IB fixes 10% cap on agents commission

REPUBLICA

KATHMANDU, Oct 17: The government Sunday directed all life insurance companies selling foreign employment insurance policies to limit the commission amount given to agents to 10 percent of the premium amount.

The government took the decision after unhealthy practices started eroding competitive edge of many firms. Insurance Board, the insurance sector regulator, had found that companies were paying as much as 42 percent of the premium amount as commission to agents who were selling foreign employment insurance policies.

In other words, if a company was selling a foreign employment policy for, say, Rs 1,000, up to Rs 420 was going into the agents´ pockets. All this was happening despite Insurance Regulation putting a 10-percent limit on commission distribution.

"This unhealthy competition is putting a question mark on the sustainability of the foreign employment insurance business as many companies fear they´d start losing money while settling claims," Shekhar Kumar Aryal, spokesperson of the IB, told Republica.

“If insurance companies fail to limit the commission amount to 10 percent of the premium amount now onwards, we will either suspend their business or ask them to terminate operation of their foreign employment insurance business,” Aryal said, adding that this was the first time a directive on commission collection was collectively issued to insurance companies.

Of the nine life insurance companies operating in the country, five are selling foreign employment insurance policies to people leaving the country for employment purpose through legal channel. But at least one company - Asian Life Insurance Company - has temporally halted issuing these policies after it could not compete with companies that were doling out huge commission amount to agents. Asian Life Insurance, however, didn´t divulge Republica the details of commission paid to middlemen.

Foreign employment insurance policies were introduced in the market in 2007 following promulgation of the new Foreign Employment Act, which made it mandatory for all the people leaving the country for employment purpose to be insured. The new Act also raised the coverage amount to Rs 500,000 from Rs 50,000 of the past. This has ensured that everyone, who goes to work abroad through legal channel, would be entitled to at least Rs 500,000 in case of their demise.

Currently, foreign employment insurance policies are being sold for as little as Rs 1,100 to Rs 2,850 depending on the tenure. For instance, Nepal Life Insurance Company is selling foreign employment policies with one year tenure for Rs 1,105. This applies to people aged 18-40. Policies with two year tenure cost Rs 1,970 for the same age group, while policies with three year tenure cost Rs 2,835.

The company only provides compensation in case of death or permanent disability but there are other companies that provide compensation even in case of partial disability.


Published on 2011-10-17 00:13:00

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