One committee has just announced a few steps to reduce mis-selling..I have not read the full report, but was amused by one statement:

The illegal practice of rebating should be punished harshly.

Rebating: In this context it means as an agent selling life insurance / mutual fund i pass back a part of the commission to the buyer. This is like an incentive to the buyer to buy the product / as a business practice.

Facts: In UK rebating is allowed, in the US, rebating is done.

Consider the facts.

As an Agent I walk into the house of a film star and convince him or her to buy a CLASSIC endowment life insurance. The premium amount is Rs. 2 crores per annum payable over the next 20 years. The film star is happy to have bought the product she signs the cheque and as I am about to leave, I TELL HER; ‘I make a commission of Rs. 1 crore on this policy, and I am happy to share Rs. 50,00,000 with you. She says “oh fine please give me a cheque for Rs. 50L in the name of a charity that I support”. I oblige.

On the way out her secretary wants to buy a life insurance policy and he agrees to pay a premium of Rs. 2 lakhs per annum. He pays the cheque and asks me..’will you share something with me?” – I tell him NO i do not share my commissions. However I have given you a product where my commission is only 8% – and I need to make Rs. 16000 for a transaction of this size. However as you have asked me let me give you this pen – it costs about Rs. 2000.

On the way out the driver of the star buys a pension mutual fund and makes a one time investment of Rs. 25000. I give him the plan and leave. We do not discuss about the commission. However, I tell him that this is a single premium product and I made only Rs. 500, however since he is a small guy I refund him Rs. 500.

See the drift? I THE AGENT CHOOSES what I want to do with MY COMMISSION, not the recommending authority. IT IS MY INCOME I CAN APPLY IT EXACTLY AS I WISH TO APPLY.

In the first case I rebated because I thought I was earning too much money for one afternoon’s work. THAT IS MY CALL. Not hers. She did not ask for a rebate. I OFFERED. She did not know.

Her secretary knew about the rebate, and he asked. I did not give, but gave him some token gift. Remember next time she wants to buy something, this guy has to remember me, preferably fondly. In case of the driver, out of charity I gave it back to him. It did not matter that I did not earn out of the driver.

Why should a committee decide how I use MY MONEY? and how will they prevent it? Why is the practice illegal?

ha that is another post..



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  1. I don’t know how (or if) the practice of “Rebating” can be tracked to punish the perpetrators. The Film Star accepted a cheque in the name of her Foundation whereas her Secretary and Driver paid premium with “the adjustment” done ahead of time.

    The solution lies in banning “Upfront Sales Commission” altogether from Insurance product sales & allow only trail commissions.

    Side effect: the insurance industry itself can degrow at 90% for the next two years. Not bad. Some sanity will prevail & the “real” demand for Insurance products will be out in the open.

  2. Subraaaaaaaaaaa!!!!!!!

    Why are you not a regulator? You should have also sat for UPSC and become IAS/IRS. We could have been better off with you at the helm.

    Instead, you had to go and do a CA or something. 😀 Who does a CA these days? Don’t you know that there are no CAs now and the numbers are going down? Cha cha cha cha… 😉 😛

  3. Regulator should reduce the cap on “other charges” that insurance companies are allowed to charge.that will de incentivise mis-selling.

    Before any middle men claims IT IS MY INCOME, the end user should have information on how much he pays towards commissions. Alas am talking about supply chain efficiency which many middlemen dont like..
    The main problem is awareness among the public. If the public understands importance of insurance and they are given proper information of all charges he is paying the market for agents will be small. Product penetration will improve and there wouldn’t be any reason for govt to incentivvise agents.

  4. Un Equity

    somebody who is so scared that in a comment you do not even wish to put you r name should be in debt, gold and RE. That is healthy.

    If I show you portfolios with 25% cagr in equities how will it matter? East is east, West is west – the twain shall never meet.

    Very very very happy to see such articles. Need it. How else can we keep it an exclusive club. Just had lunch with a guy with a Rs. 50 crore networth, first generation wealth creator. Has 2-3 houses, but 90% wealth created with equities alone. My friend circle perhaps does not read BS.

  5. And Dear Air,

    some of the mere mortals do want to be in your friends club. 🙂 They travel just to hear some sane words from you. 🙂

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