The new draft bill aims to force the commissions diminishing by indirect measures which impose a minimum limit for the share of premiums invested in the first years after the entering into force of the investment-linked insurance contracts.
Currently the law provides for a cap on the commissions cashed by insurance agents for this type of products, limiting the commission value to the equivalent of maximum 14 months' premiums. In addition, the commissions paid to the agents may not exceed the premium amounts already paid by the client to the insurer. Still, up to the present moment the rules proved ineffective, as they still offer legal loophopes and also failed in significantly reduce the costs of life insurance.
"The government is now seeking to regulate costs indirectly (more specifically, to stipulate the minimum required investment) in order to limit the cost of investing in a life insurance policy, " writes portfolio.hu.
The draft would require insurance companies to invest a specified minimum amount at the beginning of the life cycle of an insurance policy, increasing from 20% of the premium in the first year to 80% in the third year. As a result, companies would not be able to spend more than half of the premiums cashed in the first three years to cover commissions and other operating costs. The former cap imposed on commissions (14 months' premium equivalent) will remain in place also in the future.
The draft bill has gathers mixed opinions in the market, as on one hand its enforcement is believed to lead to a total disclosure to the clients of the commissions cashed by agents and, on the other hand, the transparency requirements provided by the bill are hard to accomplish by insurers, "as an insurance company is unlikely to be able to show a breakdown of costs such as office space lease, corporate retreat or company car expenses for each client," according the Hungarian financial journal's analysts.
Source: portfolio.hu
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