Irda Hits out at Finmin Over Broker Fee Paid by Reinsurers

Says ministry doesn't have authority to decide on broker fee; Letter marks fresh twist in Irda stand

The insurance regulator has told the finance ministry that it does not have the authority to decide on commission paid by reinsurers, triggering a turf war with the North Block. 
The Insurance Regulatory and Development Authority of India's missive to the ministry came after the North Block reluctantly allowed national re-insurer General Insurance Company to pay 5% commission to brokers. The ministry has maintained that the reinsurer should not be paying commissions at all as law requires general insurance companies to reinsure 10% of their business with GIC. GIC had been paying commission as high as 20% in certain cases in the past. A senior ministry official said Irda's letter marks a U-turn in the regulator's stand following pressure from private insurers and brokers. Just weeks ago Irda had informed the ministry that any decision on the commission paid by stateowned GIC rests with the management of the company. 
"When we had asked GIC (about the commission), they said the regulator will take a decision. (But) Irda had then said that GIC will decide. Now the regulator has suddenly raised turf issues," he said, requesting anonymity. Irda Chairman J Hari Narayan did not responded to ET's phone calls, but another Irda official said the matter is being discussed with both the government and GIC Re. The government has also issued direction to GIC to stop underwriting loss-making businesses, mainly transport and healthinsurance. 
"Insurers are projecting that this will lead to an increase in premiums. The fact is that only 10% of business is to be reinsured by GIC. Private insurers were pushing all bad business to GIC. We just want to a put a stop to that," said the ministry official. 
The finance ministry has received complaints that private insurers and brokers push bad business to GIC and reinsure the more secured part with foreign reinsures in order to get better margins. "Further some insurers have tie-ups with foreign reinsures. So automatically they give the good business to them," the official said. Earlier, the insurance regulator had said GIC must honour its agreement that it had signed with the companies for the current fiscal. A GIC official, however,said, "We will follow whatever the government tells us. They are the owners and if there are regulatory issues, the owner will resolve it."