Non-life insurance hopes for reset as zero commission takes effect

Infographic: TBS

The non-life insurance sector is gearing up for a fresh start as the Insurance Development and Regulatory Authority (IDRA) enforces a zero-commission policy, effective 1 January, suspending the licenses of individual agents, aiming to boost transparency, curb malpractice, and restore discipline across the industry.

Industry stakeholders believe that proper enforcement of the decision could help revive business growth and rebuild confidence in the sector.

Earlier, based on a proposal from the Bangladesh Insurance Association (BIA), the regulator adopted a policy to set zero per cent commission for individual agents in non-life insurance. 

Although the issue of eliminating agent commissions had been discussed several times in the past, the initiative could not be finalised. This time, however, chief executives of general insurance companies have given both written and verbal assurances to the regulator, increasing optimism that the policy will be implemented effectively.

As part of the process, the IDRA had instructed all general insurance companies to submit proposals to suspend individual agent licenses. The final decision was taken after reviewing the information and recommendations submitted by the companies.

Brig Gen (retd) Md Shafique Shamim, secretary general of the Bangladesh Insurance Forum (BIF) and chief executive officer of Sena Insurance, told TBS that the move will significantly improve insurers' claims-paying capacity.

Currently, Bangladesh has 82 insurance companies, including 46 non-life insurers, of which 43 are listed on the stock market. Non-life insurers provide coverage for risks such as property, health, motor, marine, engineering, and liability, protecting individuals and businesses from financial losses arising from accidents, natural disasters, and other unforeseen events. 
 
Monitoring mechanism in place

To support effective implementation, the Bangladesh Insurance Forum (BIF), an association of insurance company CEOs, has formed a five-member vigilance team. It will monitor compliance and report any violations of the zero-commission policy to IDRA, which will then take action in line with the Insurance Act 2010.

"Previously, out of Tk100 in business, many companies spent as much as 60% on illegal commissions, which severely weakened their ability to settle claims," Md Shafique Shamim said.

He added that with commission expenses now eliminated, company income and financial strength will increase, while operating costs will decline. "Ultimately, this will help raise insurance penetration in the country," he noted.

Shafique further said that since the agency system has now been abolished, the decision is practical and enforceable.
 
Why was the policy introduced

The decision was finalised at a meeting held on 25 November, attended by IDRA officials, representatives of the Bangladesh Insurance Association, and CEOs of non-life insurance companies. At the meeting, all participating CEOs pledged to operate their businesses without paying agent commissions.

For years, the regulator had been monitoring widespread irregularities involving individual agents, including excessive commissions, mis-selling of policies, misleading customers, and inflated or paper-based premium reporting. 

IDRA also has evidence that some insurers concealed commission-related transactions through multiple software systems and undisclosed bank accounts.
 
Expected benefits and possible risks

According to IDRA, removing agent commissions will lower management costs for insurance companies and may improve profitability. Without commission-driven incentives, unnecessary policy sales are expected to decline, while premium pricing may become more realistic and affordable for customers. The practice of inflating premium income is also expected to decrease, encouraging healthier competition across the sector.

However, the policy also presents challenges. 

As commissions were the primary income source for agents, many may exit the profession. The absence of agents could affect new business acquisition, while customer services such as premium collection, documentation, and claims assistance may also face disruption.

A senior executive of a non-life insurance company, speaking on condition of anonymity, told TBS, "Companies committed to ethical business will comply with the directive. But if some violate it, the entire sector will suffer."

He added that enforcement would be easier in Dhaka but significantly more difficult in smaller towns and districts.

A senior official at the Bangladesh Insurance Academy said that although the official agent commission rate was previously capped at 15%, in practice, some companies paid commissions of up to 50% through unofficial channels. "If all companies follow the new rule, their earnings will improve," he said.

He added that companies are likely to rely on Business Procurement Officers or Business Development Officers — salaried employees — to generate business instead of commission-based agents. However, he cautioned that excessively high salary structures could raise operating costs and undermine the benefits of the policy.
 
Brokerage gap remains a concern

Recently, former IDRA member Sultan-ul-Abedin Mollah said the zero-commission policy is not new. While it was introduced earlier under existing laws, weak enforcement led to its withdrawal. This time, IDRA is attempting a more structured rollout.

"Introducing the policy is challenging, but sustaining it will be even harder," he said, stressing the need for stronger institutional capacity, manpower, and monitoring mechanisms.

He also pointed out that countries such as India and Sri Lanka operate mainly through licensed brokerage houses rather than individual agents. In Bangladesh, however, insurance brokerage licenses have yet to be issued.

"Removing agent commissions without first introducing a brokerage system could create practical difficulties due to the lack of an alternative distribution channel," he warned.