According to a Milliman research report which analysed Asia’s life insurance regulations, the list below shows the caps on commissions payable to insurance agents. In some markets (e.g., India and Sri Lanka), the maximum commissions vary by the type of distributor (e.g., individual agent, broker, corporate agent).
Maximum Commissions/Overrides on Premium Payable to Insurance Agents
The caps applicable on basic commission rates are:
Single premium contracts: 4.0% of premium
Regular premium contracts: The total commission is capped at 5% of total premium over the whole premium payment period and the specific limits vary by premium payment period and policy year.
Single premium contracts:
All individual life products except pure risk products: 2% of premium.
Individual pure risk products: 7.5% of premium
Regular premium contracts:
All individual life products except pure risk products: The maximum first-year commission varies (based on premium payment terms) between 15% to 35% of premiums; and maximum renewal commission is 7 5% of premiums per annum (p.a.).
Individual pure risk products: The maximum first-year commission rate is 40% of premiums and the maximum renewal commission rate is 10% of premiums p.a.
Pension products: The maximum commission rate is 7.5% of premiums in the first year and 2% of premiums p.a. thereafter.
There is also a provision for an additional first-year overriding commission of 20% of the overall commission payable to insurance agents and to the insurance intermediaries whose revenue from insurance activities is more than 50% of their total revenue from all activities.
Single premium contracts:
Investment-linked business: 3.75% of premiums.
Ordinary life business: 10% of premiums.
Deferred annuity business: 3% of premiums.
Regular premium contracts (with premium payment term of 20 years or more):
Ordinary life business: 171% of the annual premium, to be payable over at least six years, with the maximum commissions payable in the first three policy years being 65%, 40% and 26% of premiums, respectively.
Investment-linked business: 160% of the annual premium, to be payable over at least six years, with the maximum commissions payable m the first three policy years being 40%, 40% and 25% of premiums, respectively.
Regular premium contracts (with premium payment term less than 20 years):
Prorated based on the scale applicable for commissions on longer term.
Effective 1 January 2019, there will be no commission limits for investment-linked business.
For all regular premium products, commissions are to be spread over the premium payment term or six years, if shorter. The first-year commission is capped at 55% of total commission payable.
Single premium contracts: 3% to 6% of premiums, depending upon the policy term.
Regular premium contracts:
Year 1: 30% of premiums
Year 2: 20% of premiums
Year 3: 15% of premiums
Year 4: 10% of premiums
Years 5-10: 5% of premiums
Years 11+: Nil
The OIC sets the maximum basic commission rates allowed for main products and riders.
For individual business, basic commission rate caps are as follows:
Year 1: not more than 40% of the first-year premium.
Year 2: not less than 40% of the first-year commissions
Year 3: not less than 25% of the first year commissions.
Year 4: no restriction.
This rule does not apply to group insurance.
The caps on basic commission rates applicable to individual life insurance policies are as follows:
Single premium contracts:
Term insurance: 15% of premiums.
Permanent life insurance: 5% of premiums.
Universal life and investment-linked insurance: 5% of premiums for products with policy terms less than or equal to 10 years and 7% of premiums for products with policy terms more than 10 years.
Whole life insurance: 10% of premiums.
Regular premium contracts:
Term insurance: 40% of premiums (year 1), 20% of premiums (year 2), 15% of premiums (years 3+).
Permanent life insurance:
Insurance period less than or equal to 10 years: 15% of premiums (year 1), 10% of premiums (year 2), 5% of premiums (years 3+).
Insurance period more than 10 years: 20% of premiums (year 1), 10% of premiums (year 2), 5% of premiums (years 3+).
Universal life/investment-linked insurance:
Insurance period less than or equal to 10 years: 25% of premiums (year 1), 7% of premiums (year 2), 5% of premiums (years 3+).
Insurance period more than 10 years: 40% of premiums (year 1), 10% of premiums (year 2+).
Whole life insurance: 30% of premiums (year 1), 20% of premiums (year 2), 15% of premiums (years 3+).
The maximum commission rate for health insurance policies is 20% of premiums.
Clawback and indemnity commissions
The regulations in Japan, Singapore, South Korea and Taiwan allow indemnity and clawback type commission arrangements. In other markets, there are no specific rules governing these arrangements and the practice normally varies from company to company.
The full Milliman research report “Regulatory diversity across Asia” is available here.
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