Regulator suspends commission for non-life insurers’ agents

The regulator has suspended the commission of agents who open policies for non-life insurers, in a move to discipline the business.

In a recent circular, the Insurance Development and Regulatory Authority (Idra) said the suspension will remain in effect until it publishes a gazette on regulations for the appointment and registration of insurance agents.

Idra said it decided to do this as it observed that despite multiple steps, the non-life insurance sector has not yet established discipline in terms of agent commissions.

Following the suspension, non-life insurers' agent commissions will remain at 0%, down from the official cap of 15%, until further notice. 

In 2012, Idra capped the allowable limit of expenses on commissions to agents. But the industry barely followed the law and still prefers spending big to acquire clients.

Since 2019, the Bangladesh Insurance Association (BIA) has appeared to be very active in stopping the malpractice that results in poor retention of premium income, but it was not enough.

"Agents help insurers hunt for business, and as they are not employees of the companies, they deserve a fair share of premium income against their services," said BIA President Sheikh Kabir Hossain.

"However, as there is no valid list of agents, technically, there are no legal recipients of the commission," he said.

In many cases, the commission goes to clients in the form of discounts when there are no bonafide agents in the process, which creates unhealthy competition in the sector.

Also, some company insiders, or external people, receive benefits indirectly, depriving company shareholders.

Sheikh Kabir Hossain believes that the commission suspension would help stop discounts and undue expenses, but the industry needs a structured face in terms of appointing and utilising agencies for a healthy business.

"We expect that Idra finalises the agent related regulations at the earliest possible time," said Hossain, also chairman of non-life insurer Sonar Bangla Insurance Ltd.

Now insurance companies will have to solely depend on their business development officials to retain and expand their businesses, and the regulator said none of them may be paid any percentage of the premium they bring for the company.

Idra, in its Thursday circular, also said non-life insurance companies must clearly mention the pay structure of their regular business development officials in respective employee appointment letters.

All payments to the employees must be through the banking channel for the sake of transparency.

Each company must submit their structured monthly reports to Idra by the seventh day of the following month, detailing the payments to business development officials. 

In mid-2020, Idra limited the number of bank accounts to three for non-life insurers' premium transactions.

The insurance industry in Bangladesh has long been lagging behind the rapidly growing economy as both businesses and people tend to avert premium expenses until they are compelled to pay them.

Moreover, the influx in the number of companies over the last decade has further intensified unhealthy competition across the industry, both in the life and general insurance sectors.

Idra was formed a decade ago and since then it has been trying to bring discipline to the sector.