IRDAI Removes Individual Caps For Allowable Commission To Be Paid By Insurers
The commission to be paid must be decided by the board of the insurer and must conform to the expenses of management limit.
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India's insurance regulator has approved new rules that say both life and non-life insurers, such as general and standalone health insurers, must pay commissions to intermediaries.
The regulation, dated March 26, stated that the commission must be decided by the board of the insurer and must be within the allowable expenses of management limit.
This means that the insurers are no longer bound by the insurance regulator's mandated limits on allowable commissions, which could be paid for promoting products in different lines of business.
While clarity and regulations around the total allowable expenses of management, which include both commission and operating costs for the insurer, are awaited, the commission regulation would now enable insurers to decide their allocation towards commission to be paid for the distribution of products and their operating costs on an entity level.
Also, the removal of individual limits with regards to the allowable commission towards a particular line of business, as is the case currently, would enable companies to choose the line of business where they wish to allocate more of their commission budget vis-à-vis the others.
For instance, the current regulations allow commissions of up to 2.5% to be paid to intermediaries or agents selling motor standalone third-party insurance, up to 15% for health individual insurance, and up to 7.5% on single premium life insurance policies for individual pure risk products.
With the removal of such individual limits, the board of an insurance company, both life and non-life, can decide an overall commission budget and allocate and pay as much as it wants to promote individual business lines of preference.
The Insurance Regulatory and Development Authority of India stated that the objective of the notification was to enhance the responsiveness of the regulation to market innovation, facilitate the insurers in the development of new business models and internal strategies, and provide flexibility to manage their expenses based on their growth aspirations.
The regulations shall come into force on April 1, 2023, and will be reviewed once every three years, unless warranted otherwise.