Insurance industry insiders have hailed abolishing commission system in non-life business procurement by the regulator, saying it will strengthen financial health of the insurance companies.
As a part of its reform measures, the Insurance Development and Regulatory Authority (IDRA), the regulator of 78 life and non-life insurers, suspended the commission system in non-life firms in order to make the sector more disciplined and vibrant.
In a circular on Thursday (February 04), the IDRA said the system of giving 15 per cent commission to the agents will no more exist.
The new no commission or zero commission system will be effective from March 01, coinciding with the National Insurance Day.
The regulator also said the insurance firms will provide monthly salary and other fringe benefits in favour of their development officers through bank accounts.
The insurers will have to inform the regulator about the expenses made for the development officers within the seventh day of each month, as per the circular.
"We think that this is a right step of the regulator," said Sheikh Kabir Hossain, president of the Bangladesh Insurance Association (BIA) - trade-body of the privately-owned life and non-life insurers.
He noted that there is no agent (in the sector) in real sense. So there is no justification for continuing such system.
"It should have been scrapped much earlier," commented Mr Hossain, also chairman of Sonar Bangla Insurance Ltd.
He, however, opined that there is a need for enacting a rule, relating to hiring of agents for the non-life insurers.
Actually, commission is usually eaten up by some bank branch managers and the parties concerned.
The system of 15 per cent commission was in force since 2012, but many non-life insurers were involved in unhealthy competition regarding the matter.
Khaled Mamun, CEO of Reliance Insurance Ltd, told the FE: "This is a bold step (towards bringing discipline in the sector)."
But there are many challenges to implement the decision, he noted.
"The IDRA needs round-the-clock vigilance on the matter; otherwise the commission system will emerge again."
Mr. Mamun further said the measure will strengthen financial health of the insurers, and the investors and shareholders will accrue its financial benefits.
The firms will be more solvent financially, and their ability to settle claims will increase, he concluded.
Shaheen Imam, managing director of Asia Insurance Ltd, said insurance products may be expensive, as there is no more commission.
Earlier, a section of bank officials at branch level and the clients used to take financial benefits. But, the clients will have to pay cent per cent premium now.
He, however, said the IDRA's order will provide some respite to the pandemic-hit insurance sector.
