IRDAI Could Enforce Insurance Commission Caps From January 1: Report
IRDAI may enforce new insurance commission limits from January 1, according to a report.
IRDAI Chairman Ajay Seth’s commission cap proposals could reshape insurance distribution across India.
NEW DELHI, IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) may begin enforcing its proposed insurance commission caps as early as January, Bloomberg reported on September 9.
Girija Subramanian, a whole-time member (distribution) at IRDAI, said in an interview that the dates under consideration are Jan. 1 and April 1. A January start, the report noted, would reflect the regulator’s resolve to change the economics of selling insurance in India.
What IRDAI Has Proposed
Last month, IRDAI put forward a plan to limit the commissions that insurers pay to brokers and other distributors. The stated goals are to reduce fees for consumers and persuade more people to buy insurance. The limits would cover most categories of cover, among them health, life, property and casualty.
The regulator also intends to enforce lower management expenses over time. These reductions would be phased in across five years, and the first interim milestone falls in the financial year ending March 2029.
The package includes incentives for distributors to look beyond major cities. Business generated in towns with populations below 1 million could earn an extra 10% of the applicable commission limit. That bonus rises to 20% for areas with fewer than 50,000 people. IRDAI is also proposing lower entry requirements and wants to let distributors take on other financial and non-financial activities.
IRDAI: Why the Regulator Is Acting
IRDAI says commissions have grown faster than premiums since rules were relaxed in 2023. It adds that higher spending on distribution has not been matched by a similar increase in insurance coverage.
The regulator’s data show that expenses at private life insurers now stand at about 22% of total premiums, compared with 16% in fiscal 2021. At private general insurers, the share has moved to roughly 32% from 25% in fiscal 2019. Rewards paid to distributors have in some cases added 30% to 60% to base commissions.
Subramanian said IRDAI believes commission caps call for quicker action than expense cuts. Under a phased approach, she said, distributors could speed up sales ahead of each reduction, which might raise the risk of mis-selling. “There is an earlier-the-better case, but getting the reforms right is more important than getting them early,” she said.
IRDAI: Stock Selloff and Industry Response
The proposals set off a steep decline in shares of companies tied to insurance distribution. PB Fintech Ltd., the parent of the Policybazaar marketplace, fell 36% when the plans were announced. Turtlemint Fintech Solutions Ltd. has since lost half its value.
Analysts say fee income at banks and digital brokers could fall by as much as 90% in high-margin categories. Jefferies Financial Group Inc. said fintech platforms such as PB Fintech and Turtlemint face greater risk, estimating that the proposed 10% reduction in new business commission rates would lower their earnings by 10% to 12%.
The Insurance Brokers Association of India has warned that as many as 1 million jobs could be affected. Brokers have been holding discussions with IRDAI as they push for changes. Subramanian rejected the idea of large-scale job losses, saying the changes should create work by widening the distribution network and making it simpler for new participants to enter the business.
IRDAI: Comment Deadline and What Comes Next
Insurers, brokers and other stakeholders have until Oct. 25 to submit comments on the consultation paper. IRDAI will study the feedback before releasing draft regulations, Subramanian said. Those drafts will go out for a further round of public comment before the final framework is issued.
Similar steps have been taken elsewhere in Asia. In 2023, China’s regulator required insurer-paid commissions to match the rates filed with it, which effectively capped them. Average bancassurance commissions fell by about 30% afterwards, and banks and insurers had to renegotiate their distribution agreements.
