Non-life insurers fear loss of business without agents

Non-life insurers fear losing business because of the ban on agent commission, while the insurance regulator says it took the action to stop the misuse of the tool to attract premiums in an effort to discipline the sector.

"Our products are invisible. Such products need efforts to sell. We have had to go door-to-door to sell our products. Today's non-life insurance market has been developed by us [private sector players]," said Syed Sehab Ullah Al-Manjur, CEO of Pragati Insurance.

The Insurance Development and Regulatory Authority (IDRA) had set the commission rate at 15 per cent in 2012 to curb unhealthy competition created by businesses offering up to 60 per cent of the premium as commission to secure a share of the negligible market. The high commission rates, in turn, hurt the overall industry by shrinking insurers' ability to settle claims at the maturity of insurance policies.

After the regime change in August last year, IDRA took some reform measures, including initiatives to identify why the sector has been weakening.

IDRA found that high commission rates were deployed in violation of its 2012 directive through underpricing premiums. Insurers accepted risks at unsustainably low rates to accommodate commissions, weakening underwriting discipline and increasing the likelihood of failure in settling future claims.

A significant portion of agent commissions is frequently rebated to clients or shared with intermediaries and corporate officials to secure business. This creates an uneven playing field, rewards influence rather than risk quality, and violates the principle of fair competition.

Excessive commissions reduce net premium income, limiting insurers' ability to build technical reserves and maintain solvency margins. Over time, this contributes to delayed claim settlements and undermines public confidence in non-life insurers.

Moreover, when commission-driven competition dominates the market, weaker insurers struggle to survive without cutting corners. This raises the risk of sector-wide instability and potential failures.

There are also cases in which the owners of insurance companies looted money through agent commissions.

Therefore, IDRA decided to remove agent commissions to reduce the management expenses of non-life insurers. The ban on agent commissions will take effect in January next year.

According to a notification issued by the regulator two days ago, non-life insurance companies will no longer be allowed to conduct business through agents.

As a player in the insurance business, Mohammed Amdad Ullah, chief executive officer of Chartered Life Insurance Company, said he believed the decision by IDRA would have a positive impact.

"This will reduce the premium cost for customers and reduce the management cost for insurance companies. Profitability will increase, and insurance marketers will become professional.

"We will have better opportunities to serve people at low costs," added Amdad Ullah.

However, the government should increase business opportunities for non-life insurers. Instead, the scope of business has shrunk over the years. For example, motor vehicle insurance in the country is not mandatory under the Road Transport Act 2018. The Act abolished the mandatory third-party insurance provision set by the Motor Vehicle Ordinance 1983.

The insurance sector is one of the most underdeveloped sectors in the country, as the idea of risk-sharing is not well understood. Besides, due to mismanagement, the claim settlement ratio is very low, making it difficult to gain public trust in insurance products.

The head of Pragati Insurance, Al-Manjur, told The FE that agent commissions, though banned, would come back in another form.

"I believe that before making it [agent commission] zero, the regulator should have tried to learn why the commission was not locked at 15 per cent and why the discount went further up. When you cannot keep it within 15 per cent, how will you make it zero?" he asked.

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