Irda tightens norms for referral agencies

To regulate non-banking entities acting as referral agents in the life insurance space, the Insurance Regulatory and Development Authority (Irda) has capped the referral fee paid to this channel.

Irda said as insurers were following several different practices, this was resulting in high cost of acquisition, pushing up premiums for policyholders.

“Referrals are increasing the already spiralling costs of insurers. Therefore, in the interest of prevention of further escalation of costs, it is important to streamline the fee structures allowed to these entities,” Irda said.

At present, the whole area of referral arrangements with non-banking entities, including individuals, is not regulated.

“This will also prevent multi-level agencies from entry into selling insurance products that do not follow any code of conduct. This will encourage transparency in the system,” said an Irda official.

Irda said referral fee should be paid only on successful conversion, with a linkage to sale by the company’s sales person and such fees. Other costs incurred should not exceed the ceilings on commissions. Commission on pure term plans goes up to 35 per cent, whereas on unit-linked insurance plans (Ulips), the commission paid is around 7.5 per cent and for Ulip life cover it goes as high as 40 per cent.

As per the recommendations of the Govardhan Committee, the regulator proposed a minimum networth of Rs 50 lakh for referral agents and a turnover of at least Rs 1 crore for the last three consecutive years. Also, the company should not have total income from its referral business with an insurance company or any other organisation, more than 10 per cent of its total income in any year.