Commission structure for insurance agents is set for a major overhaul. In a move that is likely to have far reaching consequences, IRDA wants to make agents more accountable by linking their commissions to the services offered by them reports CNBC-TV18’s Priyal Guliani.

An insurance advisor earns as much as 30% commission in the very first year of selling an insurance policy and subsequent drop in the commission structure to about 7.5% in second and third year, does not lure him enough. As a result, more often than not, services of an advisor fail to meet investor’s expectations after the first year. Now the insurance regulator plans to phase out payment of commissions over a longer time frame. It intends to remove the yearly cap set up under the insurance act 1938 and keep the structure flexible based on the service provided by   the agent.

This is also to ensure that the discontinuation of insurance policies, which is as high as 60% in the first year and 15% on an average, comes down.

Insurance industry growth rate is riding high on the sale of unit linked insurance products, which attracts as much as 30% commission in the first year itself. Most often, this product rather than being sold as an insurance policy is shown as an investment tool and compared to mutual funds, resulting in its mis-selling and that is the biggest concern of the insurance regulator.

A 10 member committee set up by IRDA in September 2007 to study commission structures is expected to present its report on the last day of this year.