Insurers divided on Irda's proposed regulations on referrals

The insurance regulator’s recent proposal to tighten guidelines for referral agencies has created turmoil in the industry.

The Insurance Regulatory & Development Authority (Irda) has proposed to restrict insurance companies from paying more than 25 per cent of the total commission to referral agencies whose database it wants to acquire to sell products.

In addition, the regulator had said that referral fee should be paid only on successful conversion. It has also mandated a minimum net worth and turnover for referral agencies.

“Irda’s move should open up new avenues for increasing insurance penetration. This will lead to a drop in the number of referral tie-ups. The minimum net worth and the turnover proposed should be relaxed,” said a senior executive of a non-life insurance company.

At present, the whole area of referral arrangements with non-banking entities including individuals is not regulated. There is no arrangement with non-life companies for referrals. But, they follow the same guideline as life companies.

Irda has said the move would prevent multi-level agencies from selling insurance products not subject to a code of conduct. However, insurers feel it will restrict penetration in the market.

“In principle, it is good, but there is need for more agencies to increase penetration. Regulators should bring in rules that enable distribution,” said a chief executive officer of a large insurance company.

In addition, insurers have asked Irda to relax the proposed minimum net worth of Rs 50 lakh for referral agents and a turnover of at least Rs 1 crore for the last three consecutive years.

“For new entrants, there is little scope for bancassurance tie-ups. Making the guidelines stricter will be a disadvantage for the industry,” said Bharti AXA General Insurance CEO Amarnath Ananthanarayanan.

Irda had said the company should not have more than 10 per cent total income from its referral business with an insurance company or any other organisation.

Large insurer companies, however, have supported the proposal. “Some companies have issues because they are using single referrals which do not have any credential,” an executive of a life insurance company said.