The chairman of the Insurance Regulatory and Development Authority (Irda), J Hari Narayan, has opposed the elimination of the commission structure in insurance, saying that such a move would be a death-blow to the industry.

In a discussion paper, the D Swarup committee on investor awareness and protection has suggested that the commission structure for insurance intermediaries, or agents, be phased out in line with the removal of entry load in mutual funds. The committee is due to finalise its report soon.

Hari Narayan said equating the insurance industry with mutual funds was fraught with danger. "The insurance industry in India  has thrived for many decades. It has a time-tested structure. Any move towards dismantling the commission structure would only lead to a collapse of the insurance industry," he said.

The Swarup committee's consultation paper on minimum common standards for financial advisors and financial education has suggested that insurance commissions must be eliminated by April 2011. Instead, the intermediaries should be paid a fee for their services. The panel has pointed out that the mutual fund industry has taken similar steps by eliminating entry load with effect from August 1.

Opposing the move, Hari Narayan said equating insurance with mutual funds might present a distorted view. "Insurance and mutual funds are very different businesses. It would not be proper to impose the mutual fund experience on the insurance industry."

He, however, agreed with the Swarup panel's suggestions for transparency on commissions charged by agents. "There is no issue on suggestions that we need to maintain transparency on the commissions charged. In fact, the insurance industry already maintains a high degree of transparency on charges."

The Swarup committee has suggested that the entire financial sector should convert to "no-fee' structure." It is an opportune time for India to set global standards by following a no-load- plus- fee model for the entire financial sector, and then using outcome-based regulation to ensure a fair deal for all market participants, the producer, the adviser and the consumer,” the panel has said.

It has suggested that since agents fulfil the needs of the consumer, they should be paid through a fee structure. 'The key question here is: whose agent are they— the consumer's, the producer's or their own? And if they are the agent of the consumer, surely the consumer should directly compensate them to ensure service.'

There are 2.7 million insurance agents, according to the Life Insurance Council, and 55,000 mutual fund agents, according to the Association for Mutual Funds of India (AMFI).