The Telegraph
Since 1st March, 1999
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Ad blitz to stop insurance rebates

New Delhi, May 16: The insurance regulator plans to start an advertisement campaign against the illegal practice of agents and brokers giving out rebates.

“The Insurance Regulatory and Development Authority (IRDA) sought a consensus from all companies at a meeting on starting an ad campaign against rebating,” a senior GIC official. “This campaign aims to subtly alert agents and brokers to stop this illegal practice as well as educate the customers.”

Any private company or an entity can insure itself using three ways: It can choose to directly approach an insurance company and get itself insured. Secondly, it can engage an agent to do the same. The third way to seek a cover is to get an insurance policy through brokers.

In the first case, where a private entity directly gets itself insured, the company becomes eligible for a special discount of up to 5 per cent or in some cases even 10 per cent in lieu of agency or brokerage.

However, in the second case when an entity engages an agent, the agency commission sometimes is greater than the special discount which a company may get if it is directly insured by the insurer.

This is where rebating takes place. It usually happens when companies engage brokers to get an insurance cover. Agents and brokers do rebating by way of parting a portion of their commissions to their clients in order to get quick business.

An IRDA official said, “We have decided to start an ad campaign but its medium and structure will be finalised during our next board meeting to be held in the first week of June. The regulator wants to make it explicitly clear to everyone that any sort of rebating is illegal.” Most life and non-life insurance companies support banning of rebating but admit that monitoring this is almost impossible.

Another senior official of a public sector general insurance company said an agent rebates in order to shorten his sales cycle. He, however, warned that shortening of this process may sometimes even lead to misrepresentation of facts and poor service quality.

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