IDRA abolishes agent commission in non-life insurance sector

Insurance Development and Regulatory Authority (IDRA) has abolished agent commission in non-life insurance sector. Following the application of Bangladesh Insurance Association (BIA), it has abolished it from the previously fixed 15 per cent to zero percent.

IDRA spokesperson Saifunnahar Sumi told this information to the Daily Observer.  The meeting was presided over by IDRA Chairman Dr M Aslam Alam. The meeting was attended by CEOs of non-life insurance companies and non-life members of BIA executive committee.

Saifunnahar Sumi said, "46 CEOs of non-life companies were present. Out of them, 44 voted in favor of abolishing the commission. IDRA will publish a notification on Wednesday. And after publishing it, agent licenses will be considered canceled."

She also said stakeholders including BIS will campaign on this issue.

Sources said if business commission is abolished, there will be a need to reorganize competition in the market other ways. 
Some insurance officials said many companies are drawing 15 per cent commission on the premium determined by the Central Rating Committee for insurance policies that are over the country limit and companies are depositing this commission money in a fund.
 
From this fund, the companies are spending it as illegal additional commission to collect other business. IDRA should ask the insurance companies for a list of policies that are over the country limit and ask whether commission has been paid on it.
 
At the same time, it is necessary to start an investigation into insurance companies after receiving the list.

According to Central Rating Committee (CRC) of the IDRA, the current country limit for fire insurance policies is Tk 400 crore. In addition, the current country limit for marine hull insurance policies is Tk 30 crore and the country limit for marine cargo insurance is Tk 100 crore.

If the sum insured of any non-life insurance policy exceeds this country limit, the relevant domestic insurance company can facultatively re-insure that policy with a foreign company.

In this case, the reinsurance rate brought from foreign company has to be vetted or approved by the Central Rating Committee.
In this case, as per instructions of IDRA, non-life insurance companies can charge an additional premium of 20 per cent in addition to net rate of reinsurance premium. 

Out of this 20 per cent of the additional premium, 10 percent is spent as tax to send the reinsurance premium abroad. And the remaining 10 percent is spent on management.

But some insurance companies are charging a 15 per cent commission on this 20 per cent premium charged and depositing it in a fund and using the additional commission to collect other business, which is illegal according to the law. 
In this case, companies are financing the reinsurance costs from the income of the company's other policies. As a result, the company's management costs are increasing. 

Sources said the source of illegal commissions has been largely closed as all accounts outside 3 bank accounts designated for non-life insurance companies to collect premiums have been closed.