Insurance News Details

Insurers get more autonomy to decide on commission amount

(29-Mar-23   12:10)

The central government has cleared the insurance regulator's new rules for paying commissions to intermediaries, paving the way for insurance companies to have more autonomy to decide the level of commissions they want to shell out.

On April 1, segmental limits on commissions will be removed and fees paid to intermediaries such as individual agents, corporate agents will be based on the expense of management (EoM) limit.

The limit has been specified under the Insurance Regulatory and Development Authority of India (IRDAI) (Expenses of Management of Insurers transacting Life insurance business) Regulations, 2023 as amended from time to time.

As per Central Government Gazette notification, the total amount of commission payable under life insurance products including health insurance products offered by life insurers should not exceed the EoM limits. Similarly, the total amount of commission payable under general insurance products, including health insurance products offered by general insurers and health insurance products by standalone health insurers, should not exceed the limits.

Once the new norms come into effect, the earlier guidelines will be revoked by the insurance regulator. Through these new regulations, the regulator essentially wants every insurer to have a written policy for payment of commission, which would be duly approved by the insurer's board and reviewed periodically.

In a separate gazette notification, the central government ratified the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023.

Accordingly, insurers carrying on general insurance business can incur EoM, which is equivalent to 30 per cent of the gross written premium (GWP) in a financial year. For standalone health insurers, the limit has been set at 35 per cent of GWP. This is in line with the draft circular the regulator had floated a few months back.

“We firmly believe that the shift from product-level commissions to a company-wide limit of expenses will ensure parity across varying business models while rendering greater flexibility in managing expenses for insurers,” said Tapan Singhel, managing director (MD) and chief executive officer (CEO) of Bajaj Allianz General Insurance.

Moreover, Singhel 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 would help in cost discipline.

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

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