Private sector general insurers are beginning to pass on their unclaimed input tax credit (ITC) burden to distributors by trimming commissions and incentives across select product lines, in what industry sources describe as a cost-balancing move to cushion profitability pressures.
This marks a notable departure from the approach of public-sector insurers -- across both life, health and general -- which are largely choosing to absorb the losses instead, according to multiple people familiar with the matter.
The move follows the recent government clarification that insurers cannot claim ITC on certain expenses related to exempt supplies such as individual life insurance and health insurance premiums starting September 22, likely triggering concerns across the insurance industry over rising cost pressures.
While life insurers have publicly disclosed the similar approach of passing on the burden to the distributors, general insurers have stayed relatively quiet, “partly because the hit varies widely depending on each company’s product mix and commission structure,” sources said.
“In general insurance, passing on the ITC burden doesn’t mean raising product prices, which are often regulated or market-sensitive, but rather reducing the payouts to intermediaries,” explained a senior insurance broker, requesting anonymity.
“This could mean slightly lower commissions or fewer incentive-linked rewards for agents, brokers, and web aggregators, especially on products where GST is applicable, like health and motor insurance.”
The GST still applies to most general insurance products such as motor, fire, crop and property coverage. Industry practitioners are of the view that this uneven tax treatment may have complicated how insurers structure commissions across portfolios, forcing them to revisit compensation models to maintain margins.
“Private players are more flexible in adjusting distributor payouts since their commission structures are commercially negotiated. But the public-sector companies tend to maintain uniform terms, making it harder for them to make such adjustments,” said an industry practitioner.
The extent of these reductions varies from one insurer to another.
Executives say some companies have introduced subtle changes, trimming incentive-linked bonuses rather than headline commission rates, to avoid alienating high-performing distributors. “For large corporate brokers or web aggregators, where margins are already tight, even a small cut in payouts can have a noticeable impact,” one distributor said.
Insurers are also wary of competitive repercussions. “In a market where customer acquisition is heavily reliant on intermediaries, cutting commissions too sharply risks losing market share,” said a senior executive at a private general insurer. “So, companies are trying to balance between protecting profitability and keeping distributors motivated.”
Moneycontrol had earlier reported that agents’ association had approached IRDAI and the centre to seek help on these commissions. However, there is little clarity on how much that has progressed.
Industry practitioners believe these adjustments could continue into the next few quarters as insurers reassess the long-term implications of the ITC clarification.
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