Opportunity to pay commission in non-life insurance abolished

Sarfaraz Hossain FCS :

Opportunity to pay commission in non-life insurance abolished by IDRA. On December 23, 2025, the Insurance Development and Regulatory Authority (IDRA) issued a circular regarding the individual agent commissions and salary and allowances of development officers of non-line insurers.

This directive has been issued in the larger interest of the insurance sector, including protecting the interests of non-life insurance policy customers, strengthening the financial base of insurers.

The circular mentions that, based on the recommendations received through a letter from the Bangladesh Insurance Association, a meeting was held by the Insurance Development and Regulatory Authority to discuss the commission of individual agents in non-life insurance companies.

In accordance with the decisions made during the meeting and the proposal to suspend the individual agent licenses received from non-life insurers, the individual agent licenses of all non-life insurers have been suspended.

As this will be effective from January 1, 2026, there will be no individual insurance agents in the non-life insurance business from that date onwards.

The circular further states that, since no valid individual agent licenses will be in effect, there will be no opportunity for any insurer to pay commission to any individual insurance agent. According to Section 58(1) of the Insurance Act 2010, no commission or any other form of remuneration/compensation can be paid to anyone other than an insurance agent.

It also mentions that the salary, allowances, and other benefits of development officers cannot be paid as a percentage of the premiums collected by the officers.

It is noted that, except for contract-based appointments, the appointment letters of all development officers must mention the salary and allowances according to the pay scale of the respective insurer, and these must be paid accordingly.

The salary, allowances, and other benefits of all officers and employees must be transferred from the designated bank account for management expenses to the individual employees’ bank accounts or paid via account payee cheque.

However, these restrictions will not apply to banks that operate bancassurance or to those managing Insurtech. Section 2(29) of the Insurance Act defines an insurance agent as “insurance agent means a person registered under this Act who receives or agrees to receive payment by way of commission or other form of remuneration in consideration of his soliciting or procuring insurance business including continuance, renewal or reinstatement of policies of insurance.”

Regarding the restriction on payment by way of commission or otherwise for procuring business, Section 58(1) of the Insurance Act states: “No person shall pay or contract to pay any remuneration or reward whether by way of commission or in any other name for soliciting or procuring insurance business in Bangladesh to any person except an insurance agent or an employer of agents or broker.”

In other words, if there is no individual agent in an insurance company, then paying any kind of commission to anyone will be against the law and considered a violation of the Insurance Act. Section 124(1) of the Insurance Act states relating to appointment of Insurance Agents: “An insurer or broker shall appoint and register a person as an insurance agent and every insurer of broker shall maintain in such manner as may be prescribed by regulations made by the Authority, a register of all such appointment and registration as insurance agent.”

Furthermore, the Insurance Development and Regulatory Authority to carry out all activities relating to the appointment of insurance agents, Section 124(4) of the Insurance Act states: “the Authority may, by regulations made in that behalf, determine the qualifications and other conditions for appointment, duration of registration and renewal fee and manner of payments of such fee of the insurance agents.” Therefore, under this provision, just as the Insurance Development and Regulatory Authority has the power to determine the duration of registration of insurance agents, it likewise possesses the authority to suspend the license of an insurance agent.

Since the Bangladesh Insurance Association, along with the majority of insurance companies, submitted applications to the Insurance Development and Regulatory Authority for the suspension of agent licenses, the Authority, exercising its own statutory powers, has issued orders suspending such agent licenses. Consequently, those institutions which no longer have insurance agents will not, in any manner, be able to pay commissions.

Almost all insurers are of the view that commissions constitute the single greatest obstacle and impediment to the development of insurance business. If commissions are completely abolished, irregularities within insurance companies will be significantly reduced. At the same time, insurance companies will be able to distribute higher dividends to shareholders, which in turn will lead to an increase in government revenue collection.

In order to curb the unchecked escalation of agent commissions and to restore discipline within insurance institutions, the Bangladesh Insurance Association organized a series of meetings in several phases with the Chief Executive Officers and Chairmen of insurance companies.

In these meetings, the majority of participants expressed consensus that abolishing agent commissions is essential to bring transparency to the non-life insurance market, reduce irregularities, and establish discipline within the insurance sector. At the same time, the Chief Executive Officers assured that insurance business could be conducted without agent commissions.

In this context, upon the application submitted by the Bangladesh Insurance Association to the Insurance Development and Regulatory Authority requesting the adoption of necessary measures to address the challenges in the non-life insurance business by fixing agent commission at zero percent instead of fifteen percent, a meeting was held on 25 November 2025 at the conference room of the Insurance Development and Regulatory Authority.

Two days later, on 27 November 2025, a consultative meeting was held at Lakeshore Hotel, Gulshan-2, Dhaka, with the Chairmen of all insurers to facilitate comprehensive discussions on the challenges and prospects of the insurance sector. Subsequently, with the objective of suspending individual agent licenses in the non-life insurance sector, the Insurance Development and Regulatory Authority issued a directive instructing all non-life insurance companies to submit proposals regarding the suspension of individual agent licenses by 5 December 2025.

Despite the fact that several sections and sub-sections of the Insurance Act attach importance to insurance agents, the Insurance Development and Regulatory Authority issued such a circular at the strong insistence of the Bangladesh Insurance Association.

It is therefore necessary to discuss the rationale behind this decision and to explain how the payment of excessive or high commissions causes harm to both insurance policyholders and insurance companies.

The payment of high commissions often leads to the issuance of policies without proper risk assessment. As a result, underwriting discipline within insurance companies becomes fragile, the loss ratio increases, and the long-term sustainability of the companies is adversely affected. In order to maintain high commission targets, some insurers engage in unfair competition by reducing premiums through aggressive rate-cutting, thereby initiating price wars in the market.

Furthermore, commission-driven policy sales without adequate consideration of risk suitability result in the issuance of inappropriate or incorrect coverage to policyholders, which ultimately leads to failure in claim recovery. Due to excessive commissions, policy terms and conditions are often not properly explained to customers, and policies are issued by concealing or overlooking various exclusions, thereby creating grounds for claim repudiation.

Some insurance companies provide excessive commissions while simultaneously showing reluctance in settling claims, which undermines policyholder protection and damages the reputation of the insurance sector. Moreover, the excessive dominance of agent commissions discourages the development of a professional agent or brokerage culture in Bangladesh, thereby hindering the establishment of a transparent, ethical, and sustainable insurance market.

In the name of commission, insurance companies are undertaking certain measures to create concealed rebates and various undisclosed benefits, which are contrary to the guidelines of the Insurance Development and Regulatory Authority and are exposing the companies themselves to significant compliance risks.

The payment of high commissions reduces the net premium income of insurance companies, weakens technical reserves, and creates solvency risks in the long run. If the circular issued by the Insurance Development and Regulatory Authority is fully implemented, all of the above-mentioned problems will begin to be resolved from the very first day, policyholder protection in Bangladesh will be strengthened, and each insurance company will be able to conduct its business smoothly and sustainably.

On the same date, as a meeting of the Board of Directors of Peoples Insurance PLC was held, the Board members expressed their appreciation to the Insurance Development and Regulatory Authority for issuing the said circular. Copies of the circular were circulated to the Head Office as well as to all branch offices of the company, with strict instructions to ensure proper compliance.

(Sarfaraz Hossain FCS, Company Secretary, Peoples Insurance PLC.)