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

IRDAI chief Debasish Panda said that insurance companies would be answerable to their boards when fixing commissions that they pay to their agents, which will ensure fair play.

The new norms on expenses of management (EoM) and commission payouts, effective this financial year, will work in favour of policyholders, Insurance Regulatory and Development Authority of India (IRDAI) Chairman Debasish Panda said.

in an exclusive interview with Moneycontrol, Panda said that insurance companies would be answerable to their boards when fixing commissions that they pay to their agents. This accountability would ensure fair play, the IRDAI chief added. “The revamped regulatory framework aims to promote healthy competition enabling market forces to operate, rationalising the cost of insurance and ultimately benefitting the policyholders," said Panda.

No specific commission caps, but payouts linked to overall EoM limits

Since April 1, 2023, life and general insurance companies do not have to adhere to any specific ceiling on commissions paid to agents, distributor banks and other intermediaries.

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.