kolkata pay if it pays thats what the recommendations of the govardhan committee in effect mean when it comes to referral arrangements between insurers and bankers or any other referral companies the draft recommendations of the govardhan committee released on tuesday mention that referral fee should be paid only on successful conversion and such fees and other costs incurred as a result should not exceed the ceilings on commissions as provided under section 40a of the insurance act a referral arrangement simply means that a bank or other corporate entity provides names of prospective clients who might buy an insurance cover according to the draft the insurer will pay a fee to the bank only when this client actually buys an insurance policy the fee should not cross 40 of the total premium paid the committee reports that referrals are increasing the already spiralling costs of insurers therefore in the interest of prevention of further escalation of costs it is important to streamline the fee structures allowed to these entities the present set of rules deals only with banking referrals leaving the whole area of arrangements with nonbanking entities including individuals unregulated the insurance act allows a third party group to furnish data of its members to an insurer and be compensated for the same on basis of sales made out of the references however no limits or ceilings have been prescribed by the regulations in connection with these payments this has been put to misuse by some insurers in making excessive payments towards references obtained by them there is therefore a need to scrap the relevant provision in irda insurance advertisements and disclosure regulations 2000 there is a need to clearly spell out in the new regulations the categories of entities that may be permitted to take up referral activity to ensure that this activity is carried out in a streamlined manner the report mentioned the existing guidelines on referrals confine itself to referral arrangement with banks and does not refer to such arrangements with nonbanking entities however the committee discovered that some of the life insurers are also entering into referral arrangements with a variety of nonbanking entities