IRDAI To Issue Norms To Bring Down Distributors’ Commissions

Mumbai: In a bid to make insurance affordable, the insurance regulator is likely to come with regulations to bring down the high commission payouts made to agents and other distributors. High commissions paid by insurers to their distributors is ultimately borne by policyholders making health, motor and life insurance costlier for them.

Speaking to a news channel, M Nagaraju, Secretary, Department of Financial Services, said that the Insurance Regulatory and Development Authority of India (IRDAI) is set to come out with draft regulations on regulating insurance commissions. He said government is keen to empower IRDAI with greater authority over distribution expenses, including commissions paid by insurers. The objective is to ensure that commissions remain within reasonable limits and do not end up hurting policyholders.

“There have been complaints that some insurance companies are paying very high commissions. As a result, premiums go up or the Incurred Claim Ratio becomes low,” said Nagaraju.

The Parliament recently passed the Insurance Amendment Bill which empowers the IRDAI to set limits on commission, remuneration, and rewards paid to insurance agents. According to Nagaraju, reforms under the Insurance Act are expected to lead to tighter control over how much commission is paid and the manner in which these payments are made.

In the past finance minister Nirmala Sitharaman too had raised concerns over high commissions paid to insurance distributors. While insurers are quick to blame medical inflation every time they raise health insurance premium rates, the bigger culprit is the commission paid to agents. Non-life insurance, pure health insurers and even life insurers are paying commissions ranging from 15 per cent to as high as 45 per cent of your first-year premium to their distributors. According to experts, medical inflation is rising 10-12 per cent per annum. Similarly, motor insurance service providers are paid huge commissions on new private auto contracts ranging from 25-57 per cent. In contrast, the overall mutual fund distributor commission in India typically ranges between 0.05 per cent to 2 per cent of the scheme’s AUM (Assets Under Management), depending on the product. However, the exact commission depends on factors such as AUM (Assets Under Management) of the mutual fund scheme, TER (Total Expense Ratio), which impacts distributor earnings and slab or market share held by the mutual fund distributor in that scheme, as per SEBI’s trail commission model.