Irdai permits insurers to fix commissions for intermediaries without compromising interest of buyers

Insurance regulator Irdai has removed the individual ceiling of commission to be paid by insurers for the sale of their products.

The board of an insurance company should frame commission policy keeping in mind the interest of the policyholders and agents, the Insurance Regulatory and Development Authority of India (Irdai) said in a gazette notification dated March 26.

Flexibility in commission is also aimed at increasing insurance penetration and bringing cost efficiencies.

The commission fixed by the board of an insurer must be within the allowable expenses of management (EoM) limit.

These Regulations shall be called the Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023, it said.

The total commission payable under life insurance products, including health insurance products, should not exceed the Expense of Management (EOM) limits specified under the above regulations, as per the notification.

"The total amount of commission payable under general insurance products, including health insurance products, offered by general insurers and health insurance products offered by standalone health insurers shall not exceed the EOM limits specified under Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023, as amended from time to time," it said.

These regulations will come into force from April 1, 2023.

It further said that these regulations would be reviewed once in every three years from the date of notification unless the review or repeal or amendment is warranted earlier.

So far, commissions for the product were approved by the insurance regulator, depending on the policy.

About the objective of the amendment, the notification said, this will help enhance the responsiveness of the regulation to market innovation.

It will facilitate the insurers in the development of new business models, products, strategies, internal processes and enable easy compliance with the regulations while fulfilling the regulatory objectives.

Besides, it will provide the insurers with the flexibility to manage their expenses based on their growth aspirations and the ever-changing insurance needs with an objective to improve insurance penetration.

On the Irdai notification, Bajaj Allianz General Insurance MD Tapan Singhel said the revised Expenses of Management (EOM) and Commission limits for the industry are in the right direction.

"We firmly believe that the shift from product-level commissions to a company-wide limit of expenses, as proposed through the proposed regulations, will ensure parity across varying business models while rendering greater flexibility in managing expenses for insurers," he added.

Moreover, he 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 will help in bringing cost discipline and take the industry in the right direction of prudency and profitability.

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

In the EoM, 2023, the regulator has simply stated that insurers carrying on General Insurance Business in India shall incur expenses of management up to 30 per cent of gross premium written in India in a financial year, while insurers carrying on standalone Health Insurance business in India shall incur expenses of management up to 35 per cent of gross premium written in India in a financial year, Indranath Bishnu, Partner, Cyril Amarchand Mangaldas said.

Over and above the aforesaid limits, the Irdai has allowed additional expenses in relation to the set up of foreign branches, set up of branches in the IFSC, expenses in relation to the rural sector, government insurance schemes, Insurtech and Insurance Awareness, Bishnu said.