Irdai Commission Cap Moved: General Insurers Get Operational Flexibility
The regulator’s decision to cap fees in the insurance industry is expected to provide operational flexibility to businesses, particularly general insurers, and promote greater discipline in the life insurance industry, with the aim of link the commission rate of intermediaries to the persistence status of policies sold. .
However, if they come into force, the proposed regulations could have a short-term impact on stand-alone health insurers and medium and small life insurance companies, but large companies are unlikely to see a negative impact, according to the analysts.
The insurance regulator published an exposure draft this week in which it proposed to cap commissions paid by health and general insurers at 20% of the gross written premium (GWP). For life insurance companies, they proposed linking fees to management expenses (EoM), in which if the actual EoM of the previous year does not exceed 70% of the authorized EoM limits, the insurer- Life may adopt commission limits approved by its Board of Directors. But if EoM exceeds 70 percent of the authorized limits, the insurer must respect the commission caps proposed by the regulator.
The regulator proposed a commission cap of 20% on the first year (FYP) and 10% on the renewal premium (RP) against 35-40% and 5-7.5%, respectively.
However, some additional rewards may be paid out, depending on how long the bonus has been paid. “Irdai wants to encourage greater persistence and longer duration products and ensure that commissions are spread out instead of being paid upfront,” Suresh Ganapathy and Param Subramanian said in a Macquarie Research report.
Industry sources have said that the EoM criteria put forward by the regulator will mean that a handful of large companies that have greater control over their EoM will be allowed to pay commissions in accordance with policy approved by their board of directors. ‘administration. The rest will be subject to caps prescribed by the regulator. “The project benefits players operating with a lean cost structure as it allows companies whose EoM is below 70% of the permitted limits to design a customized commission structure in accordance with the board-approved policy. This can lead to a choice product mix and increase margin and new business value,” Motilal Oswal said in a report on Thursday.
Rushabh Gandhi, Deputy Managing Director of IndiaFirst Life Insurance, said, “Linking commissions to EoM will spur insurers to further improve their efficiency. The commission back-end will encourage distributors (agents and intermediaries) to ensure that policies remain in force for a longer period of time, resulting in a win-win situation for all stakeholders, including policyholders .
According to Emkay Research, the changes to EoM and fee payment… are far from a negative surprise for existing private listed players, but the FYP fee cap may require Life Insurance Corporation to make some adjustments.
The regulator has sought input from stakeholders by September 14. If these come into
Indeed, insurance companies should have a board-approved policy on commissions, compensation or rewards paid to agents and intermediaries, which will be reviewed annually based on experience.
The aim is to improve the responsiveness of regulation to market innovation and provide insurers with the flexibility to manage spending according to their growth aspirations to improve market penetration, the regulator said. .