IRDA whip against pyramid schemes of Corporate Agencies

the insurance regulator has barred companies that do not have a substantial customer base of their own from becoming corporate agents. The regulator has also said apart from RBI-regulated finance companies, any entity seeking a corporate agency licence should have a turnover, assets or income of at least Rs 15 crore.
The present corporate agency norms have been abused by some fly-by-night operators to float pyramid schemes where prospective customers in addition to being sold a policy are enrolled as agents. These customer-agents are then encouraged to enrol more agents with the lure that they will get a portion of the commission paid to the new agents. Such operators do not have customers of their own but build a network by marketing a scheme. A typical scheme being marketed through SMS messages offers the opportunity to increase a monthly investment of Rs 6,005-4,46,000 in two years.
In a recent circular, IRDA said henceforth, only those persons who are part of a group having Indian Insurance Company or a scheduled commercial Bank within the group shall be eligible for a corporate agency licence to do insurance distribution as the principle business. However, this is subject to the condition that there shall be only one corporate agency amongst all the entities in the group.
Any individual who is a part of a group, which has a insurance broking arm cannot seek a corporate agency licence. However, any of the persons which are regulated by RBI within the group may apply and obtain a corporate agency license provided they have “substantial client base of their own or access to data which would facilitate identification of prospects.”
Those who are not licensed by RBI will not be eligible for corporate agency license, unless they have “a substantial client base of their own or access to data to identify the prospective policyholders” and have a turnover, assets or income of at least Rs 15 crore.

Source - economictimes.com