Good times ahead for Insurance buyers

Insurance buyers are likely to have good times ahead in the near future. If the Government approves the game changing recommendations put forward by the Committee headed by D.Swarup, Chairman of Pension Fund Regulatory and Development Authority (PFRDA), commission earned by agents by selling conventional and market linked products will take a serious hit. The committee has also recommended setting up of a Financial Well-Being Board (FINWEB) that will come up with common minimum standards for Financial Advisors and promote financial literacy among the general public. The commissions paid to Agents is likely to be cut to no more than 15% immediately. This is likely to fall to 7% in 2010 and become nil by April 2011. The interim period is to be used by the Insurers to develop agents to a more organised way of advising rather than selling products.

The complete details of the consultation paper could be had from the following link

http://pfrda.org.in/writereaddata/linkimages/Consultation%20Paper4825056190.pdf

Our Views : The series of regulatory measures taken by SEBI and IRDA has already evoked a knee-jerk reaction from Distributors of these financial instruments. Hence, this move if enacted would definitely rub salt on the wounds. Having said that, distributors' angst would remain a short term phenomenon and agents who had been enabling transactions for their customers and acting as a transaction point would find the situation difficult to survive. This will clean up the Financial Services Industry of all the weeds. The Industry would become more professional with a minimum set of standards to effectively practice the fee based advisory model. A welcome move that will help Advisors, End Customers and Principals in the long run and remove misselling of products.