Abstract

The case discusses the commission versus fee debate related to the compensation structure of insurance agents in India. Though the issue was a long standing one, it sparked a fresh debate when the Swarup Committee on Investor Awareness and Protection in 2009 proposed scrapping of the agents’ commission by 2011 stating that such a decision was necessary to protect the interests of investors. The case discusses whether a fee-based model as suggested by the committee would be viable in the Indian insurance market or whether such a step was a premature one. The case points out the implications the reform may have on the Indian insurance sector and presents the views of regulators, investors, and agents on introducing a fee-based model for agents in the insurance sector. While the industry and insurance agents strongly opposed the move, investors and some regulatory bodies supported the change. The case concludes by analyzing whether the government’s decision to continue with the commission-based system in the interest of insurance industry and financial intermediaries overlooked the investor’s viewpoint.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the issues and challenges in selling financial products such as insurance
• Understand the compensation structure of the insurance agents in India and analyze the ramifications of the Swarup Commission recommendations
• Analyze the advantages and disadvantages of a fee-based model as against the commission-based model
• and Evaluate the need for a change in the remuneration structure of a financial intermediary in Indian insurance sector.

Keywords

Marketing Financial products, Selling Financial Products, Compensation, Commissioned-based model, Fee-based model, Incentives, Investor awareness and protection, Mis-Selling, Insurance Penetration, Entry and exit loads, Insurance sector reforms, Swarup Committee, Insurance regulator, Indian insurance industry, Financial Well-Being Board of India (FINWEB), LIC