The Insurance Regulatory and Development Authority (IRDA) has put new restrictions on insurance companies on their use of third party agents for conducting business.
Almost all the insurance companies hire external agents who work on a commission basis and sell their products. It has come to the notice of the IRDA that apart from this, some companies even go to the extent of outsourcing other core activities like underwriting, investments, policy servicing.
IRDA is closely monitoring all insurance- related activities. Customer interests and policyholders protection seems to be the center of focus for the authority.
As per new rules, insurers must ensure that the third party is not able to get any gains by causing loss to the policyholder or insurer. If an agent is appointed for cheque pick-up or premium collection, then this agent must be in service at least for a period of 2 years. Also the pick-up amount should not exceed 3 times his renewal commission earned in the previous financial year.
If an outsourced agent is terminated on grounds of non-compliant behavior or fraud, the insurer must immediately inform IRDA with complete details. IRDA will then circulate a caution list to all the insurance companies.
Some insurers are not happy with these new guidelines as it will affect their businesses to a great extent. Life Insurance Corporation (LIC) and other insurers who largely depend on businesses by outsourced agents are most likely to be affected by this.
All life insurance and general insurance companies have been notified to terminate existing outsourcing contracts that are in breach of the guidelines laid down by IRDA. The last date for this is June 31, 2011 however a relaxation period of 3 months may be given on a case to case basis.
