Stop payment of commissions to insurance agents, says Govt Panel

“Immediately the upfront commissions embedded in the premium paid (to agents by insurance companies) should be cut to no more than 15 per cent of the premium. This should fall to 7 per cent in 2010 and become nil by April 2011”, said the consultation paper prepared by Committee on Investor Awareness and Protection.

The Committee said the insurance companies should “help their agents make transition to a more mature way of selling and advising” their clients.  The paper also made a case for elimination of entry and exit charges for all financial products. “All retail financial products should go no-load by April 2011”, it said, pointing out that no entry and exit charges are levied under the New Pension System.

Additional proposal
Besides elimination of commission for insurance agents, the Committee also suggested setting up of a Financial Well-Being Board of India (FINWEB) to improve financial literacy.

The Committee, headed by the Pension Fund Regulatory and Development Authority Chairman D Swarup will elicit views of the stakeholders before submitting its report to the government by month-end. “FINWEB will have the twin objectives of building a financially literate population and bringing order to the advisor market to facilitate good financial outcomes from financial decisions,” the paper said.

The FINWEB should consist of two operational arms— the Self Regulatory Organisation (SRO) arm would work to bring common standard for financial advisers and the Financial Literacy Cell would aim to make Indians financially literate.
The committee also said there should be a disclosure standard developed by FINWEB to reveal the income, direct or indirect, that an adviser earns from the sale and maintenance of a product, both from consumers and manufacturers. “The disclosure should reveal the total cost that will be borne by the consumer of the product,” the committee added in it’s proposal.

Qualification mooted
It has also recommended that a new benchmark qualification should be introduced for financial advisers to operate in the market.
There should also be a well-defined process to affix responsibility for a bad financial outcome with punitive action including fines that are related to the financial loss the consumer has had to suffer.
The committee further said FINWEB should have a board of directors drawn from the existing regulators, ministry of finance and the  financial sector