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New Irda chief to review discount ban

Sidhartha in New Delhi | July 09, 2003 13:54 IST

The new Insurance Regulatory and Development Authority chairman C S Rao is reviewing his predecessor N Rangachary's decision to bar payment of 5 per cent discount to companies and route all non-tariff commercial line business through brokers.

Irda sources told Business Standard that Rao initiated the review after General Insurance Public Sector Association opposed the regulator's move last month.

In addition, some large public sector companies, which have so far been purchasing insurance policies from state-owned general insurers, have also asked Irda to review the order issues during the last few days of Rangachary's tenure.

Senior executives with state-owned general insurance companies said the move was going to affect them while the new private sector companies, which do not have a wide network in the country, would benefit.

"If the decision was implemented, out bottomlines will be affected significantly," an executive said.

According to estimates prepared by finance ministry's insurance division, public sector general insurers, which reported underwriting losses of Rs 2,000 crore (Rs 20 billion) during 2001-02, would have to pay of Rs 525 crore (Rs 5.25 billion) as commission under the new system instead of Rs 100 crore (rs 1 billion) paid by them in 2001-02.

The executives added that at present most brokers did not have sufficient expertise in advising clients on products, which the state-owned companies possessed.


"In many cases, the companies have their own insurance departments which decide the policies to be bought. So they are themselves doing the brokers' job," a source said.


With effect from June 15, the regulator disallowed the practice of passing on 5 per cent special discount in commission or brokerage. The order reversed the March 22 brokerage guidelines.


According to the new guidelines, business generated from PSUs no brokerage or commission could be paid. In case of other entities and individual business, insurers were asked to follow individual limits on payment of brokerage.


When the guidelines were being issued in March, the state-owned general insurance companies had approached the finance ministry to argue their case.

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