IRDAI commission caps: Insurance brokers write to PM, FM — say proposed rules may not benefit policyholders

IRDAI has proposed changes to insurance commission structures, including caps for banks, brokers and agents across products. Insurance brokers have opposed the proposals, raising concerns over their impact on distributors, jobs and the wider insurance sector.

Indian insurance brokers are opposing proposed reforms by the Insurance Regulatory and Development Authority of India (IRDAI) that could cap commissions paid to banks, brokers and agents, Reuters reported on Tuesday, citing letters sent by the Insurance Brokers Association of India (IBAI) to the finance minister and prime minister.

IRDAI proposed the changes in its “Recalibrating Economics of Insurance Distribution” discussion paper released on 23 September and invited stakeholders to submit feedback by 25 October. The proposed framework seeks to link commissions to the complexity of insurance products and the effort required to sell them.

What has IRDAI proposed on insurance commissions?

Under the proposed rules, commission levels would be linked to the nature and complexity of insurance products and the work required to distribute them. Mandatory insurance covers, such as third-party motor insurance, could attract little or no commission.

The broader objective is to reduce insurance distribution costs and, ultimately, make policies more affordable for policyholders, Reuters reported.

It proposes lower commissions for products sold through “open architecture” channels, including brokers and banks, which are major distribution channels for health, motor and life insurance.

For banks and lenders selling insurance alongside loans, commissions could be capped at 2% to 5%, depending on the product, while bundling insurance compulsorily with credit would be prohibited.