IRDA concerned over high commissions paid by cos to banks

The Insurance Regulatory and Development Authority (IRDA) has shown concern over high commissions that companies are paying to banks for distribution of insurance products. Banks have earned about Rs 2,000 crore of commissions in FY09. CNBC-TV18's Avni Raja reports.

Below is a verbatim transcript of her comments on CNBC-TV18. Also watch the accompanying video.

IRDA recently asked the companies to submit data relating to cost associated with the bancassurance channel of distribution. After analyzing this data, it was found that this channel works out to be much more expensive than any other distribution channels. Banks have much more negotiating power because of the larger reach that they have. The additional costs that are associated with this channel are largely due to benefits like infrastructure and referral commission that is given to banks. Referral commission is what the companies pay to banks for passing on contact details, which may not even turn into sale, but the banks make commission on that. IRDA is trying to find ways to lower these costs that are associated with this channel. CNBC-TV18 learns that Rs 2,000 crore commission is earned by the banks, which is too high. The commission that a bank could earn could be as much as 10% higher than non-bancassurance channel commissions. Of course, this extra commission is shelled out by the company and not by the customer.