Irda tightens norms for third-party agents

Move to restrict industry growth, say insurers.

The Insurance Regulatory and Development Authority (Irda) on Wednesday announced stiff guidelines on agents servicing third-party policies. It has linked the norms to their past performance and the number of years of experience.

The regulator on Wednesday said the total amount collected by agents for a given financial year should not exceed three times the renewal commission earned in the previous financial year. Also, agents for third-party services should have been in existence for at least two years.

A senior Irda official said there had been complaints of agents procuring business on behalf of other agents. He referred to an incident where an agent in Kerala had disappeared with the money of policyholders.

“The insurer should assign this activity to agents and corporate agents by allocating only a specified list of the policies, where the services of the agents that procured the business are no longer available to the insurer,” Irda said.

Insurers outsource cheque pick-up work and premium collection to individual agents and corporate agents. Irda has defined such collection and pick-up by agents who have not procured such business as outsourcing. It asked insurers to examine the credentials of individual agents and corporate agents while outsourcing these.

Insurance companies’ executives said the move would restrict the industry.

P Nandagopal, chief executive officer of India First Life Insurance, says Irda should not get into micro management. “Risk management systems should be put in place and the regulator should not look into micro management. This is restrictive.”

Another executive of a large insurance company said the move was definitely restrictive and would only bring down the premium collection.

Life Insurance Corporation of India (LIC) would be the most affected.

“This decision has been taken after consulting all parties,” an Irda official added. He said an insurer should remain accountable to the receipts issued by authorised agents or intermediaries. “Where an insurer permits its agent to collect premiums on its behalf, it shall be noted that in such instances, the agent is acting on behalf of the insurer,” said Irda.

It has put up a list of core and non-core activities. Those such as underwriting, product design and all actuarial functions, bank reconciliation and market conduct issues are core. Call centre and outbound calling for registering complaints or answering enquiries, claim processing for overseas medical insurance contracts and tele-marketing are non-core.

Insurers are asked to terminate all existing outsourcing contracts entered into in contravention of these guidelines before June 31, 2011. Irda said it might relax the limit by three more months, on a case to case basis, in respect of the existing contracts.