Appeals court upholds IB's decision to cut commission fee

KATHMANDU:

The Appellate Court has upheld a decision earlier taken by the Insurance Board to reduce commission fee for non-life insurance agents to five per cent.

The Insurance Board (IB), the insurance sector regulator, in January last year, had asked all non-life insurance agents not to charge commission of over five per cent on premiums that they collect. The agents were previously allowed to acquire commission of up to 15 per cent of the premium amount.

Following the revision, four individuals moved the Appeals Court demanding reinstatement of the previous provision that allowed agents to collect up to 15 per cent commission. The court then issued a stay order, which barred the IB from introducing the new commission structure.

“However, the Appellate Court on Wednesday quashed all four complaints, paving the way for us to effectively bring down the commission to five per cent,” IB Spokesperson Raj Kumar Aryal said, adding, “We will circulate a new circular among non-life insurance companies in this regard.”

The IB hopes the reduction in commission fee will bring down the cost of non-life insurers, enabling them to slash rates of non-life insurance products.

However, five per cent commission fee will not apply to policies on third-party motor vehicle insurance, and crop, poultry and livestock insurance. In other words, agents selling those products can continue to charge commission fee of 15 per cent.

The IB had not revised the commission of agents of non-life insurance firms since the Insurance Act 1992 was introduced.

The IB had decided to slash non-life insurance commission from 15 per cent to five per cent after the practice of

creating proxies to obtain the agent fee came to light.

This raised question on whether non-life insurance companies should continue hiring agents to sell the products. This is because many non-life insurance companies maintain their own sales and marketing department to promote and sell products they tailor. So, insurance companies, according to IB officials, are unnecessarily increasing their spending on promotional activities.

Also, many insurers offer a discount of up to 10 per cent to clients who approach them directly to purchase products.At present, 17 non-life insurance companies are working with over 1,160 registered agents.

Source: THT