Are two regulators preparing for a face-off or is one regulator stepping on the other's toes? The recent report of the Pension Fund Regulatory and Development Authority (PFRDA) stating, among other things, that the insurance sector needs to phase out agency commissions in the next two years has irked insurers.

Top officials of the industry were huddled in a daylong meeting with the Life Insurance Council to prepare an adequate response to the PFRDA draft report. Being a regulatory affair, none of the insurance companies were willing to talk openly on the report.

However, there are indications that the Life Council would prepare discussion points that would be put up to the Insurance Regulatory & Development Authority (Irda).

R Kannan, actuary, Irda, said, "We are not aware of this and the Life Insurance Council has not approached us. But we would definitely help. Our motto is to nourish and strengthen the industry and we will not hesitate to help the industry".

The PFRDA, in its consultation paper on Minimum Common Standards for Financial Advisers and Financial Education, has made certain "loaded" statements on its idea of the insurance industry. It has made certain categorical comments on the fact that lapsation in the insurance industry is high as the "distributor has a huge role to play".

"The chief cause of mis-selling is the incentive structure that induces agents to look after their own interest rather than that of the customer. With an industry commission expense ratio (commission expenses as a percentage of total premium) of 16.25% and total commissions paid at Rs 14,704 crore in 2007-08, the reason for such selling practices is obvious," the report said.

"The life insurance incentive structure is currently under change with a 300 basis cost cap between gross and net yield. Still the underlying issue of front-loading the product with commissions that are due over the lifetime of a product makes harmful sales a foregone conclusion," the report further stated.

A noted life insurer on terms of anonymity said, "The Irda is making a lot of changes and commissions are already coming down. There is a regulator that is well aware of the industry and keeps taking all measures....a host of them on policyholders rights, commission structures, doing away with multiple charges etc have been taken up recently.

The PFRDA may have its own view but that should not intrude in the area of insurance which is a huge industry today".

Most insurers felt that insurance penetration is still low in the country and, without incentives to the distributors; the spread of insurance is not possible. "It is just not feasible to compare mutual fund and insurance sales in the same platform. The tenure and objectives are completely different," a insurance company official said.

Agents are also furious with the PFRDA report. "Does the industry want to throw us out of jobs? There are almost 30 lakh agents selling insurance. It is true there are cases of mis selling and inappropriate sales pitch at times but that does not mean that all the agents should be taken to task. On one hand the industry calls for an image makeover of the age-old agent and make him or her more customer friendly and on the other hand if the commission structure is totally done away with it, the sales penetration will take a hit," said a noted agent who did not want to be identified.

Gaurang Shah, managing director, Kotak Life, said, "All industries follow different structures. The structure of the insurance industry is different from that of the mutual fund industry. The debate is whether one would want a uniform structure or should it be industry-specific. I think that within the individual structure, awareness and market conduct can always be improved upon".