediary subject to an overall limit as given in the Regulations. There shall be consistency in the approach to rewards payable to insurance agents and insurance intermediaries for similar businesses and situations.
3. Further, the board shall have effective oversight of the implementation of the reward policy.
4. The insurers shall communicate in writing at the beginning of the year to insurance agents and intermediaries about the maximum rewards that they can earn during the year subject to fulfilment of the stipulated criteria of the board policy and keeping in view the laid down ratio of rewards to commission / remuneration.
5. Further, if any addition/changes/deletion in the reward programme is undertaken by the insurer, the same also be communicated to insurance agents and intermediaries in advance.