Insurers and Brokers Face Job Cuts if Irdai Pushes Through Commission Caps, Says IBAI
IBAI has raised concerns over potential job losses if IRDAI implements its proposed commission caps.
IBAI warns that proposed IRDAI commission caps could put jobs across the insurance sector at risk.
NEW DELHI, IBAI: India’s insurance brokers have pushed back against the regulator’s plan to overhaul how insurance is sold and paid for. They warn that it could cost jobs at brokerages and insurers and make it harder to sell cover beyond the big cities.
The Insurance Brokers Association of India (IBAI), which represents 798 licensed brokers, said on Tuesday that the proposed insurance distribution reforms from the Insurance Regulatory and Development Authority of India (Irdai) could lead to job losses in distribution and inside insurance companies. It also said commission caps set below the cost of serving customers could make it unviable for insurers and intermediaries to reach people in smaller towns and cities.
The concerns come in response to a consultation paper in which Irdai proposed changes to distribution norms. These include lower commission caps for intermediaries and tighter expense of management (EoM) limits for insurers.
IBAI: What Irdai has proposed and where IBAI agrees
IBAI said it backs the regulator’s stated aims of protecting policyholders, improving transparency, curbing mis-selling and widening insurance coverage. Its objection is to the design of the proposals. The association pointed to two features in particular: the introduction of more than 30 separate commission caps, based on product and distribution channel, and a reduction of more than 30 per cent in insurers’ overall expense limits over five years.
According to the association, these changes could end up hurting the policyholders the reforms are meant to protect.
On EoM limits, IBAI argued that the proposed reduction cannot be met through efficiency gains alone. It said insurers could be forced to cut staff in sales, servicing and claims functions, at both private and public sector companies.
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IBAI: Concerns over the role of independent brokers
IBAI said the caps could also weaken independent brokers, who are appointed by customers to compare policies, negotiate coverage and help with claims. It warned that the proposals could leave a customer’s broker earning less than a tied agent, which would reduce both the incentive and the ability of brokers to provide these services.
The association also disputed how the rise in reported commissions should be read. It said part of the increase reflects payments that were earlier recorded under other expense heads and have since been reclassified. In its view, high commissions are concentrated in captive distribution channels, where customer choice may be limited. The proposed caps, however, would apply across all channels, including independent brokers.
IBAI: Reach, “Insurance for All by 2047” and regulatory stability
IBAI cautioned that the proposals could reduce distribution capacity at a time when India is working toward its “Insurance for All by 2047” goal. It also raised the question of regulatory stability, noting that the government has opened the insurance sector to 100 per cent foreign direct investment.
IBAI: IBAI’s suggested alternatives
The association has asked Irdai to retain the 2023 EoM framework and, if necessary, tighten the rules for how expenses are calculated.
It has also proposed the following:
Narrower commission caps: Limit caps to credit-linked and other coerced-choice sales, where IBAI believes the evidence for intervention is strongest.
Premium refunds: Require insurers to refund premiums to customers in segments that persistently record low claims ratios. IBAI cited the Pradhan Mantri Fasal Bima Yojana (PMFBY), Ayushman Bharat and no-claim bonus mechanisms as precedents.
Exemption for large risks: Exclude commercial and large risks from the caps.
Impact assessment: Conduct a regulatory impact assessment before any new regulation is drafted.
