Life insurance companies and banks have asked the insurance regulator to not treat discount

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in valuation of equity shares given by an insurance company to a bank or cash payments as advance commissions.

Life insurance companies, through their association-Life Insurance Council and banks through the Indian Banks Association (IBA), have written separately to the Insurance Regulatory and Development Authority (Irda) in response to the recommendations made by the bancasurance committee.

An Irda committee constituted in May 2009 to study the distribution of insurance products through banks had submitted its report last month. The committee has recommended that a bank should not be eligible for any compensation other than the commission payable for distribution of insurance policies. The committee has also said that the discount in valuation of equity share given by an insurance company to a bank’s distribution partner should be treated as advance commission and amortised in a period not extending beyond three years.

SB Mathur, secretary general of Life Insurance Council, told Financial Chronicle that they have written to the Irda about a week back. “We have said that if an insurer sells a stake to a bank at a discount, it’s the deal between two promoters. Irda’s concern is that the policyholder’s premium should not be used to pay excessive commissions. In such deals, the policyholder’s money is not involved.” IBA chairman MD Mallya confirmed to writing to Irda. Managing director of a private sector bank said, “IBA in its letter to Irda has said that in a bancassurance tie-up, a bank brings its brand and distribution to the insurance business. If it (bank) gets discounted equity share or payments from an insurance company, these should not be treated as commission but as contribution by both stakeholders to the business.”

Banks demand upfront payments and discounts in equity for selling an insurance company’s products on the back of their vast branch network.

J Hari Narayan chairman Irda, said, “According to the Insurance Act 1938, an agent cannot be paid anything more than the commission. We have invited comments on the recommendations of the bancassurance committee report. What might be the implications of such deals, we are still examining them and may take some more time. But we have not made up our mind.”