Exclusive: New commission rules will benefit policyholders & insurance firms: IRDAI chief

The payouts, however, cannot exceed the overall expenses of management (EoM) limits specified by the IRDAI. EoM is expressed as a percentage of premiums collected and includes commissions, technology spends, employee costs, administrative expenses and so on.

Explaining the rationale behind what some critics say has been a rollback by the regulator’s earlier stance of specific caps on commission, Panda said that IRDAI has adopted a consultative approach. “ The insurance companies have the flexibility to devise their marketing strategies and decide upon commission payouts, however, insurers are required to operate within the overall limits of expenses of management,” he said.

More people to buy insurance; better for companies

The IRDAI chief believes the reforms will have positive implications for the insurance industry as well as policyholders, promoting insurance penetration and encouraging healthy competition in the industry and will also improve affordability for policyholders.

“This encourages a competitive market, allowing insurers to customise commission structures based on market needs. It would facilitate them to develop new business models, products, strategies, internal processes and enable them to fulfil the mission of ‘Insurance for All’,” he said.

For the insurance industry, the new norms will facilitate flexibility to manage their expenses. “The board-approved policy enhances transparency, accountability and adherence to regulations, enabling a more efficient distribution system and boosting customer confidence and satisfaction,” he said.

Before April 1, insurers handed out rewards to distributors over and above the EoM cap. Now, all the rewards and incentives that the insurance companies paid their distributors will have to be subsumed within commission payouts.