The government last Sunday has notified the new regulations, as approved by insurance regulator IRDAI , on the removal of cap on payment of commission to the intermediaries
Oveall limit of Expense of Management(EoM) for the insurers will be fixed by insurance regulator IRDAI shortly
All insurers, within 45 days of the expiration of each financial year, has to submit to the IRDAI the board approved returns on payment of commission
Hyderabad:
From Apr 1, the insurers are free to set their own limit on commission to be paid to various intermediaries like agents, brokers, banks and web aggregators, subject to the oveall limit of Expense of Management(EoM) which will fixed by insurance regulator IRDAI shortly.
The government on last Sunday has notified the new regulations, as approved by insurance regulator IRDAI, on the payment of commission to various intermediaries.
Earlier, IRDAI had come out with a revised exposure draft on the EoM for the non-life insurance companies and had proposed a revised 30 per cent and 35 per cent caps on EoM in case of general insurers and standalone health insurers, respectively, after taking into consideration the insurance industry’s views.
According to IRDAI’s proposals, life insurers can charge up 100% of the annual premium in the first year on term policies with premium payment term of over 10 years. The expense on renewal premiums can go up to 25%.
For traditional policies like whole life, money back and endowment policies, insurers can charge expenses of up to 80% in first year and 17.5% during renewals.
For single premium policies and annuity products, life insurers can charge up to 5% of the total premium with additional expenses based on a few criteria like allowance for head office expenses and insurtech and insurance awareness.
Currently, the entire commission structures are being decided by the IRDAI and any commission paid to above that limit are considered as violations of regulations.
The new regulations on payment of commission will benefit the private sector insurers, banks acting as agents, web aggregators and and Original Equipment Manufacturers(OEM) as insurers can use their discretion to pay higher commission to productive distribution partners, said analysts.
However, the new regulations will not be favourable to the PSU general insurers as they are burdened with a high wage bill which will almost be exhausting the EoM and may not have much room to spend more on distribution.
All insurers, within 45 days of the expiration of each financial year, has to submit to the IRDAI the board approved returns on payment of commission, said the new regulations.
These returns have to be reviewed by the audit committee prior to being placed for approval of the board of the insurer.
“The total amount of commission payable under non life products, life insurance products including health insurance products offered by life and general insurers can’t exceed the EOM limits,” said the government notification.
The new regulations will be called the “Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023” and will come into force from 1st April, 2023.
The objectives of the new norms are to enhance responsiveness of the regulation to market innovation.
It will also facilitate the insurers in development of new business models, products, strategies, internal processes and enable in easy compliance with the regulations while fulfilling the regulatory objectives.
The new rule will also provide the insurers the flexibility to manage their expenses based on their growth aspirations and the ever-changing insurance needs with an objective to improve insurance penetration.