Business Standard

Insurance companies get more autonomy to decide on commission amount

Govt gives nod to Irdai rules on payment of commissions for intermediaries



Subrata Panda Mumbai

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The central government has cleared the insurance regulator’s new regulations on payments of commissions for intermediaries, thus paving the way for providing more autonomy to insurance companies to decide on the amount of commissions they want to shell out.

Come April 1, the segmental limits on commissions will be removed and the fees paid to intermediaries, such as individual agents, corporate agents, etc., will be based on the expense of management (EoM) limit.

The limit has been specified under the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting Life insurance business) Regulations, 2023 as amended from time to time.

According to the central government’s gazette notification, the total amount of commission payable under life insurance products, including health insurance products offered by life insurers, should not exceed the EoM limits.

Similarly, the total amount of commission payable under general insurance products, including health insurance products offered by general insurers and health insurance products by standalone health insurers, should not exceed the limits.

The previous guidelines will be repealed by the insurance regulator, once the new norms come into effect. Through these new regulations, the Irdai essentially wants every insurer to have a written policy for payment of commission, which would be duly approved by the board of the insurer, and reviewed periodically.

In a separate gazette notification, the central government ratified the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023. Accordingly, insurers carrying on general insurance business can incur EoM, which is equivalent to 30 per cent of the gross written premium (GWP) in a financial year. For standalone health insurers, the limit has been set at 35 per cent of GWP. This is in line with the draft circular the regulator had floated a few months back.

“We firmly believe that the shift from product-level commissions to a company-wide limit of expenses will ensure parity across varying business models while rendering greater flexibility in managing expenses for insurers,” said Tapan Singhel, managing director (MD) and chief executive officer (CEO) of Bajaj Allianz General Insurance.

Moreover, Singhel said, with the majority of the insurers above the prescribed norms of expenses and with the industry reeling with a combined ratio of more than 118 per cent, these EoM limits would help in cost discipline.

“This should hence translate into better pricing and products for customers in the medium to long term,” he said.

Anil Kumar Aggarwal, MD & CEO of Shriram General insurance, said the removal of the cap on commission payments would positively impact the sector. “It will facilitate greater product innovation, development of new product distribution models, and lead to more customer-centric operations. It will also increase insurance penetration and provide flexibility to insurers in managing their expenses,” Aggarwal said.

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First Published: Mar 28 2023 | 4:14 PM IST

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