There was a long-standing unhealthy competition over insurance commission

Writer: Dilshad Ahmed, Independent Director, People’s Insurance

Most of the non-life members of the Bangladesh Insurance Association (BIA) have applied to the Insurance Development and Regulatory Authority (IDRA) to suspend the licenses of individual agents. In view of this, the authority has suspended those licenses on its own authority. As a result, insurance companies will not be able to pay agent commission in any way.
Section 124 (4) of the Insurance Act states, ‘The Authority may, by making regulations in this regard, prescribe the qualifications and other conditions for appointment of insurance agents, the period of registration of insurance agents, the procedure for payment of renewal fees and similar fees.’ According to this section, IDRA has the power to determine the period of registration of insurance agents as well as suspend the licenses of agents.
It must be admitted that the reins of the Insurance Commission have long been unlimited. There has been unhealthy competition in this field for a long time. Almost all insurers believe that this commission system has become the biggest obstacle to the sustainable development of the insurance business.
To restore discipline in the insurance sector, BIA has held several meetings with the chairmen and chief executive officers (CEOs) of insurance companies. In these meetings, most of them agreed that abolishing agent commission is essential to bring transparency, reduce irregularities and establish discipline in the non-life insurance market. The CEOs have assured to conduct business without agent commission.
It has also been suggested in the meetings that if the commission is completely abolished, irregularities in insurance companies will be reduced to a large extent. As a result, the companies will be able to pay more dividends to the shareholders and the government’s revenue collection from this sector will also increase.
But the reality is that although the insurance commission rate is fixed at 15 percent, in reality, the commission is higher in many cases. Many times, policies are issued without proper risk assessment. As a result, the underwriting discipline of the company weakens, the loss rate increases and the sustainability capacity decreases. To meet the target of high commission, some companies engage in unfair competition by reducing premiums.
Selling commission-based policies without considering whether the risk is appropriate or not, often results in incorrect coverage being given to customers. As a result, customers fail to claim insurance later. Due to additional commission, the terms and conditions of the policy are not explained properly to the customer and some issues are kept secret. This creates opportunities for insurance claims to be rejected.
There are also allegations that some insurance companies are paying additional commissions out of reluctance to pay insurance claims. On the one hand, customer protection is being hampered, on the other hand, the reputation of the company is being tarnished. Due to the violence of agent commission, a professional agent or intermediary culture is not being developed in the country.
Some insurance companies are taking steps to create various undeclared benefits in the name of commission, which is against the policies of the Insurance Development and Regulatory Authority (IDRA). As a result, the companies themselves are facing risks. Because, the company’s net premium income is decreasing due to additional commission.
If the IDRA notification is fully implemented, customer protection will increase from day one and every insurance company will be able to conduct business with ease. Therefore, we applaud this initiative to make agent commission zero.