IRDAI -Guidance note on Board policy of the insurer on the commission structure

IRDAI has issued vide ref no. IRDA/INT/CIR/MISP/082/03/2023 a Guidance note on Board policy of the insurer on the commission structure (Guidance note) dated March 31, 2023 to ensure that commission structure of intermediaries is designed in a manner that promotes fair and transparent practices protecting policyholders interest and encouraging insurance penetration.

Highlights of the Guidance Note are as follows:

• Insurers to design clear and transparent Board approved policy on commission structure of intermediaries that ensures fairness, transparency, compliance, efficiency and industry reputation in the insurance distribution process.
• The Board approved policy shall, at the minimum include the following key elements:
• Objectives and Principles : This shall include promoting fair and transparent competition among intermediaries, aligning incentives with consumer needs and encouraging efficient and cost-effective distribution.
• Fairness and reasonableness : Intermediaries are compensated fairly for their work, regardless of their size or bargaining power.
• Good distribution practice : Encourage good distribution practice of intermediaries
• Regular Review : A standard review process for commission structure should be established which includes assessment of its effectiveness, efficiency, impact on premium rates, benefit pay-outs, penetration, alignment with customer needs and interest etc.
• The review shall be conducted by the Audit Committee on an annual basis.
• Market Conduct : Outline the governance and oversight mechanism for market conduct to ensure that intermediaries adhere to high standards of behaviour and ethical practices which avoids any potential conflicts of interest. The Board may also put appropriate limits in absolute amounts in certain segments like group products
• Monitoring and Reporting : Reporting mechanism to be established for regular reporting to the Board of Directors and Senior management on performance and compliance of commission structure
• Applicability : The new commission structure would apply to all policies sold on and from April 01, 2023

Source category: IRDAI

Attachments

• /2023/177_Guidance_note_-_Board_policy_of_the_insurer_on_the_commission_structure_(1).pdf