Irdai eases limits for insurance commissions
Mumbai, August 25, 2022
The Insurance Regulatory and Development Authority of India (Irdai) has given insurers more flexibility in paying commission by linking limits to the overall portfolio and company management expenses. The maximum commission allowed for non-life products has been capped at 20% of the gross written premium in India in that financial year.
Irdai has told insurers that their commission and remuneration payout should be based on a board-approved policy that will be reviewed annually. In the direct business, no commission shall be payable to insurance agents or the insurance intermediaries, and the insurers must grant discounts on the premium.
Insurers said what was positive about the new regulation was that insurance companies that were spending more on sales using the marketing route could now spend the money on commissions. “Public sector companies have a higher wage to premium ratio, but they are not very different from private players in management expenses. This is because private companies spend more promoting sales, which is not reflected in commission expenses,” said an official with a public sector insurer.
The new regulations state that the commission limit will stay but, henceforth, it will be at the portfolio level limit and not an individual line of business. This means that a company that does more group health business at a low commission will have more headroom than a company with more individual health insurance businesses. Some insurers feel that even if limits are set at the portfolio level, regulations should not blend wholesale and retail portfolios for calculating commission ceiling.
Earlier, there was a suggestion from some industry members to disclose commissions, and the Irdai has clarified that it is not allowing such disclosures. But with commissions being freed, insurers are again saying that, at least in the wholesale business where buyers negotiate, insurers should be asked to disclose commission.
Some public sector insurers have concerns about the new guidelines and are likely to raise them in a meeting with the regulator this week. There is also a fear that banks and other large distributors will be able to squeeze insurers for higher commissions, which may not be in consumer interest.
For life insurance, commissions are based on the category of life insurance product, namely single premium (2%), group fund-based and regular premium (0.5%) or limited premium for which max first-year premium 20% and max additional commission for regular/ limited premium payment is 2%.
[The Times of India]