The insurance watchdog did the right thing, asking life insurers to disclose the commission paid to agents selling unit-linked insurance plans (Ulips). This is a logical step after the cap on Ulip charges. The move will bring in more transparency, discourage mis-selling of Ulips and help investors take informed decisions. 

The disclosure on commissions will also blunt the sting in the spat between the Insurance Regulatory and Development Authority (Irda) and market regulator Sebi over Ulips. Mutual funds that Ulips compete with launched a vehement attack on insurers for charging hefty upfront commissions to drive Ulip sales. Irda has, therefore, been forced to tighten regulation. 

True, in an under-insured country like India, there has to be an incentive to market insurance products. However, a commission as high as 40% of the premium on insurance covers defies logic. Insurance companies should lower commissions and eventually transit to a fee-based model. A government committee on investor awareness has recommended a fee-based model for all financial products. The suggestion would allow an investor to negotiate charges directly with the agent. Ideally, this is the way a financial product like Ulip should be sold. 

An agent who offers a service to the investor should charge a fee that is mutually agreed upon, and not solely fixed by the seller of the financial product. Sure, this would make the task of agents more difficult. But they should reconcile to that correction. Sebi has already shown the way. It scrapped entry loads on mutual funds, paving the way for investors to negotiate charges directly with distributors. 

The pension fund regulator has gone a step further and adopted a load-free model. However, such a model runs the risk of slow offtake. Fees are in order. Investors need choice and better disclosures in financial products to take informed decisions. In a country where many do not understand the difference between term insurance and investment-linked insurance, the regulator should go all out to enhance disclosure that would serve to raise the level of financial literacy as well.