Regulator to set agent commission at 0% in general insurance

The Insurance Development and Regulatory Authority (IDRA) has moved to suspend the licences of individual agents in the general insurance sector, directing all non-life insurers to submit suspension proposals by 5 December. Once received, IDRA will issue a circular setting agent commissions at 0% across the sector.

According to the directive, issued on Monday (1 December), signed by IDRA's Deputy Director (Non-life) Md Solaiman, IDRA will strictly monitor whether any non-life insurance company continues to provide agent commissions in violation of the directive once the official gazette is issued.

The regulator made the decision based on an appeal by the Bangladesh Insurance Association (BIA).

IDRA stated that due to manpower shortages, the BIA must assist in the monitoring process. 

For this purpose, BIA will form a vigilance team that will report any violation of the zero-commission rule to IDRA. The authority will then verify the matter and take necessary action under the Insurance Act 2010.

The final decision was reached during a meeting held on 25 November, attended by IDRA, the Bangladesh Insurance Association, and CEOs of general insurance companies. All CEOs present at the meeting pledged to operate their businesses without agent commissions. 

An initiative to boost transparency

IDRA stated that the initiative aims to increase transparency, reduce irregularities, and establish discipline in the non-life insurance market.

IDRA had long been observing several irregularities involving individual agents, including excessive commissions, mis-selling, misleading customers, and inflated or paper-based premium income. 

The regulator also has evidence that some companies use two separate software systems to manipulate commission payments, while others maintain undisclosed bank accounts to conceal commission-related transactions. 

To eliminate these irregularities and bring transparency and fair competition to the sector, discussions on eliminating agent commissions had been ongoing for years. For the first time, the decision is being formally implemented.

IDRA believes that eliminating agent commissions could bring several positive outcomes. Companies will save a significant amount as they no longer need to pay agent commissions, potentially increasing profits. 

Mis-selling or pushing unnecessary policies will likely decline without commission incentives. 

Premiums can be set more accurately, making policies more affordable for customers. The trend of inflated paper-based premium reporting may fall, encouraging healthier competition in the insurance market.

Challenges

However, the zero-commission decision may pose several challenges. As commission is the primary source of income for agents, many may lose financial stability and leave the profession.

Agents play a key role in bringing new clients; without commissions, their motivation may decline. Many clients rely on agents for premium deposits, claim support, and documentation, and service quality may suffer. Lack of financial incentives may restrict agents from exploring new markets or promoting new policies, potentially affecting overall premium income.

A CEO of a non-life company, seeking anonymity, said, "Some companies will implement the directive, especially those committed to running a genuine business. But those who violate it may harm the whole sector. This creates further negativity around the industry." 

He added that implementing the directive will be a major challenge for IDRA, increasing the authority's responsibility. While it may be easier to enforce in Dhaka, it will be much harder to implement in smaller towns and districts.

Former IDRA member Sultan-ul-Abedin Mollah said that the zero-commission rule is not entirely new. Although previously introduced under the law, it could not be implemented effectively and was later withdrawn. Now IDRA is attempting to reintroduce it in a more structured manner.

"It will not be easy to implement," he warned. "Maintaining it will be the biggest challenge." For effective enforcement, both IDRA and insurance companies need to strengthen institutional capacity, increase manpower, and establish a strong monitoring mechanism.

He added that in neighbouring countries like India and Sri Lanka, individual agent systems do not exist. Insurance operations there are conducted mainly through brokerage houses, where trained and licensed brokers assess clients' needs and provide services. 

In Bangladesh, however, insurance brokerage licenses have not yet been issued, leaving individual agents to perform the work brokers typically do elsewhere. 

"Without introducing a brokerage system first, suddenly removing agent commissions may create practical difficulties due to the absence of an alternative mechanism," he said.

Total 82 insurers, 46 non-life

Currently, out of 82 insurance companies in Bangladesh, 46 are non-life companies, with 43 of them listed on the stock market. 

Non-life insurance companies provide financial protection against risks other than life, including property, health, motor, marine, and engineering insurance, as well as liability coverage. They protect individuals and businesses from financial losses due to accidents, natural disasters, business interruptions, and other unforeseen events.