Zero non-life commission and agent license suspension deemed illegal

Staff Correspondent: A sweeping move to suspend licenses of non-life insurance agents and reduce their commission to zero percent has kindled serious concern across Bangladesh’s insurance sector, with legal experts and industry stakeholders warning that the steps are not consistent with existing law and could inflict long-term harm on the market.

The controversy centres on recent action by the Insurance Development and Regulatory Authority (IDRA), following a proposal from the Bangladesh Insurance Association (BIA). Despite clear provisions in the Insurance Act 2010 and the Insurance Agent Appointment, Registration and Licensing Regulations 2021, IDRA has moved towards eliminating commission for individual agents in the non-life sector and has asked insurers to submit proposals to suspend agent licenses- measures many say have no legal foundation.

Under the Insurance Act 2010, individual agents are not a voluntary distribution channel but a mandatory feature of the insurance industry. The act needs insurers or brokers to appoint and register individual insurance agents and maintain a register of such agents. The same act explicitly prohibits payment of commission or any form of remuneration to anyone other than a licensed insurance agent or broker for procuring insurance business. In other words, agents are not only recognised by act; they are central to the legally sanctioned business model.

Against this backdrop, the BIA’s proposal to set agent commission at zero percent in non-life insurance has been labelled both ill-conceived and illegal. The association’s president, Sayeed Ahmed, sent a letter to IDRA on 18 November claiming that directors and chief executives of non-life insurers, in a joint meeting, had agreed to eliminate agent commission. However, several sector insiders fight that claim. They say no formal consensus was reached, no copy of the letter was shared with executive committee members or companies and even an office copy of the letter was not preserved. This has led many to question both the transparency of the process and the legitimacy of citing ‘unanimous’ support.

Despite the concern, IDRA arranged a meeting with BIA and the chief executives of non-life insurers and, according to many accounts, pushed through a decision to make agent commission zero percent, apparently without fully addressing the legal constraint. The move was followed by an official letter issued on 1 December, where IDRA asked all non-life insurance companies to send proposals by 5 December to suspend the licenses of their individual agents. This step goes far beyond any authorities concerned envisioned in the existing regulatory framework.

The Insurance Agent Appointment, Registration and Licensing Regulations 2021 empower IDRA to cancel an agent’s license under specific conditions. However, they do not provide for the suspension of licenses, nor do they agree with insurers to propose or initiate such suspension. By urging companies to send proposals for suspension, the regulator is being accused of driving them into direct conflict with the actual regulation it is mandated to uphold. The analysts say that such an action extends to a misuse of regulatory power and stands in clear violation of the licensing regime.

There is further concern about IDRA’s indication that it will declare zero-percent commission for non-life agents through a regulatory notification after receiving the companies’ proposal and then monitor compliance. Although the Insurance Act does allow IDRA to determine commission structure, slashing commission to zero is seen as a fundamental policy change with far-reaching implication. Experts say that such a drastic departure from the established framework should go through a legislative or formal rule-making process, not be executed through a combination of meeting, letters and administrative directive.

Similarly contentious is the plan to involve the Bangladesh Insurance Association in enforcement. IDRA’s message suggests that, due to a shortage of manpower, BIA will assist in monitoring whether non-life insurers comply with the zero-commission directive. A vigilance team is to be formed by BIA to identify non-compliant companies and report them to the regulator, which would then take action under the Insurance Act. This arrangement raises serious questions regarding conflict of interest, answerability and legal authorities concerned. BIA is a trade body, not a statutory regulator. Critics say that delegating quasi-enforcement power to an industry association is not compatible with the principle of independent, impartial regulation and is not supported by the act.

Beyond the legal and procedural flaws, the potential consequence for the market is enormous. IDRA’s own data show that 46 non-life insurance companies are operating in the country, with 2,365 agents working on a commission basis to collect business as of 2023. These agents are the backbone of premium collection and client acquisition for non-life insurance. Setting their commission at zero and effectively suspending their capability to work would not only extinguish a legally recognised profession- it would disrupt the distribution system on which the sector relies.

Industry insiders warn that premium income is likely to drop sharply if agents are sidelined. Non-life insurance products, particularly outside major urban areas, are still deeply dependent on in-person relationship, follow-ups and the trust built by agents over time. Without a functioning agency network, many fear that policies will lapse, new business will slow and the overall insurance penetration- already low by global standards- will deteriorate further.

This is not the first time the regulator has attempted to remove agent commission in the non-life sector. On 1 March 2021, IDRA suspended agent commission for non-life companies, only to restore them in 2022 following disruption and pushback from the market. The return to the same contentious idea, with even more sweeping measures like license suspension, has prompted observers to question whether the lessons of that earlier episode have been ignored.