Guidance note - Board policy of the insurer on the commission structure

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INSURANCE REGULATORY AND ot ircdesi DEVELOPMENT AUTHORITY OF INDIA ONE EARTH + ONE FAMILY » ONE FUTURE HeH ¥.: amgemRStvengesTadiaftensmarensTaRis2/3/2023 Ref No: IRDAI/INT/CIR/MISC/82/3/2023 &A1 / Date: 31.03.2023 i CIRCULAR ufd/ To, i St AT R STl RS s W Sared; All Life Insurers/General Insurers/Standalone Health Insurers; forwa: Afasif e - Sl wvar & day & Sl o 9 Ay Sub: Guidance note - Board policy of the insurer on the commission structure 1. T8 e i sifiife, 1938 @ URT 34 SR SreRE efifve, 1999 Y R 14(2)() TUT STEHRENTHTE GHIRA b7 7Ter) fafras, 2023 & AT 8 & siata e IR BT T Hed gU SR b o & 1 This circular is issued in exercise of the powers conferred under Section 34 of the Insurance Act,1938 and Section 14(2)(e) of the IRDAI Act, 1999 and Regulation 8 of the IRDAI (Payment of Commission) Regulations, 2023, 2. I e Toie, Heradl srar st wwadt @9 R & 39% S Twafidl & w g Sfcxiae) ST Sl & faeRor & e Foiae syt s ava § r: Sl & R T8 srarawaw § 5 S faaRon uftear & Ferar, ure R, SR wRem T F ey 7 Ue WY IR UReRI 91 A Regmm € As the “Insurance Agents, Intermediaries or Insurance Intermediaries” (herein after referred to as intermediaries) play a crucial role in the distribution of insurance products, it is essential for the insurers to have a clear and transparent board policy on their commission structure to ensure fairness, transparency, compliance, efficiency, and industry reputation in the insurance distribution process. 3. Al 3 R SR TR & dely § 61 A & sierfa w0 o Pefii T I e fopd) o The board policy on commission structures for intermediaries shall, at the minimum, include the following key elements: (i) Se=g ok Rysia: 31 i & 3 SR oIk Rigia oy w9 ¥ 9amd o il HHIS IR BT ERT A 3| T G G, weafldl & e Sfid ok ReRl vyl Bt SgraT 3, AT B avaEaret F WY Tt @ FATA BT, T GGl SR P freRor & Hied | Objectives and Principles: The board policy shall clearly state the objectives and principles that underpin the commission structure. This shall include promoting fair and transparent competition among intermediaries, aligning incentives with customer needs, and encouraging efficient and cost- effective distribution. é Survey No. 115/1, Financial Dist%{ia, Hyderabad-500 032, India ® : +91-40-20204000, Website : www.irdai.gov.in . 115/, FrEAtae {2 g, ARFTEET, 2EETE-500 032, W @ : +91-40-20204000, F=ET3E : www.irdai.gov.in INSURANCE REGULATORY AND i indesi DEVELOPMENT AUTHORITY OF INDIA ONE EARTH + ONE FAMILY + ONE FUTURE (ii) Preggrar ok sifire: ®eiwm ST hfegel gft qur s UROTERGEY T SiyaT STl & g § Herafdal & fore srafies afegfcd T8 @} S Seredt R $3 5 36 FHRE W 9 UBR B TR 1 U B 3R S S8 7@ $ e sdfer vt & srgey gt 3T o UE & b WAl &1 I SR Srar iears &1 Wifekt bl R o) ot b e B v &R o8t S Fairness and Reasonableness: The commission structure shall be reasonable and not result in excessive compensation for intermediaries at the expense of customers or the insurer. Insurers shall ensure their commission structure is commensurate with the efforts required to acquire and sustain that type of business. This means intermediaries shall be compensated fairly for their work, regardless of their size or bargaining power. (iii) I R v SR SRe & day & 91 iy qeaia & I R Uil B N Sl 399 Ted Ja § 9fs B, TRd! & Y 34 geg Gay Pffd w37, e & SR o ® g aut fafame el T SrguTe YRR B & TeTaT e wad 31 Good distribution practice: The Board policy on commission structure shall encourage good distribution practices of intermediaries. This can help enhance customer satisfaction, build a stronger relationship with the customers, increase the insurer's market share and ensure compliance with regulatory requirements. (iv) Frafta wefem: S i Fiim w= & g e A gt gl Tt B, R SUS! TS F S, FRIGRd, WiEEH &= | TG, T & YT, S, TESH! @1 axgamarstt R fydl & ar gare anf st €1 g wellen SRET-adlen SR & gRT H ¥ 39 i SMUR W e 1 Sgt Regular review: The board policy shall establish a standard review process for the commission structure, which includes assessments of its effectiveness, efficiency, impact on premium rates, benefit pay-outs, penetration, alignment with customer needs and interests etc. The review shall be conducted by the audit committee at least on an annual basis. v) TR HEER: T8 YAEd B3 & e i veradf Saa ot &1 FEER AR e gyl @1 urer Y, 9IS i IR FaER & o siftmmes IR T TR P TR T D NS Y B W & BRI Fuif fea-<unl @) uear Syl 3R ST Ty S, S werafadl gR IR HHTH RfT B P w W IOl B RwR &= o T6d & wafem f2a # 761 €1 39 ofaRkaa, 9 oo TSt & vAw AR # IJugw Iegan AT ot W e §, IRV & g A Iaral Al . T3 . 1151, FrsAtiae ffgwe, THEwer, §2Ere-500 032, HRG @ : +91-40-20204000, F=rems= : www.irdai.gov.in Survey No. 1151, Financial District, Nanakramguda, Hyderabad-500 032, India @ :+91-40-20204000, Website : www.irdai.gov.in GZ@ i) et e e i e e g 2gn v INSURANCE REGULATORY AND s iirsdesi DEVELOPMENT AUTHORITY OF INDIA ONE EARTH + ONE FAMILY » ONE FUTURE Market Conduct: The board policy shall outline the governance and oversight mechanism for market conduct to ensure that intermediaries adhere to high standards of behaviour and ethical practices. The board policy shall recognise and address potential conflicts of interest due to the commission structure, such as intermediaries recommending products not in the customer's best interest to earn higher commissions. Furthermore, the board may also put appropriate caps in absolute amounts in certain segments, for example group products. (vi) PR 3R Reifém: S At aiem deam & fog Raifén srazaean R Feh, R e GRem & e 8k SruTa R PR &1 8ik g yee-arf @) Frafia Raifé e &1 Monitoring and Reporting: The board policy shall establish reporting requirements for the commission structure, which includes regular reporting to the board of directors and senior management on the performance and compliance of the commission structure. (vii) ATsar: 1S ot 7 HHRE WaE vgd § I TS wifel W an et gt Applicability: Any new commission structure shall not apply to already sold policies. Y w4 F, gerafial Bt e IeE e iR uResll gursl 3t gerar 3 & g siftrepfetra @t ST S TferiluRS! & et o1 TRervr H SR e T %Y Mty Exuil| Overall, the commission structure of intermediaries shall be designed to promote fair and transparent practices that protect policyholders' interests and encourage insurance penetration. N Rajeswari) e (faavon/ Member/(Distribution) & a4 . 11511, wrsAtaae Rz, AT, 25aTe-500 032, 9 | Survey No. 1151, Financial District, Nanakramguda, Hyderabad-500 032, India ® : +91-40-20204000, F==TzE : wwwiirdai.gov.in @ :+91-40-20204000, Website : www.irdai.gov.in