Insurance Bill: IRDA to get more powers; can impose higher penalties for violations now

MUMBAI: The Insurance Regulatory Development Authority ( IRDA) will get more teeth once the insurance reforms begin to attract more foreign funds in the sector. The regulator, for instance, will have more powers to levy higher penalty, impose a ceiling on expense management, and fix remuneration for agents.

These moves will cheer insurance agents. As per the Bill, the manner and amount of remuneration, or reward, to be paid or received by way of commission or otherwise, to an insurance agent or an intermediary, will be decided by the regulator. The Bill has scrapped two Sections — 40 and 40 B — where limits can be prescribed by the IRDA.

TS Vijayan, chairman of IRDA, on November 24, 2014, had said that there should be some minimum protection for insurance agents. Companies should remunerate agents with minimum wages of Rs 10,000 per month.

Vijayan had said that there are countries which pay as high as 160% of the first year premium as commission to agents, advocating that it should be left to companies to fix agency commission.

As per the Insurance Act, commission on traditional insurance plans is capped at 40% of the first year’s premium. However, commission on unit-linked insurance plans (Ulips) is capped since 2010, when the regulator had imposed a ceiling on the overall charges, including policy administration and premium allocation charges. As on March 31, 2013, there were 21.2 lakh agents, according to the latest data provided by the insurance regulator.

Insurance companies will not be allowed to repudiate claims after three policy years. The Bill has amended Section 45 to state that no policy can be repudiated for any reason after three years of commencement of risk/date of reinstatement/date of issuance.

The regulator will have more powers to penalise companies for various violations. For non-compliance, companies will have to shell out Rs 25 crore, up from Rs 5 lakh now. The penalty would be similar to violations of rural and social sector noncompliance. Agents or corporate agents mis-selling will have to cough up Rs 1 crore per case, up from Rs 1 lakh at present.