IRDAI Chairman: Insurance Costs Have Crept Back Up, and the Sector Must Go Back to Being Efficient
IRDAI Chairman Ajay Seth said rising insurance costs are a concern and the sector needs to return to greater efficiency. His remarks come as IRDAI pushes reforms aimed at improving the economics of insurance distribution.
IRDAI Chairman Ajay Seth said insurance costs have crept back up, stressing the need for the sector to become more efficient.
New Delhi, IRDAI: Insurers are not resisting the regulator’s plan to change how insurance is sold in India, IRDAI Chairman Ajay Seth said, days after the authority released its consultation paper “Recalibrating Economics of Insurance Distribution”. Seth said he has met 17 chief executives of life, general and standalone health insurers over the past week. All of them, he said, backed the direction of the proposals, with only a few suggestions.
The paper covers commission limits, tighter expense norms for insurers, greater transparency and a simpler distribution structure. In an interview, Seth said it should not be read as a document about distribution costs alone. He described it as the foundation for a more efficient insurance sector in which insurers, distributors and the regulator all have to become more productive.
IRDAI: Insurer CEOs supportive, says Seth
Seth said he has so far met 17 insurer CEOs. Eight of them were met on the 26th, and nine more on the morning of the interview. He said the meetings will continue in the coming days, including a session with CEOs in Delhi on the 5th.
“All of them are supportive,” Seth said, adding that insurers have offered “a few suggestions”. Asked repeatedly whether the industry had flagged specific points of disagreement or changes it wanted, he said he did not get that sense. He said coverage in the media had also been broadly supportive, with some suggestions.
He described this as the purpose of a consultation paper: to generate informed public discourse. He said he was glad that discourse had begun.
IRDAI: “Not merely about distribution”
Seth pushed back on the framing of the paper as one about bringing down distribution costs alone. In his account, it lays the foundation for a far more efficient insurance sector, positioned to serve the country’s Viksit Bharat aspiration.
“It is about everybody becoming far more productive,” he said, naming insurers, distributors and the regulator itself as stakeholders that must all improve their efficiency.
He said the title was chosen with care. A sector that gets its economics right for its consumers, suppliers and wider ecosystem, Seth said, prospers “by leaps and bounds”, and the paper attempts to get the economics of the insurance sector right.
IRDAI: Entry barriers first, limits second
Asked why the paper pairs the rationalisation of insurers’ expenses with the reintroduction of segment-wise commission limits, Seth said value for policyholders is possible only through much better competition and more players in distribution. The first step, in his telling, is structural simplification: easier entry and more opportunities for business and income.
He pointed to steps already taken. The capital a broker must bring has been reduced from ₹75 lakh to ₹10 lakh, and regulatory fees have been cut. Some stakeholders, he said, have “straight away jumped” to the limits, overlooking these measures.
IRDAI: The numbers behind the proposal
On commission limits, Seth said they are not a new idea. The 2015 amendment moved them from the Act to the regulations. They continue to apply in life insurance, while general insurance limits were removed in 2023.
His assessment was that market conduct did not align with policyholders’ interests either before or after 2023. He said there were “significant workarounds”, and that both total cost and commission rates went up.
He gave these figures:
- Life insurance: The industry’s cost of doing business was 16.5% in FY21. It had historically been above 20%, then came down to the 16–17% range. It is now back up to 22%. The first step proposed, he said, is a return to about 15%.
- General insurance: The cost was above 30% in earlier years, then came down to about 26% and stayed there for three years (FY17 to FY19). Today it is 32%.
“You’re saying, please go back where you were,” Seth said, describing the proposal as a return to efficiency levels the sector had reached seven or eight years ago, before setting a new milestone.
IRDAI: Graded limits for newer insurers raised
The interviewers put to Seth a suggestion they said they had heard from the industry: that expense limits could be graded by the size of a company’s business, as with expense ratios in the mutual fund space. Under such a model, insurers early in their journey, still building their franchise, would get more leeway so that growth is not affected.
Seth agreed that the industry needs more players and more competition. He noted that interest in entering the sector is rising after the recent amendment to insurance law through the Sabka Bima Sabki Raksha Act.
The consultation process is continuing, and Seth said he will keep meeting insurers in the coming days.
