Corporate India will no longer get unofficial discounts from insurance companies. Private insurance companies have decided to stop making "underhand" payments to companies to bag their accounts.

Last Saturday, eight CEOs of private general insurance companies met at the Taj Chambers in Mumbai and decided to offer only a 5 per cent discount on the premium on fire and property insurance and a 15 per cent discount on marine hull.

Since 1972, the state-owned insurance companies have been giving a 5 per cent discount to companies that directly approach them for such covers.

As a first move towards self-regulation, each private insurance company will set up an internal committee to curb malpractices in the industry.

"We have decided to put a stop to the rebates that are affecting our survival and the future development of the broker community," a senior executive of a private insurance company told Business Standard.

Private insurers were forced to take recourse to offering rebates to gain market share, even though they were not allowed to do so by the industry's regulator.

However, since the Insurance Regulatory and Development Authority allowed brokers to enter the insurance industry, kick-backs to corporates became more rampant. Many of these were brought to the notice of the regulator.

Insurance firms are allowed to pay a maximum 17.5 per cent as brokerage commission or a 5 per cent direct discount to companies. However, they had to fork out much bigger sums.

"Payouts from insurance companies were in some cases as high as 25-30 per cent of the premium amount. This was shared by the corporate and the broker or fixer, who capitalised on their relationship with company directors and promoters," a senior industry official said.

In non-tariff businesses, where the Tariff Advisory Committee did not specify a fixed price, corporates benefited directly. A leading pharmaceutical company whose annual premium is in the region of Rs 4-5 crore (Rs 40-50 million), secured as much as a 25 per cent discount on the premium payable from a private insurer.

"We felt stressed out as a large part of our time was spent dealing with brokers' contacts," said a senior executive who heads the insurance department of a large multinational company.

The decision taken by private insurance companies is a fallout of the insurance regulator's notification on agency and brokers' remuneration in early March.

The notification set the maximum payment that could be made to brokers and reiterated that insurance companies could offer a 5 per cent discount, among other things.