India's insurance regulator, Insurance Regulatory and Development Authority (Irda) has written to the finance ministry, objecting to a government-appointed panel's proposal that wants agents' commissions removed from policyholders' premiums. If the government sees merit in Irda's argument, 3 million life insurance agents in the country will heave a sigh of relief.

"We have protested the Swarup committee's proposal to remove commission from the premium,"Irda chairman J. Hari Narayan said on Thursday, confirming the development. “We have written to the ministry.”

The mandate of the six-member committee headed by D. Swarup, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), was to suggest measures to protect and educate investors. One of the key recommendations in the consultation paper released by the committee in early September was the elimination of upfront commissions paid to life insurance agents by April 2011.

Swarup said the panel was meant to represent customers. "The remit of the committee is the consumer's side of the equation. Therefore, we are focusing on that."

The committee includes representatives from the Securities and Exchange Board of India, or Sebi, the Reserve Bank of India, Irda, PFRDA, and the finance and corporate affairs ministries. The recommendation on commissions is one of a total of 33 made by the panel.

The Insurance Act currently allows agent commissions of up to 40% in the first year for some life insurance products. In the second and third years, the firms can pay commissions of up to 7.5%, and a maximum of 5% thereafter.

Life insurance agents in India earned Rs15,000 crore in commissions last year, according to the panel's report.

In defence of the commissions, R. Kannan, member (actuary), Irda, said agents play an important role in the insurance sector and one of the reasons behind non-life insurance penetration stagnating at 0.6% of population could be low level of such incentives.

Life insurance penetration in India increased from 1.77% in 2000 to 4.1% in 2006, before declining to 4% in 2007, a survey tabled in Parliament in July by finance minister Pranab Mukherjee shows.

India's life insurance industry collected annual premiums of Rs2.23 trillion in 2008-09 through the sale of new policies and renewals.