The Insurance Regulatory and Development Authority (IRDAI) has reportedly discussed with the CEOs of life insurance companies to do away with the high upfront commission of life insurance agents in the first year.
Soon, life insurers will offer a trail commission structure to their agents similar to that in mutual funds.
Trail commission means that the agent keeps getting a certain percentage of commission as long as the policyholder keeps paying the premiums.
Trail commission is already prevalent in ULIPs, non-life insurance and health insurance industry.
In fact, the regulator is looking at introducing levelling commission structure throughout the policy term to improve persistency ratio, said two IRDAI senior officials requesting anonymity.
A senior official requesting anonymity said that the insurance regulator wants the life insurance industry to learn from the exponential growth of the mutual fund industry despite a ban on upfront commission.
He said that IRDAI believes that instead of paying higher upfront payouts in the first year, the industry should spread it over the years to ensure better renewal.
Another official said that the insurance regulator wants life insurers to pass on the benefits of lower commission to policyholders to make the premium amount more affordable, reported CafeMutual.
In addition, the new commission structure may benefit policyholders in the form of better surrender value.
The agent's commission may also increase every year.