The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a 20 per cent limit on agents’ commission, reward, and remuneration for general and standalone health insurance companies in an ‘Exposure Draft.’
The insurance regulator said in a notification: “In order to enhance responsiveness of the regulation to market innovation, and to facilitate the insurers in development of new business models, products, strategies and internal processes, and enable in easy compliance with the regulations while fulfilling the regulatory objectives, as well as to provide the insurers the flexibility to manage their expenses…the IRDAI (Payment of commission or remuneration or reward to insurance agents and insurance intermediaries) Regulations, 2016 has been reviewed.”
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The regulator also released a draft consultation paper on the commission limit. Insurers will have a board-approved policy on commissions of the agents.
It said: “All the stakeholders are requested to submit their comments/ suggestions, if any, on the proposed draft regulations in the given format on or before 5 pm on September 14, 2022, to sumandeep.ghosh@irdai.gov.in with a copy to uma.irdai.gov.in.”
Expense On Management
The IRDAI has proposed to have a limit on the expense of management (EoM) at 30 per cent of the gross premium for general and standalone health insurers. The expenses of management of insurers include commissions and fixed expenses.
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A report by Macquarie Research also says that “IRDAI wants to encourage greater persistency and longer tenure products and ensure that commissions are spread out instead of being paid up front.”
According to industry experts, the current move by IRDAI would result in a number of big companies with a greater hold on their EoM to be allowed to pay commissions, as per the board approved policy. The rest of the players would need to obey the cap placed by the regulator. Further, the experts said that connecting commissions with EoM would further improve efficiencies for a lot of players.
A senior industry expert, however, said on conditions of anonymity that the “sharp cut in first year premiums in life and health insurance would move small agents away. Though bigger companies will benefit from the move, smaller agents might not feel motivated to sell life insurance.”
