New cover story: 30% commission cap likely in credit life policies
insurance companies are close to agreeing to impose a 30% cap on commissions paid to corporate agencies, including banks and non-banking financial companies, for credit life policies, said people with knowledge of the matter.
It comes as the industry reorients marketing practices following the regulator's decision to scrap product-wise caps and go for company-wise ones in the wake of insurers facing GST evasion charges.
The matter has been discussed in Life Insurance Council meetings over the past few months, said two persons privy to the information.
While the council has not sent a formal letter yet, talks are at an advanced stage to put in place self-regulation, they said.
In some partnerships between insurers and banks or housing finance companies, where a housing loan of ₹1 crore corresponds to a policy sum assured of same amount, the premium has increased up to 35% from 5% till March.
Credit life insurance is a type of life insurance designed to help in loan repayment if the insured person passes away before the loan is fully repaid.
While this policy is optional, if it is chosen, its cost is added to the loan's principal amount.
«Now, discussions are ongoing to limit the commission to 30% to prevent an undue burden on borrowers,» said a life insurance executive, who did not wish to be identified.
In March, the insurance regulator had announced the IRDAI (Payment of Commission) Regulations, which moved away from the traditional product-specific commission structure and placed an overall cap on expenses within insurance companies, and asked insurance companies to manage operations within an overall expense limit of 30%. While insurers were allowed to pay 5% on commissions until March, they often resorted to
