MUMBAI: To prevent multi-level marketing frauds in the sector, the Insurance Laws (Amendment) Ordinance, 2014, promulgated last month, prohibits multi-layered agent structure for sale of insurance products.
It has also barred offers aimed at inducing people to buy or renew policies through mutli-level marketing schemes.
Interestingly, as per the Ordinance, insurers will be held responsible for all the acts and omissions of its agents and in case of any violation of code of conduct, they will face a penalty to the tune of Rs 1 crore.
Payment of any commission to the agents or insurance intermediaries would need to be in accordance with the applicable regulations of IRDA.
“No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance policy through multi level marketing schemes,” the Ordinance says.
The move aims at checking mis-selling of insurance products by agents in a bid to earn high commissions.
As per the newly promulgated Ordinance, insurers cannot appoint any principal agent, chief agent and special agent,” neither they can transact any insurance business through them.
The Ordinance also provides that no person can act as an insurance agent for more than one life insurer, one general insurer, one health insurer and one of each of the other mono-line insurers.
Based on the Ordinance, the insurance regulator IRDA will frame necessary rules to ensure that there is no conflict of interest when an agent represents two or more insurers, across segments such as life and general insurance.
Besides, a minor person can not be appointed an insurance agent and others disqualified to become an agent include those with unsound mind or those having found guilty of a crime including forgery, provided five years have lapsed since completion of the sentence.